Good morning and welcome to the CPI Aerostructures' Second Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note today's event is being recorded. I would now like to turn the conference over to Sanjay Hurry, Investor Relations. Please go ahead.

Thank you, Rocco. Good morning, everyone, and welcome to CPI Aerostructures Second Quarter 2016 Results Conference Call. A copy of the company's earnings press release and accompanying PowerPoint presentation to this call are available for download at the Investor Relations section of the CPI Aero website. With us on the call this morning are Doug McCrosson, President and Chief Executive Officer; and Vincent Palazzolo, Chief Financial Officer. At the conclusion of their prepared remarks, management will hold a Q&A 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 subcontracting contracts. Subcontracting customers also have the ability to terminate their contracts with the company if it fails to meet the requirements of those contracts or if their customer reduces or modifies its contracts due to budgetary constraints. Given these uncertainties, listeners are cautioned to not 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. Please note further that for the purposes of this call and its associated PowerPoint presentation, management will be referring to the company's financials on an adjusted basis that excludes the impact of the A-10 program on the second quarter of 2016 and on the second quarter of 2015. GAAP financials as well as GAAP to adjusted earnings reconciliation tables can be found in the company's earnings press release as well as at the end of the PowerPoint presentation. With that, I'd like to hand over the call to Doug McCrosson, President and Chief Executive Officer. Good morning, Doug.

Good morning. Thank you all for joining us for our second quarter 2016 results conference call. On today's call, I will provide a brief overview of our performance. After which Vince Palazzolo, our CFO, will review our financial results in greater detail. I will then provide my perspective for the second half of the year and how it positions us going into 2017 before opening up the call to Q&A. Let's begin. Our financial performance both for the quarter and the first six months are a validation of our business strategy we first set into motion in 2014 that places greater sales emphasis on the defense market. Our second quarter results also reflect our continued focus on operational excellence as we continue to rationalize costs and increase productivity to enhance profitability. We are reporting top and bottom-line growth for the quarter that were driven by defense contracts won over the past 20 months. Most notably are Northrop Grumman E-2D Advanced Hawkeye program for both the US Navy and for Japan and our T-38 Prime contract with the US Air Force. As shown on Slide 4, backlog stood at $395 million as of June 30, 2016, up $8 million from 2015 year-end. Defense backlog increased 5% at June 30, 2016 from 2015 year-end, and multi-year defense contracts now represent 74% of total backlog consistent with our strategy initiated in 2014. Note that two contract awards received subsequent to the close of the quarter, our Next Generation Jammer Pod with Raytheon and an award by Embraer for its E175-E2 regional jet we announced this morning are not reflected in backlog at quarter end. More on these two awards in a moment. For those new to the CPI story, as you can see on Slide 5, our strategy has proven successful. In just the past 20 months, we have announced multi-year defense contracts worth a potential of more than $250 million. Of this amount, more than $195 million remains to be recognized as revenue. This should provide a significant annual base of defense segment revenue in future years. I will now turn the call over to Vince Palazzolo, our CFO, to review our financial results in greater detail and provide you with our current financial expectations for 2016. I will then conclude the call with an update on our plans for the balance of the year before opening the call to Q&A. Vince?

Thank you, Doug. As a reminder, we are referring to our financial results on an adjusted basis that excludes the impact of our A-10 program for the second quarter of 2016 and the second quarter of 2015. GAAP financials as well as GAAP to adjusted earnings reconciliation tables for both the three and six months ended June 30, 2016 can be found in our press release issued this morning. As detailed on Slide 7, revenue for the second quarter of 2016 increased 22% as compared to the second quarter of 2015. Gross profit for the second quarter of 2016 increased by approximately $1.2 million to $5 million as compared to $3.8 million in the second quarter of 2015. Gross margin increased by approximately 170 basis points year-over-year to 25.4% in the second quarter of 2016 from 23.7% due predominantly to a more favorable mix of programs, specifically an increase in the E-2D wingtip program. SG&A declined by $181,000 in the second quarter of 2016 as compared to the second quarter of 2015 due to decreases in accrued officers' bonus, marketing and advertising expenses related to the timing of the Farnborough Airshow and the bad debt reserve. Pre-tax income for the second quarter of 2016 was $2.8 million as compared to pretax income of $1.5 million in the second quarter of 2015. Net income for the second quarter of 2016 was $1.8 million or $0.21 per diluted share compared to $1 million or $0.12 per diluted share in the second quarter of 2015. Moving to Slide 8. Our balance sheet, together with debt refinancing we conducted earlier this year, gives us the ability to pursue our growth opportunities. Turning to Slide 9. We are reaffirming our 2016 financial guidance. Guidance, as noted excludes the A-10 program as a component of our projected results. We continue to expect adjusted revenue to be in the range of $82.5 million to $88.5 million and an unadjusted pretax income for fiscal 2016 to be in the range of $9.8 million to $10.5 million. As a reminder, given uncertainty surrounding our effective tax rate, we're providing guidance on a pretax income basis going forward. For purposes of the guidance, our projected effective tax rate continues to be approximately 37%. Moving to Slide 10. We remain focused on enhancing profitability by continuing to reduce costs and through increased productivity. This slide lists our four strategic financial priorities for the balance of 2016. We intend to lower inventory levels and reduce unbilled receivables, our CE&E in order to strengthen our balance sheet. We will continue to invest in automation to improve the efficiency of our manufacturing processes. We'll work to lower debt levels. And lastly, we will further reduce overhead and G&A expenses. This concludes my prepared remarks. I will now turn the call back to Doug for his perspective on the balance of fiscal 2016.

Thank you, Vince. For the balance of 2016, we are focused primarily on business development in the defense market. Having recently attended the Farnborough International Air Show, I remain optimistic that defense opportunities for us remain strong. It was a very busy airshow for us, perhaps our busiest airshow since I’ve been attending. And we are encouraged by the meetings we held and the interest shown in CPI Aero’s capabilities for both the defense and commercial markets. We have started off the second half of the year with two new and strategic wins that are representative of our opportunity set. Though not in our backlog at quarter end, together, these two programs could represent more than $50 million of revenue over the next decade. They are, first, our previously announced $4 million contract from Raytheon, the manufacturer of structural pod housings for their Next Generation Jammer Increment 1 Pod. This contract leverages our success in building pods for UTC Aerospace Systems and Northrop Grumman and marks our penetration into the electronic warfare market segment. We expect that the full value of the contract through the production phase should be in excess of $31 million. Second and announced earlier today is a multi-year contract with Embraer to supply structural components used in the manufacture of engine pylon fairings for its E175-E2 regional jet. This new contract recognizes our world-class manufacturing, program management and supply chain management capabilities. As you may recall, last year, we received national recognition by winning an Aviation Week Program Excellence Award for our work on Embraer’s Phenom 300. This is also CPI’s first contract for its civilian airliner in more than two decades and is further evidence that we were correct in our strategy to narrow our commercial market focus to business and regional jets, where we…

Absolutely, sir. [Operator Instructions]. And ladies and gentlemen, our first question today comes from Ken Herbert of Canaccord. Please go ahead.

Hey, Doug, I just wanted ask, I mean, congratulations on the recent wins, NexGen Jammer and obviously, the Embraer work. If you were to look at some of the major programs or contracts you’ve won recently, maybe this year, even end of ‘15 in this year and I know, obviously, there’s some initial ramp up, but if you look at the recent contracts relative to some of the contracts you’ve got previously, can you size from what you’ve done from a cost standpoint sort of that full rate production, what kind of improved margin profile you should be looking at under these newer contracts relative to some of the legacy work?

Well, I think, right if you look at the -- on the prime contract side, the T-38, in particular and the F-16, I would say that those margins, those gross margins are going to be higher than our current average margin, so that should tend to lift the overall company margin up. I think it’s too early to call on the Raytheon Next Generation Jammer and the Embraer, but I would say those might be on the lower side as it starts off over the next year or two. In, I guess, in some, the balance is going to be more revenue on some of the prime contracts and less revenue on some of the newer contracts. So overall, maybe a slight increase over what the run rate has been this year on gross margin for 2017.

Okay, but I mean, from the newer contracts, if you think about even beyond '17, I’m just trying to get a sense as to what the work you’re winning today, when you look at over these contracts, are you looking at hey, this work should be 100 basis points, 200 basis points better on a gross margin standpoint than sort of the work you’re doing today? I’m just trying to get a sense, as the mix continues to evolve, what kind of tail you’re going to have from margin expansion? I know it’s, obviously, it’s early in these contracts that everybody new, but as you bid them, you, obviously, have a very good sense as to sort of help that looks, assuming it goes according to plan.

I think you should look at those, when they’re at a mature run rate to be in the 24% to 26% gross profit range.

Okay, that’s very helpful. And then, I just wanted to specifically, and this is maybe for Vince, but as you look at the inventory opportunity and your unbilled receivables and effectively, sort of your working capital initiative, what can that generate? Or what do you see as a target for cash savings, maybe this year and next from those initiatives?

I would say that just from an inventory standpoint, we’re kind of targeting between $2 million and $3 million more cash flow in the second half of the year. With some of the efficiencies that we’re trying to build on, that could be we could go north of that, but just from the inventory alone, we’re looking to pick up at least $2 million to $3 million in the next six months.

Okay, okay, that’s helpful. And then finally, obviously, you’ve kept the guidance unchanged from three months ago. As you thought about some of the recent wins and thought about the business here for the remainder of 2016, can you just talk about now thinking within the guidance range either from a revenue or from a pretax income standpoint, trending maybe a little bit towards the upper end of that, some of the puts and takes to get you from where you are today to what’s sort of the implied second half numbers?

Well, I wanted to try to narrow the range, but the reality is there still some work left to do in 2016, I felt comfortable with the range. If I were guessing, I would say it’s more on the middle to upper, right now. But we weren’t prepared to narrow the range to that quite yet.

And which or any particular programs you’d highlight as or areas where you’ve got just more volatility perhaps or a little less certainty?

Yes, the E-2D for Japan right now, there’s been some design changes that going on with the customer. I think those are largely resolved, but that’s running a little under what we had planned at the moment, but again, still within the range.

Okay, great. Thank you very much. Nice quarter and I’ll pass it back there. Thank you.

Thanks Ken.

[Operator Instructions]. Showing no further questions, this concludes our question-and-answer session. I’d like to turn the conference back over to Doug McCrosson for any closing remarks.

Thank you all for participating in this call. And Vince and I look forward to speaking to you again in early November when we announce our 2016 third quarter results. Thank you very much.

And thank you, sir. Today’s conference has now concluded and we thank you all for attending today’s presentation. You may now disconnect your lines. And have a wonderful day.