CPI Aerostructures, Inc. (CVU) Q1 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the CPI Aerostructures Inc. First Quarter 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edward Fred, Chief Executive Officer for CPI Aerostructures. Thank you. Mr. Fred, you may begin.

Thank you, Claudia. Good morning and thank you, all, for joining us for our First Quarter 2012 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 email a copy to you. Also, if you would like to listen to this call again, you can hear a replay on our website's Investor Relations section in about an hour at www.cpiaero.com. Before we get started, I want to remind investors that this conference call will contain forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. Included in these risks are the government's ability to terminate their contracts with us at any time; the government's ability to reduce or modify its contracts if its requirements or budgetary constraints change; the government's right to suspend or bar us from doing business with them; as well as competition in the bidding process for 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 contracts to them due to budgetary constraints. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Additional information concerning these and other risks can be found in our filings with the SEC. As has been the case in previous first quarter conference calls, I will provide our new listeners with a brief overview of CPI Aero and our activities. Based on Long Island, CPI Aero is a world-class manufacturer of aerospace structural parts and assemblies. We are a prime contractor to the U.S. Department of Defense, and during the last few years, we have substantially grown our business to become a subcontractor to some of the largest U.S. aerospace and defense contractors such as Northrop Grumman, Boeing, Sikorsky, Spirit AeroSystems, Lockheed Martin and Bell Helicopter. And in the most recent 18 months, that list has grown to include HondaJet, Goodrich Aerospace and EMBRAER. Since its inception in 1980, CPI Aero has focused on the production of aerospace structural parts and assemblies and in developing the required skills and expertise to produce the highest quality products possible. We have carved out for ourselves a niche within the aerospace market and have become one of the country's leading suppliers of structural spares of vintage and out-of-production aircraft and now assemblies for new production planes. Typical assemblies produced by CPI Aero are skin panels, leading edges, flight control surfaces, engine housings, cowl doors, wingtips, outer wing panels, nacelles and inlet assemblies for military aircraft such as the A-10 Thunderbolt, UH-60 Black Hawk helicopter, E-2D Hawkeye, E-3 Sentry, C-5A Galaxy, C-130 Hercules and the B-1 Bomber and various structural assemblies for commercial aircraft such as the Gulfstream G650, the HondaJet executive aircraft and the S-92 helicopter. 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 the current year and new opportunities going forward. I will then wrap things up and open the call to questions. Vince?

Thank you, Ed. As reported in this morning's press release, comparing the first quarter of 2012 to the first quarter of 2011, revenue increased 23.2% to $19,721,095 from $16,009,608. Gross margin was 25.2% as compared to 24%. Pretax income increased 34.7% to $2,710,320 compared to $2,012,050. Net income increased 40.3% to $1,919,320 or $0.27 per diluted share compared to $1,368,000.50 or $0.19 per diluted share. Selling, general and administrative expenses were approximately $2,105,000 or 10.7% of revenue compared to approximately $1,800,000 or 11.2% of revenue. Ed?

Thanks, Vince. New orders through May 5, 2012, were $32.2 million. This award total includes contracts with 2 new customers, Goodrich Aerospace and EMBRAER. Additionally, we have continued to receive follow-on releases from some of our major subcontracting programs. All of these awards have given us a predictable revenue stream, which previously enabled me to issue our 2012 guidance. There is also a real business potential from the nearly $1 billion worth of unawarded solicitations outstanding once these programs are funded and are awarded. Included in this number are 2 bids totaling approximately $647 million to an international aerospace company for work on the Boeing 787. These bids are exciting to us. They relate to an offload program, which means the potential new customer sought us out and asked CPI to potentially bid assemblies for them. Although there is no certainty that we will be successful with these bids, we believe that being solicited by this potential new customer proves that we have demonstrated to the industry our ability to perform and that we are capable of obtaining substantial orders for work on long-term significant projects such as the Boeing 787. 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 on the important programs we are working on and the exposure we have had and contacts we have made at various aerospace and defense institutional investment conferences. We are now in the midst of establishing relationships with additional prime manufacturers, including other helicopter and business private jet companies who've come to recognize CPI Aero as the premiere supplier of aircraft structure. Among the unawarded bids outstanding are contract opportunities with these potential customers, including our first serious opportunities to perform work on a commercial jetliner, as discussed a moment ago. 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 2012 guidance, which calls for revenue to be in the range of $95 million to $98 million, primarily due to the continued work on our 3 major long-term programs. With gross margin in the range of 25% to 27%, we anticipate net income in the range of $12 million to $13 million. Our first quarter results were in line with our expectations. We are projecting the balance of 2012 to have a similar quarterly performance profile as 2011, with a strong second half and a particularly strong fourth quarter as our newest contacts begin to generate revenue income. Our 2012 guidance has factored in the current defense budget environment and reflects the cuts mandated by the Budget Control Act of 2011. However, it is still unclear whether or not sequestration will take effect in January 2013 and what the impact of even deeper cuts in defense spending would have on CPI's existing and projected defense contracts. And please understand that this uncertainty is not confined to CPI but to all aerospace and defense companies and has been the subject of discussion on many of their earnings calls for this quarter. Therefore, we believe it is imprudent to provide financial projections for 2013 until some time in the second half of 2012 when we anticipate the federal budget situation will be more sufficiently defined and an election cycle will have been completed. We believe that timing of the guidance to the latter part of the year also more closely aligns us with our industry peers. To support our expected revenue growth in new orders, customers, programs and, of course, revenue and profits over the coming years, we have amended and increased our credit line to a combined borrowing capacity of $22.5 million. Additionally, we've increased our workforce to 165 people, and we are conducting our operations at our new 3x larger 171,000 square-foot facility in which we moved in mid-December 2011. On a separate note, CPI Aero will continue to tell its story as often as possible and to that point, later this month on Tuesday, May 22, we will be presenting at the B. Riley 13th Annual Investor Conference in Santa Monica and the Stephens Spring Investment Conference on June 6 in New York City. We look forward to seeing some of you there as we have in other years. Also, in July of this year, CPI Aero will again have a presence in one of the world's premier airshows as we will attend the Farnborough Airshow being held in London the second week of July. For those who are unaware, the Paris and Farnborough Airshows are on open at years and -- having had such great success in making new contacts and opening new doors in Paris during the last 2 shows, we believe it's extremely important that we continue that momentum by attending Farnborough for the first time. We look forward to our immediate and long-term future 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'd like to open the floor to questions. Operator, can you allow callers to place questions now? Just before you do, I'll also point out that the Chief Operating Officer of the company, Doug McCrosson, is in the room with us so all of you are aware that all 3 executive officers will be available to answer your question. Okay, Claudia, thank you.

[Operator Instructions] Our first question is coming from the line of Mark Jordan with Noble Financial.

A question relative to 2013. I understand your reluctance to put a firm number out there given the uncertainty of the budget process as we move into 2013. But historically, you have stated, I think publicly, that you saw 2013 as the year of double-digit growth opportunity and stable to expanding operating margins. I guess with the new contract awards that you have seen, the pipeline, is there anything that would call into question that positive view if you exclude consideration of the sequestration?

Excluding that possibility, we are bullish on our results for '13 as I stated -- as you've just pointed out, I stated previously. 2012, as I told people, was not the best year we're going to have. We expect '13, '14, '15 to all be better given that the environment we're operating in, the opportunities we have now to bid, et cetera. The only reason we're holding back '13 is we truly believe it would be imprudent to put out an estimate and then have to lower it by 10%, 15%, 20%, 25%, nobody knows how much. And quite honestly, if nothing else, we're good listeners and watching our peers present their earnings releases, et cetera during this last quarter and all of them speaking about the same thing and how dramatic the impact could be if there becomes a mandatory defense budget cut. We just think it's safer, smarter and a good decision to wait it out and see what happens. But other than that, no, our company is still heading in exactly the right direction. Nothing has changed from my belief, our belief as to where the company will go over the next few years.

The bid submitted, obviously, is a huge compliment [ph], with the 787 outsource. What is the decision cycle on that? And are there multiple bidders on that outsourcing, or is this -- you're just the only option vis-à-vis continued in-house production by that large comp? [ph]

Right. The fact that it's an offload means that it is not a competitive bid. We have been asked to take a look at this and in -- the words are correct, offload. They want to offload work to someone else that they don't feel like doing. I've talked many times, I've used less -- the term next level assemblies. The assemblies that we are taking a look at for this company are to them smaller assemblies. To us, they are fantastic. They're huge. They're big. They're right up our alley. To them, given the size of their company and the dynamics of the things they work on, I won't call it nuisance work, but it's not something that they really want to focus on. So they sought us out, and we are the only bidder at this moment, if you will. Now there is no bid cycle time because it's not a true bid. We've submitted some pricing. They've accepted that pricing. We've had discussions with them. We've had a person make a trip to their facility to discuss these potential bids. So I can't tell you if something will be decided a month from now or 6 months from now because, again, there is no time constraint per se. Just the concept that they don't want to do this work if they can avoid it and came to CPI and said, "Would you guys like to do this for us?" So it's now in the price negotiations area -- or I won't even say negotiations, it's the wrong word. I don't want to mislead anybody. It's in the price discussion phase.

Okay. And the -- if you back out that $647 million from your $952 million, you get $305 million of submitted bids, which would be -- it would be comparable to the prior quarter's numbers. Last quarter, it was $299 million after backing out some bids, that were going to be resubmitted. Have those bits been resubmitted, or are they not yet reflected in that $305 million?

That bid was resubmitted and some of the bids have dropped out of our number, not because we lost them but because they passed the 12-month mark. If you recall, we tell all of you all the time that, that is a 12-month cycle number for us except with the Sikorsky piece because it's been such a high-profile piece that we've left in. We did lose one bid. It was $10 million or less, I believe, and it was not something we had a high probability of winning. Internally, we didn't think we were going to win it, and we also -- keep in mind here, pulled EMBRAER out of this number because we won it. Okay, so that was -- if we had not won EMBRAER a week ago, this number would be $40 million higher. We would've been at $992 million, okay? So when you take a look at it, you'll see an increase in bidding on these 2 non-787 jobs as well.

Okay. And could you just refresh us on the component of Sikorsky in that $305 million? And any comment as to the visibility of those orders?

Again, that's $150 million, so it's about 50% of that bid number right now. Nothing has changed. We are still highly confident in our ability to win the contracts that we bid on there. Sikorsky is going through its own processes of sorting out their Multi-Year VIII [ph] agreement with the U.S. Government. Also, I don't know if you noticed today, but they announced a new President will be taking over Sikorsky, Jeff Pino is retiring. Mick Maurer is replacing him. So I'm sure that's had a lot of internal stuff going on, which probably delayed the process as well. But we have -- we still -- and that's why I leave it in the number. We leave it in the number, is because we have a high confidence that some, if not all of that, will come to us. So that's why it's still in the bid number. We did not pull it out on you and then surprise everybody with some wins. Let's put it that way.

Our next question is coming from the line of Mark Tobin with Roth Capital partners.

First, I know you typically don't provide a backlog number, but I think just as we try to get our arms around 2013 and kind of the longer-term outlook, can you give us a sense of where your backlog stands now and how that compares to, say, a year ago?

Mark, I can't honestly, because we don't report it on a quarterly basis, and I'd be giving you information that we don't give the public. And this forum cannot be considered a true public dissemination of information. So I apologize for that but...

Okay, understood. I guess and going at it a different way, can -- as far as the current programs that you're working on, can you give us a sense of how they build up as the year progresses? In other words, what are the major contributors that are contributing now? And then which ones are coming online and kind of give us a sense of the timing as the year progresses so we can compare, you know, maybe entering 2013 a year from now versus -- or entering 2013 versus what you're working on now.

Well, I think, as we've stated before, the 3 major programs are all going to gear up more and more as the year goes on. And then EMBRAER and Goodrich will be coming on board in the second half of this year, which will provide the impetus to grow from the $74 million that we reported to the $95 million that we're projecting for this year. So I think it's a combination of those 2 things. It's all 3 programs getting higher and higher level of production as the year goes on, and then those 2 new programs coming on board. And then in '13, I think you take that as your jumping off point and assume that we're going to win more work between now and then, that leads us into '13. And that's how we think, "Okay, '13 is going to grow x percent over '12," based on that kind of logic.

Okay, that makes sense. That's helpful. And is HondaJet still just kind of viewed as additional, or how do you factor that in?

It's -- right now, it's additional. I mean, that -- they're not looking at flight certification until some time in '13, I think second or third quarter. Doug, is that correct? Yes, we think it's second quarter or third quarter. So it's not going to create a lot of revenue in '12. And then depending on how that goes, it will determine how quickly we generate revenue on it in '13. So right now, I look at it as a -- I don't want to say a non-contributor, but a small contributor. The upside with these, it becomes a big one. If they get certification and they're turning out planes very, very quickly, it's going to become a much bigger contributor than we're counting on right now.

Okay, that's helpful. And then finally, on SG&A, how should we look at that going forward?

Well, our SG&A usually, historically, has been the highest in the second and fourth quarters. But we redid or changed -- not redo, changed the way we give compensation expense to our Board of Directors so that second quarter -- I should say the first quarter, the quarter that we've just reported is probably going to be the highest quarter until the fourth. The second and third quarters will be lower in SG&A because of the board comp that hits in the first quarter. So the profile would be a little higher dropping slightly in second and third and then when you do your end-of-year accruals and discretionary amounts it will go up again in the fourth.

Our next question is coming from the line of Alex Hamilton with EarlyBirdCapital.

Two questions. First one regarding -- you're talking about sort of the fourth quarter ramp on the new awards, the Goodrich and the EMBRAER. What's the margin profile on those? In other words, are margins lower on newer programs, or are your margins pretty consistent throughout the life?

As an overall job, we have the same margin profile on just about all of our jobs. Every new job incurs a lower gross margin to start off with, not so much that it's going to impact the overall company gross margin. So if you had 25% to 27% as an entity, they might be 20%, 21%, 22% in their early stages but they're also not generating enough revenue in those early stages to bring the corporate rate down, if you will. And by the same token, when you get to the out years of these major programs, they might be generating 31% gross margin. However, because the revenue again is coming down because revenue basically is earned on a bell curve kind of thing, it won't pull the company rate up to 30% either. It won't impact it all. We're at the stage now where I think we have enough mass where when we say 25% to 27%, that's where we're going to fall. And unless we would land a huge job that would have a $20 million or $30 million a year revenue impact early on at a lower rate, the corporate rate will stay the same no matter what we win.

Understood. And just -- and then lastly, on sort of the bid pipeline that is out there in the unawarded contracts, can you give a little flavor? I mean, I see that commercial contacts are running about 28% of revenue. Would you say that, that mix would have obviously, including 787, including Sikorsky, is that sort of the same mix that we should expect to see? And then can you talk about whether more of that is prime or subcontracting?

In the future, we expect commercial work to become a bigger part of CPI's revenue stream. It is a design. One, the military or the defense budget is tricky right now, and I don't think it's going to change no matter what happens in the election or anything else. In a bad economy, there's going to be issues with the military budget. The other thing is and this is industry information, not Ed Fred information, but the commercial aerospace industry is stepping into its up cycle. And you can look historically, commercial aerospace has ups and down cycles that are very, very predictable, only things like 9/11 throw those cycles off and change it. And I think it's the opinion of everyone that the cycle is increasing. And I think given the number of orders both Boeing and Airbus have on their major airliners, it's going to hold through. Given that, it's a good time for us to step up our efforts to become more commercial than military or at least more commercial than we are today. So yes, you should see that as a trend. You should see us getting more and more commercial than we are at the moment. As far as within the pipeline, very little -- and I've been saying this for a long time, right now very little is direct prime manufacturing to U.S. Government. There just isn't that much coming out of there right now. So I would say to you, our pipeline is probably 90% subcontracting versus prime manufacturing.

Our next question is coming from the line of Chris Bamman with Capstone Investments.

Just had a quick question with regard to the 650 million bids [ph] for the Boeing 787, is that the same company offloading -- subcontracting or parts or is it 2 separate companies? Can you maybe just provide a little bit more color to understand the 2 bids? So you're basically going to be putting 2 components on the 787 from 2 different contracts, is that...

No, it's 2 different contracts, one contractor. Or it'll be -- it's one company. They've come to us and asked us to look at both of those assemblies on their -- that they're putting on the aircraft for Boeing. I can't tell you much else, it's an international aerospace company with significant content on the 787.

Okay. And then I guess just moving to look at -- towards your guidance. And you said you're looking at the net income between $12 million and $13 million. Can you just maybe provide a little color of what some of your assumptions are that maybe put in to that guidance as you move towards the back half of the year? Is it going to be revenue growth? Is it going to be an acceleration, higher margins? Just maybe you could provide a little bit more color on that.

Chris, it's -- and I'm not trying to be a wiseguy here. It should be pretty evident. We're going to -- I don't want to say repeat 2011, but our revenue profile will be pretty much the same. We are not going to hit half of our target by June 30, just like we didn't last year. And just like people didn't believe us last year when we got through the first half of the year and looked at our top line and bottom line, so they all -- there's no way that they're going to hit the numbers. We did hit the numbers just like we're going through this year. The beating we're taking today because we supposedly missed the estimates from the analysts, and I understand you're an analyst, and I understand you have a job to do, and I'm certainly not picking on you because you all kind of have the same consensus, but that's not the way CPI operates. I say it out loud, nobody seems to listen. First quarter will be the lowest, second will be better, third will be better and the fourth will be through the roof again this year in all likelihood, just like it was last year. So you'll see revenue growth. You won't see gross margin growth, Chris. You'll see operating margin, though, because if you look at say, let's take the third quarter and say, "Okay, it's the second best revenue quarter, but it could very well have the lowest SG&A rate in it, the operating margin will be significantly higher." And we will generate. I mean, again, I just got on the call and put out a press release today, and we are reaffirming the guidance. Well, we're doing that for a reason. It's already made. We have a pretty good look at 2012, so we're still very confident in the $95 million to $98 million and $12 million to $13 million. And for those stockholders who watch us and are upset we didn't hit the guidance number, again, we did not provide that guidance number. We provide an annual guidance. You as an analyst and every other analyst we've spoken to so far, and I imagine 1 or 2 are going to hop on behind you, you have a job to do and you do your best guess of what we're going to look like. All I'm telling you is you need to look at the back half of the year as significantly better than the front half, just like 2011 was.

Well, that's very helpful. I appreciate that. And I wasn't trying to get you all worked up on anything.

No, no. Not at all. You gave me the opportunity to get it off my chest, thank you.

You're welcome. And just a couple of quick -- what was the G&A in the quarter?

G&A in the quarter?

Depreciation.

$145,000.

Okay. And should we look at that number to be through the course of the year?

That number will rise throughout the year but at a nominal rate. We don't have a whole lot of planned capital expenditures, and we should have talked about that at the last conference call. So the big capital expenditures on the new building are already in place.

Is there any CapEx impact when you win a new contract, say, from EMBRAER or something to that effect? And initially, is there any sort of CapEx impact?

No, not usually because the only -- when you win new contracts, the thing that you need to put upfront is tooling. And that's included in the contract price. So there's no CapEx required. We don't have machines here that cut metal or anything like that. So therefore, we don't have to incur extra CapEx because of contract awards.

Okay. And then just finally, how should we be looking at interest expense moving forward? Is the number that you had this quarter similar to...

It should be possible for each of the quarters, yes.

I'm sorry?

It should be about -- there should be a comparable interest expense in each of the quarters. It shouldn't rise or fall dramatically at all.

Our next question is coming from the line of Bhakti Pavani with C. K. Cooper.

I just have couple of questions. The first question is regarding the new contract that you won with EMBRAER. How -- what is the division of the contract? I mean, it just says its $40 million, but I was not sure if it's -- how long is the LTA?

It's basically -- it look like it's going to be about a 10-year contract.

Okay, 10-year. And how are the deliveries scheduled? It's going to be like -- initially, it's going to be like slow or how it's going to be spread out? More towards the second or third year, or how is that going to be?

Like every other program, it will start out slow. It will pick itself up in years 3, 4, 5, 6, 7 and then start to come back down the curve, and 8, 9, 10 will probably be slow. That's as of this moment. Now if they get more orders than that, it could be that the back end doesn't come down necessarily or that they ramp up faster. I mean, if you look at what's happening on the Gulfstream 650 program, it's not from necessarily our perspective because we're on a great pace, but Gulfstream is producing more and quicker because of the demand for their aircraft. So as of right now though, typical bell curve kind of production program.

Okay. So in your 305 bid program, do you have any more bid for G650 or EMBRAER? Anymore bids included in that or it's just other programs?

I can't tell you that. I don't usually give -- other than telling you what was in for Sikorsky, we don't -- we have never stated what else is in the bid pipeline.

Okay, fair enough. Talking about the bid you have for Boeing 787, how that contract is going to be -- it's going to be built? Similar ones to A-10 and E-2D, a long-term contract? The contract that you have already bid if you kind of won it? How is the contract structured?

I think it would be structured the way any of our long-term contracts are, not just the E-2D or the Boeing one but also the G650, the Goodrich one, any of them. It'll be a multi-year contract with releases every year based on the requirements for the 787, which again, if you take industry reports, Boeing is saying they want to be at a pace where they turn out 10 a month. So one every working day or one every 2 working days basically. So that would keep us a little bit busy if we got it.

Our next question is coming from the line of Michael Potter with Monarch Capital.

A couple of questions. With regards to our push for more commercial work, obviously, it is by design and are we directing specific resources to going after that business, other -- different than what we would normally focus on with -- on, with defense orders?

I don't know that it's different resources per se. I would say they're just going after different things. We do have an agency that's helping us here that has connections within the commercial arena. And we're also just changing our focus a little bit to looking for and going after commercial opportunities within companies. For example, Bell Helicopter we were looking at for military programs. Obviously, they're helicopters, but that has led us now to go after stuff at Cessna, who's a sister company of theirs and look for commercial opportunities there. At Spirit, we've obviously been looking to them to see if we can get into some of their other commercial programs as they have pieces of almost every Boeing aircraft made. So it's not so much additional resources other than the use of a consulting/sales rep firm, but just a redirection of our business development people into that arena.

Okay. And with regards to the 787 opportunity, is that -- I wasn't clear, that was an existing customer, or that would be with a new customer?

Brand new -- it would be a brand-new customer.

Our next question is a follow-up from Mark Jordan with Noble Financial.

For Vince, the tax rate came in 29.2%. I think the last conversations have been looking kind of for a 32.5% rate for the year. What do you expect for the successive quarters this year?

We're anticipating that this year's rate will probably be between 29% and 30%, probably a little lower than our historical rate. We had a few things going on with domestic production activity deduction -- I almost fumbled over that, that will help to keep that rate lower than our standard rate. So a figure -- for your purposes or for any of the other analyst purposes, you guys could use 29.5%. So 29.5% is probably a fair rate for the year.

Okay. Ed, relative to -- you threw out a number of 165 headcount. Could you give us what your headcount was a year ago at year end 2011? And where you think it might be at year end 2012?

Year end '11 was about 151, 152. So we're up about 13 people so far this year.

Last year at this time, we were...

20 more? 20 more direct. So about 185 should be the headcount by year end, all else being equal.

Our next question is coming from the line of Paul Berger [ph] with PLA Associates [ph].

Most of my questions have been answered, but can you give a little color on the C-5? Is there anything going on? I noticed that Lockheed has basically finished the AMP program.

Right. We did hear that. As of this moment, nothing else is going on, on that program other than little bits and pieces we do for it. There has not been yet a request, or a request for quote or anything on any kind of major structural -- I don't want to say modifications, but replacements or anything else like that. I think with the retirement of so many As and trying to go to this Bs/RERPA [ph] AMP upgrades they're probably doing a bunch of cannibalism right now. And I think when they get through that process, that's when we might be able to see something else big on the C-5. Right now, I don't see it on the horizon at this moment. Hopefully, I get pleasantly surprised in a year or 2. But as of right now I just think it's $1 million or $2 million a year and that's that.

Our next question is coming from the line of Alex Silverman with Special Situations Fund.

Can you tell us where we stand vis-à-vis the change order payment due that's owed by Boeing?

Still on this -- go ahead, Vince.

Yes, we're still working that. We have settled some parts of it. We still have some that are subject to negotiation. There's a little bit more color on that in the liquidity section of the Q, but it's moving along but slowly.

What's still owed at this point?

It is about -- it's disclosed in the Q. It's about in the high 30%, maybe closer to 40% of our costs and estimated earnings account.

Okay. And then, where does Boeing stand versus the first article of inspection for the -- that final wing assembly?

Their first article was approved.

It was, so they're shipping on schedule?

Yes. I'd say on schedule. We're shipping on schedule. What they're doing, I'm not 100% sure.

But we're shipping to them on schedule...

You're not sure, or you can't just discuss it?

We're not sure.

Alex, they're not sharing with us their delivery schedule, quite frankly. Okay? We know we're told to continue delivering at the pace that they want us to. So if they'd -- they're either delivering at the rate they expected to, or they anticipate throwing 1 billion of them out the door at the same time because they're still taking ours and putting them on something.

[Operator Instructions] Gentlemen, there are no further questions at this time. I will now turn the floor back over to management for closing comments.

Thank you, Claudia. We'd like to thank all of you for participating in this call and look forward to speaking with you again in early August for our second quarter earnings call. In addition, please remember that our annual shareholders meeting will be held on Tuesday, June 12 in New York City, and you are welcome and invited to attend. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.