Good morning, and welcome to the CPI Aerostructures' Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Sanjay Hurry. Please go ahead.

Thank you, Andrea. Good morning, everyone, and welcome to CPI Aerostructures' 2018 fourth quarter and full year financial results conference call. A copy of the company's earnings press release that was issued earlier today and the accompanying PowerPoint presentation to this call are available for download on the Investor Relations section of the CPI Aero website. On the call today are, Douglas McCrosson, President and Chief Executive Officer and Vincent Palazzolo, Chief Financial Officer. After their preferred remarks, management will hold a question and answer session. As a reminder, 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 the company 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 the company from doing business with them, as well as competition in the bidding process for both government and sub-contracting contracts. Sub-contracting customers also have the ability to terminate their contracts with the company if it fails to meet the requirements of those contracts, or if the customer reduces or modifies its contracts 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 the company's filings with the SEC. Before turning the call over to management, please note that they are available for follow-ups with institutional investors following the conclusion of this call. Please contact my office via contact details listed in today's press release to schedule a follow-up. With that said, I like to turn the call over to Douglas McCrosson, President and Chief Executive officer. Good morning, Doug.

Good morning, Sanjay. And thank you all for joining us on our 2018 fourth quarter and full year conference call. I will begin by providing an overview of recent developments, including the closing of our acquisition of Welding Metallurgy, or WMI in December. Vince Palazzolo, our CFO will then review our financial results in detail and outline our financial guidance for 2019. I will then conclude the call with commentary on the business drivers and a view into our bid pipeline in 2019 and beyond. I’ll then open the call to your question. Again, we have completed a very important year for CPI Aerostructures. One that lays the foundation for our future growth through organic and inorganic initiatives designed to strengthen and expand our core capabilities. In 2018 new multi-year program wins, contract extensions and program acquisitions added more than 17% to an already large backlog and drove record levels of consolidated and defense backlog by year end. We submitted a number of proposals across the entire spectrum of our capabilities that added both near and long term opportunities to an already robust bid pipeline. And perhaps most significantly, we closed our first acquisition in almost two decades. During the fourth quarter, we saw new orders from several prominent and well-funded defense programs that when combined with awards momentum in our third quarter resulted in a very strong second half of 2018, from a new bookings perspective, that resulted in a book to bill ratio of greater than 1.1. That is our highest in years. Let me briefly recap several key highlights for the year, that are listed on slide four. First, the acquisition of WMI. In recent years CPI Aero has solidified its reputation as a preferred supply chain partner for the aerospace and defense industry. This acquisition bolsters…

Thank you, Doug. First, I want to remind you that effective January 1, 2018, we adopted a new revenue recognition standard known as ASC Topic 606. Following the adoption of ASC 606 our revenue recognition on all of our current contracts has not changed materially over the life of those contracts. As a further reminder, and as a consequence of our adoption of ASC 606, the asset previously called cost and estimated earnings in excess of billings on uncompleted contracts is now under ASC 606 called contract assets. And the liability, previously called billings in excess of costs and estimated earnings on uncompleted contracts is now under ASC 606 called the contract liabilities. Starting on slide 8, I'll begin my review with the fourth quarter results. Revenue increased approximately 11% year-over-year to $26.5 million from $23.8 million for the fourth quarter of 2017. The increase primarily reflects the beginning of what we expect to be a prolonged period of high activity on the next generation Jammer Pod program we have with Raytheon. As Doug stated, we will begin to provide product sales as a metric going forward as we believe that this provides additional context to operational performance. For the fourth quarter product sales were $26.6 million, up from $17 million in the same period of 2017, a 56% increase driven largely by the next generation Jammer Pod program. Gross profit increased to $5.8 million from $5.5 million for the fourth quarter of 2017. Gross margin declined, however, to 21.8% compared to 23.1% in the prior period, due to higher contribution margin of lower margin products. SG&A increased by approximately $100,000 for the fourth quarter compared to the same period last year, reflecting increases in professional fees and salaries partially offset by lower executive compensation. Pretax income increased to $2.9…

Thank you, Vince. Entering 2019, the next stage of CPI Aero's growth trajectory is at hand. At a macro level, the DoD is moving to recover from depleted levels of readiness brought about by extended periods of sustained conflict and by reduced defense spending due to sequestration. The 2019 government fiscal year budget represents the second consecutive year of stable defense spending and the industry expects spending to trend favorably in the longer term. Entering 2019, we are well positioned on some of the nation's most prominent defense platforms. The acquisition of WMI, the rate of awards in the second half of 2018, as well as strong quote activity across both CPI and WMI to-date in 2019 all support our conviction about the future growth potential to CPI Aero in 2020 and beyond. On today's call, I want to share with you some insight into our objectives for 2019. Turn to slide 12. A priority for us is the integration WMI. Our strategy with WMI is not only about in-sourcing work and increasing content on defense programs in which we already have a presence but also in growing WMI's opportunities at the component level. As an update on where we are in the integration timeline, we are in the process of closing the WMI facility and consolidating its operations into our facility. This task is virtually complete and we expect to have this completed by the end of the current quarter. We have already begun to perform certain welding operations from within CPI Aero's facility and we're also manufacturing electronic assemblies in a newly constructed area of our factory dedicated for this purpose. Our second objective is to undertake a portfolio optimization exercise to ensure that we are maximizing our return on investment on a per program basis following the…

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ken Herbert of Canaccord. Please go ahead.

Hi. Good morning Doug and Vince.

Good morning, Ken.

Hi Ken.

Hey, Doug, I just wanted to start off, I mean, it sounds like, if I listen to what you say around your 2019 objectives, the F-16V program, the classified Missile program and the E-2D in terms of ramp on those is perhaps from an execution standpoint, a key area of risk. Can you provide any more detail on maybe some of the next milestones on those programs or maybe some of the gates when you expect to deliver some of these first articles of the contract or how we should think about that through the year as you execute on these programs?

So starting with the F-16V, the contract was awarded very late last year. We've had a customer in already this year for the program kick-off. And we're in the process now of getting the detailed parts on order for that particular program. I don't want to specifically go into when the delivery requirement is. But it is more accelerated and I would say a typical first production build on a fairly large structural assembly. The missile program I can't really say any anything about other than, I can say that they're expecting delivery in the first half of this year, again which is a very accelerated timeline we are through the ordering process. All of our materials are on order, the tooling is being assembled and we're in good shape on that from an operational performance and we're in constant contact either in person or on the phone with our customer on that. The third which was the -- I guess, the 2D kits. Again that is -- we're on order we've placed the -- all of the orders for the long lead items that we've been authorized to procure. That is probably a little bit longer of the timeline. It's probably third fourth quarter where we start our first deliveries on that. We still finishing up on the original multiyear what we refer to as multiyear one. So there's really no significant break in production deliveries to Northrop Grumman on that particular kitting program.

Okay, thank you. That's helpful. And I just want to be clear in the fourth quarter two questions, did the fourth quarter include any material revenues from WMI or is that really not much in the quarter?

Now it's completely immaterial. The acquisition was closed on December 20. There's only 11 days of activity, I believe that of those 11 days, 4 of them were weekends and one was Christmas. We have really nothing going on.

Okay, perfect. And then in the -- just Vince so I am clear in the fourth quarter the inflated or I guess higher tax rate, did that reflect the full $3.1 million you called out as a potential risk around the NOL, such that if you do in fact have to give anything back on that, that wouldn't be, I mean that's all fully reserved or is there still a piece of that that may or that could potentially impact this year?

100% reserve. The tax and any potential interest expense on it. We went the whole way.

Okay, perfect. That's helpful. And then if I could, on the 2019 outlook what is the assumption for core growth for CPI, excluding welding met [ph] is I look at as I look at sort of the $100 million in revenues at the midpoint?

We're expecting, I'll say in the 2% to 4% organic CPI core and the balance is WMI.

Okay. You think that's maybe a little conservative or you think there's perhaps upside to that Doug in terms of the core CPI businesses?

I believes there is upside on the core and but it's primarily related to uncertainty and timing on some of the larger bids particularly A-10. And some things around the -- I would say the defense budget cycle. So there could be potentially upside to the organic growth.

Okay. And if could just one final question, obviously the details of the budget just got released yesterday for the fiscal '20 defense request. And I don't know how much time you've had to go through, but was there anything in the budget, Doug that you saw that you'd highlight as maybe incredibly positive for CPI or maybe anything that was a surprise negatively one way or the other?

Well again, as you mentioned, I really -- with preparing for this. I haven't totally reviewed it, I've seen some of the headlines. I actually read through your report this morning as well. And I'm happy, I guess with the F-35, I'm happy that it seems to be bullish on the Black Hawk which as you know is a very big program for us. I like the fact that advanced development has been funded particularly in the area of missiles, which, now we have our foot in the door there, and we hope that can lead to expansion in that particular market. So of the things that I've seen, I'm fairly pleased. But -- and I was just down with Northrop Grumman. And we think that I haven't looked specifically, but I think there is strong funding support for the E-2D as well, which of course is one of our largest revenue producer. So I think on whole, it has something good for most of our defense product.

Great. Thank you very much. I'll stop there.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Doug McCrosson for any closing remarks.

So thank you all for joining us today. We look forward to speaking with you again when we have our first quarter 2019 conference call sometime in May. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.