U.S. Markets open in 1 hr 54 mins

Edited Transcript of AIRI earnings conference call or presentation 23-Apr-18 8:00pm GMT

Full Year 2017 Air Industries Group Earnings Call

BAY SHORE Apr 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Air Industries Group earnings conference call or presentation Monday, April 23, 2018 at 8:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Luciano M. Melluzzo

Air Industries Group - President

* Michael E. Recca

Air Industries Group - CFO & Principal Accounting Officer

================================================================================

Conference Call Participants

================================================================================

* Bradley D. Noss

Roth Capital Partners, LLC, Research Division - Research Associate

* John Nobile

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, everyone, and welcome to the Air Industries conference call.

Today's call is being recorded. 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 Forms 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 expenses and nonrecurring expenses and outlays.

Prior to consideration of the impact of 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.

And now at this time, I would like to turn the conference over to Lou Melluzzo. Please go ahead.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, April. Good afternoon all, and thank you for joining us as we summarize the Air Industries' 2017 results and discuss our outlook for fiscal 2018.

2017 was a transitional year for the company with, first, Peter Rettaliata stepping back into the role of CEO; and Mike joining the company as President in late third quarter and ultimately taking the role of the CEO in the fourth quarter.

Therefore, for today's agenda, I will reflect on the evolution of our strategic plan and I will share recent outcomes from that plan that has helped us to reposition the business.

I will turn the call over to Mike Recca, our CFO, for a financial overview, and then I'll wrap up with a discussion of our ongoing initiatives. And to let you know, Mike Taglich, our Chairman of the Board, is also on this call.

As you might recall from the third quarter conference call, my experience and passion is rooted in manufacturing companies with challenges. I worked for EDAC Technologies, which by the way, had a very similar story as that of Air Industries'. Putting in the hours and working side-by-side with my team, EDAC Technologies got very healthy and profitable. I have done this in the past, and I'm looking forward to doing this again.

In 2017, we began to focus on increasing the velocity of production at all our business units with the goal of returning the company to profitability, reducing past backlogs and decreasing inventories.

Simultaneously, the company began a cost-reduction program. In conjunction with the winding down of the era of sequestration, the company began to see a rise in both revenue and backlog. However, as part of examining the company's ability to return to profitability, we recognized by the beginning of the fourth quarter that in an effort to drive revenue, we were not optimally aligned with our customers' needs. Ultimately, in my evaluation of the business, I concluded that we needed to realign production schedules to better serve our customers.

I'll give you an example of this. We took on -- in late 2015 and early '16, we took on 5 F-35 parts for one of our largest customers that a competitor of ours was not delivering on for whatever reason. With great effort and persistence, we have shipped 4 of those 5 parts, and the last one is due to ship in the next 3 weeks. This required a vast reschedule of the shop floor in the late fourth quarter. In addition -- and this realignment of production schedule resulted in a onetime hit to revenue in the fourth quarter.

In addition, in the fourth quarter, we took the strategic position to refocus the management and the resources of Air Industries on its Complex Machining products for aircraft landing gear and jet engine turbine applications. This culminated in the announced sale of WMI on March 21, 2018, for approximately $9 million in cash. We anticipate closing this transaction by the end of May. To provide further details behind the financial numbers, I'd like to turn the call over to Mike Recca. Then I'll return to close the call with a discussion of our near-term outlook. Mike?

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [3]

--------------------------------------------------------------------------------

I'm here, thank you, Lou. All right. So for 2017, our revenue, our sales number was $49.9 million. This was a 2.8% reduction from 2016. However, in 2016 -- in 2017, early in the year in January, we sold our AMK subsidiary. And if you exclude that from 2016 and from 2017, we posted a 5.6% increase in revenue for the year, which is really indicative of the company beginning to recover.

Our gross profit for 2017 was $4.9 million. This was disappointing in one sense that it was 10% of sales, but it did also represent a $600,000 increase over the prior year.

Our interest expense in 2017 was $3.4 million, and that was an increase of $900,000 from $2.5 million in 2016. However, a lot of the interest expense that we incurred was noncash, and it was noncash because we had some transactions where we raised money, where we sold debt together with some associated warrants and for accounting purposes, we had to allocate the debt between -- I'm sorry, the expense between debt and the value of the warrant. But over time, we are -- what's called accreting that difference as interest over the period of time.

In addition, a large part of that debt is paid in kind and not in cash, which leads me to noncash charges, which in 2017 were significant, $9.8 million and that's an increase of $4.8 million in the prior year. And that represents our determination that our goodwill both at Welding Metallurgy, which we're selling and Sterling Engineering was impaired, so we wrote it off. And also it also includes some noncash charges from our discontinued operations.

So long and short of it is, our net operating loss for 2017 was $15.8 million. If we ignore goodwill and discontinued operations, it would improve by 9.7% from $14.9 million in the prior year. Basically, a benefit of close to 35% improvement over the prior year.

Our EBITDA loss for the year was $2.9 million, and this compares with adjusted EBITDA loss, by the way. $2.9 million for 2017 versus $5.5 million for the prior year, so we have still operating at an EBITDA loss. But we have cut that loss by 50 -- close to 50% for the year.

In terms of our liquidity, our total obligations from money borrowed has been reduced year-over-year 2017 versus 2016 by $10 million. In the press release we just made, we provided a reconciliation of adjusted EBITDA, I direct your attention there. With that Lou, I'll hand it back to you.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Mike. I will close out the call with a few thoughts on the coming quarter and a summary of our near-term, go-to-market initiatives. As previously mentioned in the fourth quarter of 2017, we recognized a need to more appropriately align our revenue to reflect our customers' needs as such revenue was negatively impacted for the fourth quarter.

However, we are confident that are now positioned to meet existing company backlogs as well as take on additional commitments as demonstrated by our anticipated first quarter 2018 revenue from continuing operations of $12,269,000.

We continue to focus on implementing operating efficiencies, pulling approximately $1 million of expense per quarter. Our backlog from continuing operations is now over $100 million. One of the reasons I chose to take this job was my proven ability to drive revenue and execute on backlog. Our goal for fiscal 2018 revenue is to exceed fiscal 2017, continuing operation revenues of $49.5 million, that excludes the AMK unit that was sold at the end of January of 2017.

The company continues to take step to improve its liquidity and operations as reflected in a slightly positive EBITDA for the first quarter of 2018. It is our goal to achieve continuous quarterly growth in EBITDA. We're working harder than we ever have to improve gross margins and operating profits. It is my goal to keep working hard and get the financial results that will reflect this.

With that, this concludes our formal remarks this afternoon. And now we will open up the call to answer our participants' questions. April, would you please open up the lines for questions and answers?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We'll take our first caller.

--------------------------------------------------------------------------------

Bradley D. Noss, Roth Capital Partners, LLC, Research Division - Research Associate [2]

--------------------------------------------------------------------------------

This is Brad Noss on for Matt Koranda here. Just wanted to -- I guess, taking a look at the residual A&E businesses, following the divestiture of WMI, how do you feel strategically about maintaining or potentially selling those businesses? And do you feel that there's enough revenue base to scale from those lower revenues or I guess essentially get profitability? And can you just provide some color around that?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Right. I'm sorry but there were some background noises. Can you repeat a portion of that question?

--------------------------------------------------------------------------------

Bradley D. Noss, Roth Capital Partners, LLC, Research Division - Research Associate [4]

--------------------------------------------------------------------------------

Yes. Sorry, seems like there's some feedback. But yes, so just regarding the A&E segment following the divestiture of WMI, how do you feel about the revenue base that's left over? And your ability to scale that to profitability? Or are you thinking more along the lines of also selling those businesses down the line as well?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

No, no. With the divestiture of WMI, we're getting a cash infusion to actually help the growth of both the opportunities that we have at AIM. We are -- with the consolidation of the 2 businesses, and the go-ahead plan right now, those businesses will scale up accordingly in the future. There's no plan to selling those businesses at this time.

--------------------------------------------------------------------------------

Bradley D. Noss, Roth Capital Partners, LLC, Research Division - Research Associate [6]

--------------------------------------------------------------------------------

Okay, that's helpful. And then...

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [7]

--------------------------------------------------------------------------------

Nor are there any plans to sell Sterling or any other transactions, any other of our units at this point.

--------------------------------------------------------------------------------

Bradley D. Noss, Roth Capital Partners, LLC, Research Division - Research Associate [8]

--------------------------------------------------------------------------------

Okay, got it. And then just given some of the recent engine blade concerns regarding the Southwest Airlines incident, do you anticipate any increased regulatory scrutiny or costs that may come into play for Turbine Engine Components going forward?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

You know, that was an unfortunate accident. Some of the -- we don't really make the parts that cause those type of -- that was a blade and a blade malfunction. We don't really make blade and vane work. We do cases and we do that kind of stuff. There might be regulatory compliances that will be set forth. But it should not affect the product line that we currently do at Sterling Engineering.

--------------------------------------------------------------------------------

Bradley D. Noss, Roth Capital Partners, LLC, Research Division - Research Associate [10]

--------------------------------------------------------------------------------

Okay, thanks for the clarity there. And then just regarding the 2018 EBITDA guidance commentary, you referenced obviously breakeven in Q1 and then quarterly EBITDA in the range of $2.5 million to $3 million per quarter. So I just want to double check that, that would indicate sort of an $8.25 million, I guess, that's the midpoint of adjusted EBITDA for the full year? And then do you expect that EBITDA to be relatively evenly distributed for Q2 through Q4? Or would we think more of a ramp going towards the end of the year?

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [11]

--------------------------------------------------------------------------------

There's no straight line in here, here in the end goal. We are working very diligently and hard to do incremental improvements to each and every quarter going forward.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [12]

--------------------------------------------------------------------------------

Can I comment there? There are no straight-line improvements, they only exist in the fantasy world of projections. But we believe we're positive, breakeven to positive in Q1, now we will improve quarter-by-quarter, and we're hopeful, by the end of the year, we'll be at an $8 million run rate -- $8 million to $9 million run rate. Not that we're going to earn $8.3 million in EBITDA for 2017 in total.

--------------------------------------------------------------------------------

Bradley D. Noss, Roth Capital Partners, LLC, Research Division - Research Associate [13]

--------------------------------------------------------------------------------

Okay, got it. That's helpful. And then just maybe one more for me here. Just regarding your outlook for capital expenditures in 2018. I think you spent around $1.5 million here in 2017. But with the divestiture of WMI, I guess, should we expect a lowered run rate in 2018 and beyond? Or how should we think about the future capital intensity of the business?

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [14]

--------------------------------------------------------------------------------

The business -- I've had a lot of idle equipment sitting around. So before we get back into a capital expenditure mode, I have to really make sure that there is nothing sitting idle. So for 2018 and beyond, if we ramp up into capital expenditures, it's not going to be anywhere near the numbers of the past, at least for a while to come.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [15]

--------------------------------------------------------------------------------

Yes. Let me focus on that for a second. The capital expenditures in 2017 were largely related to the ramping up of a particular program for Pratt & Whitney Geared Turbofan. We believe we're properly equipped to manage that demand now. And absent winning a giant new program which we'd love, that requires capital expenditure, we don't really see any significant investment in 2018.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

(Operator Instructions) Next caller, please go ahead.

--------------------------------------------------------------------------------

John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [17]

--------------------------------------------------------------------------------

Lou and Mike, this is John Nobile with Taglich Brothers. Just a few questions. First one in regard to your finances. I believe that a lack of finances had hampered sales growth in the past. Could you give us a sense of what to expect going forward in regard to your finances? And how does this play into securing the inventory necessary to satisfy the $106 million backlog?

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [18]

--------------------------------------------------------------------------------

I can certainly start that conversation, John. A lot of our raw material at AIM Industries, and now with the consolidation is customer consigned. So that helps out tremendously in cash flow, and you don't have to put out the money right up front. Some of the programs that we have over at the old Nassau Tool Work, a lot of government-type jobs, there are materials that we have to spend money on. And in part, the divestiture of WMI goes a long way to making that happen. And securing the future for that business as well. So it's the combination of the two, John.

--------------------------------------------------------------------------------

John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [19]

--------------------------------------------------------------------------------

Okay. So you're saying the customers do supply the inventory for these jobs?

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [20]

--------------------------------------------------------------------------------

The raw material, the forgings. Not across the board but on quite a few programs.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [21]

--------------------------------------------------------------------------------

John, can I jump in for a second?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [23]

--------------------------------------------------------------------------------

You noticed -- this is Mike Recca. You noticed, our inventory, and you knew better than anybody. Our inventory has increased from like $28 million, $30 million to $40 million. That was some speculative buys by former management. So what we're doing now is we're feverishly trying to find a buyer for that excess material to generate some cash and get us back to where we want. But we're kind of constrained because we have too much of inventory we don't need, and not enough for what we do, one of the accomplishments that Lou and other members of management have earned in this quarter, have been to have suppliers supply some inventory to us, which has ameliorated that. But hopefully we have a very focused effort now to rid ourselves of this excess inventory that we've been carrying for some years now.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Could you quantify how much excess inventory you're looking to sell? And how are those prospects looking?

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [25]

--------------------------------------------------------------------------------

Can I give you a -- it will be a very round number but it's like $5 million to $7 million. And the prospects, it's very difficult to guess about when someone's going to want something and when you're going to have a sale. So the difference is now, we do have a concerted effort to find a buyer as opposed to, I'll call it, a less than concerted, haphazard effort.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

All right. And then actually, Lou, you alluded a little bit to what I'm about to ask you but I was hoping to get a little more detail. In the fourth quarter of 2017, you said you made changes to allowing your production schedules to meet the needs of your customers. And it was pretty vague, I was just hoping you might be able to provide a few details of exactly what that entailed?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

John, I gave you an example. We got some orders in late 2015 and late 2016 on 5 -- we'll call them transitional parts, they were brought into our company from another company that wasn't delivering. And honestly, they sat around for a while. And they were due at the end of last year. And we were not ready with them. So we really scrambled and set up new schedules, new timelines. We ended up shipping one part prior to the close of the year last year. And the other 3 parts have shipped in the first quarter of this year. And the last part is due to ship in 3 weeks. So we condensed basically a year's worth of work in the last 6 months. So that's...

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So you basically looked at what has not gone -- well, you have a big backlog. And you kind of not retooled but looked at the business model and said "Okay, what are we doing wrong? What are we doing wrong where we cannot get the product out?" And you feel at this point that taking the hit in the fourth quarter, you kind of realigned everything where now if a customer needs so and so product by so and so date, you feel that delivery of that would be more consistent maybe going back to where you were many years ago, am I looking at this correctly?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, that is 100% correct. It's more automated. I mean honestly, we have to ship what our customers want, not what we want to ship. And that's kind of the difference.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. And just one other question in regard to the sale of WMI. I'm just curious how you believe this is going to impact the margins in the Aerostructures & Electronics segment?

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [31]

--------------------------------------------------------------------------------

Well, the only thing remaining in the Aerostructures & Electronics, and we're going to have to probably rethink our sector allocations if you will. It will be Eur-Pac, which is a very small business, which has had a very difficult time from a difficult contract it performed on in 2016 and 2017. And it is in the rebuilding phase. But overall, margins are -- our margins are depressed. And they're depressed because we have low volumes in large factories. So as volumes increase and we're better able to absorb our factory overhead, we expect margins at all facilities will increase dramatically.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And if I could back up to Sterling because I know when you acquired that, I think margins were good and they trickled down into a negative gross margin. So I just wanted to get an indication of how Sterling is looking at the moment. Does it look like there's some hope for that as far as well returning to positive gross margins and increasing sales on that area?

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [33]

--------------------------------------------------------------------------------

My comment about revenue and margins being related is much more true at Sterling than anywhere else. And that is because almost all of Sterling's sales utilize customer material. So if you look at Air Machining and the prior number, which is not totally accurate. If their sales are 50% material and 50% labor, at Sterling, they're more like 90% labor and 10% material. So a small increase in sales has a dramatic increase in -- a positive increase in margins and vice versa.

When Sterling, back in 2015, if my memory is correct, Sterling was doing $800,000 to $900,000 per month or $9 million, $10 million a year. It was operating at margins of 25%. Now it's doing $6.5 million, $7 million a year, and margins are negative. So just that small -- a big number, but still a relatively small percentage increase can have a tremendous increase in margins as the Sterling case.

--------------------------------------------------------------------------------

John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [34]

--------------------------------------------------------------------------------

I know that's what hurt the overall margins was Sterling in that category. But how is the outlook for Sterling as we speak?

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [35]

--------------------------------------------------------------------------------

We size the business. Sorry Mike, give me a sec. We size the business for the volume that we have up there. We've ramped up business development and we're bringing new customers to the table. There's a higher quoting activity with customers that they've -- from places that they've never quoted before. It's going to be a matter of time, John. But we've taken all the right steps to secure that future for Sterling.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [36]

--------------------------------------------------------------------------------

And John -- Lou, you also might want to mention, we made a general manager -- you made a general manager change up there.

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [37]

--------------------------------------------------------------------------------

Yes, yes. I actually made 2 general managers in late in the year, early part of this year. We made a general management change up at Sterling. And I now have John Lavery back, who is the original owner and he's there to help us out until such time that he doesn't want to do it anymore. And we made a change here at AIM for general management. And I got to say that both of the changes that we have made are showing very positive effects.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

Next caller, please go ahead.

--------------------------------------------------------------------------------

Unidentified Analyst [39]

--------------------------------------------------------------------------------

On a previous conference call, you mentioned you're closing one of your facilities before October of this year. How is that going?

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [40]

--------------------------------------------------------------------------------

Yes. We are consolidating Nassau Tool Works into our Bay Shore facility of Air Machining. We're about 70% done with that consolidation. All the heavy equipment with the exception of 1 or 2 pieces of equipment that are left that were still waiting for our (inaudible) to have that equipment moved have moved. And then it's just the peripheral stuff, supported stuff. But although we had a pretty trying winter this year, the guys still managed to move equipment between the snowflakes. And coming out pretty good, it's ahead of schedule actually, I would say.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [41]

--------------------------------------------------------------------------------

When we bought Nassau Tool Works, and I'm kind of the company historian here. We bought Nassau Tool Works in 2012 with a 5-year lease on the facility, about 0.5-year lease. The plan all along was to exit the Nassau facility and to integrate Air Machining with our base business with Nassau Tool Works, into one facility, under one roof, under one general manager. That was underway until we hired Dan Godin in the fall of 2014, who embarked on a different business plan and set Nassau Tool Works and Air Machining up as separate companies, essentially in competition with each other. But now we are reverting back to our old plan of consolidating the companies into one. We are not closing a facility, we are exiting a lease. We'll recognize some significant cost benefits from doing so. But again, with the closing of facility, it has a ring of giving up and walking away. I just want to be clear, that's not the case. That's not the case here.

--------------------------------------------------------------------------------

Unidentified Analyst [42]

--------------------------------------------------------------------------------

Okay. One more question. Last year, Sikorsky announced, I guess, back in June or July of last year, they had a big contract for the Blackhawk helicopters. Do you think you guys will see anything this year, orders from that or maybe next year?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

You know there is a lot of stuff in the works. We really can't talk about the specifics because they haven't materialized yet. But there's definitely a lot of stuff in the works.

--------------------------------------------------------------------------------

Unidentified Analyst [44]

--------------------------------------------------------------------------------

Okay. And with regards to the readiness of the military aircraft. As we know the budgets have been passed. The government is, I guess, funding or will be funding increased military spending. Are you seeing anything with regards to readiness, improvement? Or more orders because they're trying to get more planes ready for use?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, we're seeing highlighted quoting activity for sure.

--------------------------------------------------------------------------------

Unidentified Analyst [46]

--------------------------------------------------------------------------------

Okay. And what does it take to get from quotes to actual closing contracts? Or is it just you're bidding against other competition? Or just -- what does it take to close the deals?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

The government -- with the government products, it's much more involved on that. And there's a longer lead time because even if you are the incumbent, you still got to go through TINA compliance to make sure that the truth in negotiations is all above ground. So there is a time frame for all that stuff to happen. It just doesn't materialize like a spot buy normally would. But we're definitely on top of that.

--------------------------------------------------------------------------------

Unidentified Analyst [48]

--------------------------------------------------------------------------------

Okay, and your book-to-bill ratio, was that positive in the fourth quarter?

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [49]

--------------------------------------------------------------------------------

Yes, it was.

--------------------------------------------------------------------------------

Unidentified Analyst [50]

--------------------------------------------------------------------------------

Or above one? It was. Okay. So did we add another $4 million in backlog or?

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [51]

--------------------------------------------------------------------------------

I would be happy to get back to you with specifics on that. I don't have them at my fingertips. If you want to -- either call us or drop us an e-mail, we'll be happy to respond.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

Next question, please go ahead.

--------------------------------------------------------------------------------

Unidentified Analyst [53]

--------------------------------------------------------------------------------

This is (inaudible). I think the previous gentleman may have asked the question. But I'll just be a little more specific. You had a press release, your recent press release where you -- or it might have been the SEC filing. The $47 million contract that you noted from Sikorsky. I was wondering what percent of that is in your $106 million backlog.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [54]

--------------------------------------------------------------------------------

The 27 -- if you don't mind, Lou, I'll handle it. The $27 million...

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [55]

--------------------------------------------------------------------------------

Before my time, Mike.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [56]

--------------------------------------------------------------------------------

Is the new -- Sikorsky issues contracts, what I call multi years. So it's like a new multiyear contract. And that provides for $40 million or $50 million worth of orders over the next 5 years. Now typically what happens, what we count in backlogs, and we're a little peculiar in the way we do this, we count in backlog only orders that are fully funded and have a definite delivery date. Not what we might expect to have happen over the next 5 years. So that's -- most people call that funded backlog.

In our $106 million, I could not tell you at this point in time, how much of that Sikorsky contract involves in that. But I'd be happy to do that if you contact us directly and give you a number. But that is what we -- we expect to deliver actually more than what the stated contract demands over the next 5 years. But what's in the $106 million of backlog at March 31, I don't know the answer. But it is only that kind of -- basically that $106 million, Sikorsky and otherwise, something has to happen for that to go away. It doesn't have to happen to -- something doesn't have to happen for it to materialize. Those are firm orders to deliver product worth $106 million over the next 18 months. This is not the sum of long-term agreements, which are a multiple of that.

--------------------------------------------------------------------------------

Unidentified Analyst [57]

--------------------------------------------------------------------------------

Yes, right. I think, have you -- I remember the ticker symbol of CVU. Well, the company that you sold, WMI, they have a nice little presentation.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [58]

--------------------------------------------------------------------------------

We have.

--------------------------------------------------------------------------------

Unidentified Analyst [59]

--------------------------------------------------------------------------------

Yes, they have a nice little presentation. Like their funded backlog, I think it's at $70 million, and their unfunded is like $300 million or something.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [60]

--------------------------------------------------------------------------------

And to compare us to that, the $106 million that we're discussing over the next 6 months -- 18 months, forgive me, is funded, ordered. People are expecting it. They're expecting it in May, June, July, August, the next 18 months. Beyond that, we have agreements to deliver a multiple of that. So you should compare our -- their funded backlog to our $106 million.

--------------------------------------------------------------------------------

Unidentified Analyst [61]

--------------------------------------------------------------------------------

Okay. That's kind of what I have been doing. Yes, I see you guys have been pretty conservative with the backlog that you've stated. Actually very conservative.

--------------------------------------------------------------------------------

Michael E. Recca, Air Industries Group - CFO & Principal Accounting Officer [62]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

And it appears there are no further questions at this time. I'll turn the call back over to Lou for any additional or closing comments.

--------------------------------------------------------------------------------

Luciano M. Melluzzo, Air Industries Group - President [64]

--------------------------------------------------------------------------------

Thank you, April. So with that, once again, I'd like to thank everyone for taking the time to participate on our call today. I'll turn it back over -- April, I think we're all set.

--------------------------------------------------------------------------------

Operator [65]

--------------------------------------------------------------------------------

That does conclude today's conference. Thank you all for your participation. You may now disconnect.