Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

LMI Aerospace (NASDAQ:LMIA)

Q2 2014 Earnings Call

August 07, 2014 10:00 am ET

Executives

Daniel G. J. Korte - Chief Executive Officer and President

Clifford C. Stebe - Chief Financial Officer, Principal Accounting Officer, Vice President and Secretary

Analysts

Tyler Hojo - Sidoti & Company, LLC

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

William Hoffmann - RBC Capital Markets, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the LMI Aerospace Second Quarter 2014 Earnings Release Conference Call. As a reminder, this call is being recorded.

This call includes forward-looking statements including statements related to LMI's outlook for 2014 and beyond. These forward-looking statements are subject to various risks and uncertainties that could cause actual results and events to differ materially from these statements. These risks and uncertainties are detailed in our annual report on form 10-K for the year ended December 31, 2013 and in our other filings with the SEC. These forward-looking statements are based on management's expectations as of the date of this presentation, and we undertake no obligation to update any of these statements. Our presentation also includes certain non-GAAP financial measures in an effort to provide additional information to investors. Our GAAP results and reconciliations of non-GAAP to GAAP measures can be found in our earnings press release.

Now I would like to turn the call over to Dan Korte, CEO. Mr. Korte, you may begin.

Daniel G. J. Korte

Thank you, Nova, and good morning, everyone. I am Dan Korte, CEO of LMI Aerospace. Joining me on the call today from LMI is Cliff Stebe, our Chief Financial Officer. Welcome to our second quarter 2014 conference call. We're here to discuss our press release issued earlier this morning, and I'll give you an update on what we have accomplished since the last time we talked and where our team is now focused.

The second quarter of 2014 results includes the impact of implementing several initiatives in order to improve our business going forward, and I believe these changes should positively affect our results over the long term.

Since joining the LMI team in March, we have focused on the critical factors to our long-term growth and success. This began by organizing the team to execute on focus areas including business integration, cost reduction, quality and delivery execution, business capture and a detailed review of our overall strategy. We have made strong steps forward in all of these areas since we last talked, but still have more to do.

Specifically, we had good strategy discussions with the board earlier this week and believe we are on track to deliver our refined strategy by our next conference call. We have taken all the steps necessary to exceed our goal of $10 million in annual cost, recurring cost reduction and continue to identify new areas to drive cost out of our business. We have an operational leadership team, partnering with the strategy team to focus on the future state of Aerostructures. Their goal is to optimize our operational cost structure including our overall footprint, which we believe will significantly reduce our costs and improve our competitive position in the long run.

We have won new work on both the Boeing 737-MAX and 787 programs which will contribute over $3 million starting in 2015 but will grow to over $4 million per year when the 737-MAX reaches full production rates. Also, we have received orders for an additional 14 767 wing modification kits for 2014. We have executed a long-term contract for some work we had been doing on the Bombardier global express and signed 3 new long-term contracts for corporate and regional jet customer. We are also working hard on increasing our win percentage by refining our business development approach. We have improved our internal and external quality performance by implementation of new tools, particularly in the assembly areas of the business.

Finally, we have been executing against several of our integration activities to bring together the heritage companies under 1 common approach to how we manage our business. All these areas will remain a focus in the near term.

In addition to those focus areas, we have several other major accomplishments in the quarter. We closed on a new debt structure that Cliff Stebe will speak to you about in more detail. I believe this structure will provide us the financial flexibility that is needed to help us achieve our long-range strategic goals. We are excited about the addition of 2 new board members, Gerry Daniels and Greg Summe, who both bring a wealth of knowledge and experience to our board. I'm also delighted to welcome Joe DeMartino, who's joining LMI as the Chief Operating Officer for our Aerostructures segment. He will be part of the executive leadership team and play a key role in optimization of our operations in the Aerostructures group and the implementation of our refined strategy.

So I'd now like to have Cliff Stebe speak with you in more detail about the financial results reported on this morning. Cliff?

Clifford C. Stebe

Thanks, Dan. Good morning, everyone. I'll discuss some of the operational highlights for the quarter and address how they impacted the financial statements for LMI. Overall, we generated $105.9 million in revenue and had a net loss of $7.4 million or a loss of $0.58 per diluted share. This compares to $105 million in revenue and $4.7 million of net income or $0.37 per fully diluted share in quarter 2 of 2013. The second quarter of 2013 results include total of $10.9 million of nonrecurring pretax charges made up of a $9.1 million charge related to the debt refinancing, $1.1 million for restructuring charges, $0.5 million in environmental expenses and $200,000 in integration expenses. Pretax income for the second quarter of 2014, excluding nonrecurring unusual items, was $1.8 million compared to $0.3 million in the first quarter of 2014 and $3.8 million for the second quarter of 2013. The second quarter 2014 also included a discrete income tax benefit of $2.5 million.

Diluted EPS excluding the unusual items was income of $0.13, which was ahead of consensus estimates of $0.05. The primary driver for the net loss this quarter was a $9.1 million charge related to debt refinancing mentioned by Dan. The company issued $250 million in notes at an interest rate of 7.375% and modified its existing revolving credit agreement by entering into a new $90 million revolving credit agreement. The new revolver is an asset-based lending arrangement. The company used the proceeds of the notes to repay the existing term notes, to reduce borrowings under the revolver and to pay the transactional cost of the deal. As a result, the deferred financing cost related to the previous debt structure of $8.3 million were recorded as interest expense in the second quarter of 2014.

Also, the interest rate hedge we had related to the original debt structure was settled. A charge of $0.8 million was taken to interest expense in the second quarter of 2014. In addition, as Dan mentioned, we took a major step forward in our cost savings initiatives and took a $1.1 million restructuring charge in the second quarter of 2014 related to implementing the initiatives. We'll see the benefits of those cost reductions starting in quarter 3 of 2014. We are pleased with what we've accomplished to date. But we know with more time and improved technology, we can do even more as we grow the business. We likely will have some spend to capital to do it, but we will ensure the payback is substantial.

Also on a positive note, this is the third quarter in a row we've generated positive free cash flow. We generated $2.1 million of free cash flow in the second quarter which includes a negative impact of $0.8 million to settle the interest rate hedges previously mentioned. We expect the operating cash flows to continue to be positive through the remainder of 2014 as we continue to work on improving profitability, managing working capital and receiving further payments for our design-build and tooling programs.

I'll start with the Aerostructures group results. Aerostructures generated $88.5 million of revenue, up 4.4% from $84.8 million in the prior year. The increase is primarily driven by 19.8% increase in corporate regional jet aircraft, which relates to a $2.2 million increase in tooling sales and a $2 million increase in the Gulfstream G650 volume. Total Gulfstream G650 volume was $7.7 million for the quarter. Large commercial aircraft was up 3.9% at $42.9 million from $41.3 million in the prior year. We continue to see quarter-over-quarter growth in the Boeing 737 and 787 programs, which were $3 million and $1.9 million higher as compared with last year. Total volume on the Boeing 737 and 787 were $25.1 million and $4.1 million. These increases were offset by a continued decline in sales in the Boeing 747, which was down $2.4 million; and 767 model, which was down $1.6 million, as compared to last year. Sales of military products were down 16.4%. We generated $11.7 million in the quarter compared to $14 million last year. The driver here was a decline in Black Hawks with lower demand. Total Black Hawk sales were $5.2 million in the quarter.

Aerostructures' gross margin was $15.9 million or 18% of sales compared to $19.1 million or 22.5% of sales in the second quarter of 2013. The previously mentioned increased tooling revenue came in a low margin in the quarter, unfavorably impacting gross margin percentage. Excluding the impact of low margin, tooling gross profit would've been 19.1% of sales in the second quarter of 2014 compared to 22.6% for quarter 2 2013. Aerostructures' gross margin was impacted by unfavorable sales mix and lower production [indiscernible] in the second quarter of 2014. We do expect gross margin improvement next quarter with cost reductions in place and the impact of our Fort Worth plant and Savannah machine center being shut down for the entire quarter.

Selling, general and administrative expenses for Aerostructures' group was $12.7 million compared to $3.4 million in the prior year. The difference in selling, general and administrative expenses primarily related to a favorable onetime write-off of contingent consideration liability of $8 million in the second quarter of 2013. The second quarter 2014 was negatively impacted by a $1.1 million of restructuring and environmental expenses of $0.5 million. Excluding these nonrecurring costs, selling, general and administrative expenses would've decreased by $0.2 million in second quarter of 2014 versus the prior-year period.

Shifting now to Engineering Services. During the second quarter, total revenue was $17.8 million compared to $21.5 million in the prior year. The decline was largely driven by a decline in sales to military customers and a decline in revenue for design work on tooling per bulk. Despite the reduction in sales, Engineering Services has shown relatively stable sales the last 3 quarters and has shown steady improvement in operating profits the last 2 quarters. We did see 15.9% growth in corporate regional general aircraft revenue which was at $5.1 million, up from $4.4 million last year due to additional revenue this quarter on the Bombardier Learjet 85 project which picked up -- picked back up this quarter.

On the military side, sales were down $2.5 million to $2.1 million in the second quarter of 2014 compared to 2013. The decrease is primarily a result of the reduction in the Boeing Tanker program as the program design phase is winding down. In addition, sales related to design and delivery of tooling on various programs supporting commercial aircraft were down $1.5 million to $2 million in quarter 2 of 2013 versus $3.5 million in quarter 2 of 2013. This relates to a decline in revenue for a design work on tooling for Boeing.

For the Engineering Services group, despite weaker revenues in the second quarter of 2013, gross margin in dollars and as a percentage of sales improved as gross margin was $3.2 million or 18% of sales in 2014 versus $2.6 million or 12.1% in quarter 2 of 2013. The increase in gross profit was primarily the result of a $1.2 million negative cum catch [ph] booked in the second quarter of 2013. Excluding this adjustment, the second quarter of 2013 margin as a percentage of net sales would have been 17.7% compared to the second quarter of 2014 which is an improvement at 18%, despite the lower sales. The 2014 margins were positively impacted by better labor efficiency and utilization in addition to reductions in overhead expenses.

SG&A for the Aerostructures -- or for the Engineering Services group was $2.2 million or 12.4% of net sales compared to $6.9 million or 32.1% of net sales in the prior year. The decrease is primarily attributable to onetime intangible asset impairment write-off of $4.2 million that was recognized in the second quarter of 2013. Cost-reduction initiatives accounted for the remaining $0.5 million decrease in SG&A in the current quarter.

Interest expense was $13.6 million in the second quarter of 2013 compared to $4 million in the second quarter of 2013. As discussed earlier, the nonrecurring charges related to debt financing increased interest expense by $9.1 million in the quarter.

The company recognized an income tax benefit in the second quarter of 2014 of $1.8 million, largely due to a discrete income tax benefit of $2.6 million related to the decision to carryback -- relating to a carryback collection for taxes. This was offset by an 8.1% tax expense or $800,000 despite being in a pretax loss due to some unusual items in the quarter. We should have minimal income tax expense or benefit recognized in future quarters due to the valuation allowance we established in 2013.

Next, I'll talk a bit about cash. We generated operating cash flow of $4.9 million in the quarter as compared to a use of cash of $7.1 million in the quarter 2 of 2013. This is the result of improved cash collections and reduced investment in inventory to support long-term contract as compared to the same period in 2013 which reflected increased investment in receivables and inventory to support long-term contracts. Net cash used for investing activities was $2.8 million as compared to $5.3 million in the quarter 2 last year. In 2013, we had higher capital expenditures on a large development program.

As of today, our revolving balance is nearly $0 as we continue to generate cash flow subsequent to period end as compared to the $9 million of revolver balance we ended the quarter with. We will have to make higher capital spend in the next few quarters as we make investments to support certain programs. One last note. We're in compliance with our debt covenants as of the end of the second quarter. Additionally, we will be filing our 10-Q later today.

That is a look of the numbers. With that, Nova, we are ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Tyler Hojo of Sidoti & Company.

Tyler Hojo - Sidoti & Company, LLC

So the first question is just on the restructuring front. Certainly nice to see the progress that's been made thus far taking $10 million in cost out. I was wondering if you could maybe expand a little bit relative to what you already said in your prepared remarks just in regards to -- how much more do you think is out there? I mean, do you think there's another $10 million -- $5 million, $10 million in cost?

Daniel G. J. Korte

Tyler, it's a little hard to quantify it at this point yet. But in orders of magnitude, it seems they're -- that's a reasonable figure to strive for. Because when we start looking at consolidation activities that might be involved in our Aerostructures strategy that we're looking at, what we've seen as far as savings from the plant consolidations that we've already had, I think there's still some significant savings out there to go after. Cliff, do you have anything else you'd like to add?

Clifford C. Stebe

I think further on to that, I think there's -- continued to be opportunities relative to in-sourcing. We have made a significant amount of progress, pulling work in and taking advantage of where we do have some capacity. I think that's another area that we believe will generate some improvement going forward and help from a cash perspective as well.

Daniel G. J. Korte

Yes, I think, Cliff, on that point, Tyler, on the work that we in-sourced to date, I mean, we've seen significant improvement in our bottom line by the in-sourcing activity. And we've got a fair amount of that work left to go. We really do see the benefits of vertical integration in our business every time we make those moves.

Tyler Hojo - Sidoti & Company, LLC

Is a lot of the in-sourced work going to Mexicali? Or is it kind of spread out across your facilities?

Daniel G. J. Korte

Tyler, it's really kind of spread out. I mean, what we're -- in the broadest aspect, what we're doing is, if you think of the former Valent operation, they're real heavy in machining and didn't have a lot of metal-forming expertise. They had some, but they didn't have much. So most of their metal-forming work that went into assemblies went outside, to outside suppliers. In LMI, we had some machining capabilities, but not a lot. So a lot of our machinings went outside. And we're just flipping those 2 around. So machinings that LMI needs are now going into the Valent sites and vice versa on the metal-forming. And really, it depends on what side fits best. Does it fit in Mexicali, does it fit in Fredonia [ph]? It depends on the parts and their size and how it fits into our business model.

Tyler Hojo - Sidoti & Company, LLC

Okay, great. And maybe just speaking of Valent, how has the performance there been? Have you seen kind of a sequential improvement since Q1?

Clifford C. Stebe

Particularly relative to long-term contracts, so we certainly saw some improvement in the quarter. I think we like what we saw there. I think the -- overall, the businesses has performed slightly better as well. They're particularly benefiting from -- what we really got started on the in-sourcing benefit was trying to move some of the machining work, and we've certainly seen that benefit come through their gross margin. So -- and a lot of that did happen in the period. So I think that's why we're -- as we look to the rest of the year, we do see some gross margin -- further improvements.

Tyler Hojo - Sidoti & Company, LLC

Okay. That's great to hear. And I guess just lastly for me, in the press release, you talked about, I think it was 4 LTAs that were signed with customers in the period. And I guess what I'm wondering is, when we talk about kind of pricing pressure within the supply chain and kind of the partnering for success initiative with Boeing, I mean, how far along do you think you are in regards to kind of seeing some of these renegotiated contracts and price in exchange for volume?

Daniel G. J. Korte

I mean, we're somewhere in the middle, to be just real clear, maybe a lack of clarity around it. It's an ongoing negotiation, Tyler. They -- a couple of cases, we've settled the agreements. In other cases, we have a notional agreement, but nothing's been completed and signed yet. In all cases though, I think what we're driving towards is win-win. There are things that we can do to improve the cost of our products. We have been using our Engineering Services team to actually do some notional redesigns of our customers' products and then providing that back to them and showing them a way to indeed improve the design of the products. That's been very well-received by our customer set. And I think that's the kind of win-win we're looking for. I mean, if we can do those kinds of redesigns, if our customers will approve them, we'll give them part of the savings. We can drag part of our savings to our bottom line and get more volume in the process, that's what we're trying to go. But those are longer-term negotiations. Because approving redesigns on ongoing programs like the 737 is something you just have to work your way through and it takes a little bit of time to get all the engineering approved and decide what needs to happen if there's anything from a -- that our customers have to do to fully approve the new design.

Operator

Our next question comes from the line of Yair Reiner of Oppenheimer.

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Congrats on the nice progress in the quarter. So first on the 737, on the max, can you talk about where your ships set content is today and how that compares to your ship set content on the 737NG and perhaps, what is the bogey you're still striving for by the time that all the 737-MAX content is build out?

Daniel G. J. Korte

Our MAX content is just slightly over $100,000 today. Obviously, we're still working through the extensions for the NG at this point. So that is entirely new work statement. Our -- the 737NG content is about $200,000 per ship set, so if we're able to successfully negotiate, and we believe we will, the expectation was be to that 200 -- would be add-on to where we stand on the MAX.

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Got it. So it sounds like perhaps one of the key issues you're negotiating with Boeing over right now is exactly that $200,000 content on the NG?

Clifford C. Stebe

Yes. I think that's a fair statement. I think it's at several different customers, just to be clear.

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Okay, very good. And then, in terms of modeling, the run rate now, in terms of net interest expense given the new capital structure, it's about $7 million per quarter? Is that the right way to think about it?

Clifford C. Stebe

That seems a bit high. From my perspective, I think it's a little bit closer to $6 million or south of that for the run rate going forward.

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Got it. Great. And then, just maybe one last one for me. In terms of the engineering business, it seems to have stabilized in terms of the top line. Is there anything that you see on the horizon in terms of business opportunities or your current book of business that would suggest that could either strengthen or weaken over the next 12 months?

Daniel G. J. Korte

We actually think we've got it pretty well-stabilized right now. I mean it's -- we've been targeting setting that up as about $70 million to $80 million business. And it's right in that range. And we don't see any -- but we've also made sure it's profitable. And as you saw from the numbers today, it is adding good value to the bottom line of the company. And I think that's really where we have it targeted. We don't really see any big up or down side to that kind of range that I just stated.

Operator

Our next question comes from the line of Sam Pearlstein of Wells Fargo.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Can you tell us what the tooling revenue was that you mentioned? And I'm trying to just think about it, is that recurring or is that somewhat nonrecurring in this quarter?

Clifford C. Stebe

There's certainly some tooling left in the remainder of the year. I think total tooling sales in the quarter were just over $6 million. There's -- how do I -- Sam, there's always some level -- typically, almost always some level of tooling, but not quite of that magnitude. But both to the second quarter of last year, as well as this quarter certainly had some pretty sizable tooling in it.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Okay, and with all the wins that you highlighted in the release and you have been talking about, why is it that when I look at the backlog itself, you're seeing a pretty sizable sequential decline?

Clifford C. Stebe

Yes. The backlog is -- the biggest thing there is, we really do it base on the POs in place. And I would say, at this point, it's much of a timing matter as it is anything else, in which case when our clients actually place our POs. So we haven't seen a lot of POs placed in the current period -- or in this quarter, which is why you see a bit of a decline.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Okay, and then you mentioned that you think you'll be in a position to talk about the strategic review by the next call. Can you just talk about how you're thinking about laying that out and what should we expect to see? Is there guidance that comes with that? Is it just more about strategic actions you're taking? What should we expect to see?

Daniel G. J. Korte

Sam, I think it's -- it will be more about where we want to position the company, the businesses that we want to be in. If there are any businesses we don't want to be in, we'll talk through that. We'll continue to tie our operational strategy as an element of that, i.e., were there any footprint changes that come out of that strategic review. So I think the -- as far as next quarter is concerned, we're pretty focused on trying to get that kind of strategic dialogue going on this call. Guidance is still another question that we have to deal with it and we haven't settled out exactly where we're going to end up on that yet. But we'll at least have more to relay, we believe, on overall, where we're going to drive the business over the next, say, 5 years.

Clifford C. Stebe

And I think you may hear some stuff from us relative to a expansion at certain sites, too, because I think we do see some opportunities for growth and trying to continue to push towards our centers of excellence model.

Operator

Our next question comes from the line of Myles Walton of Deutsche Bank.

Myles A. Walton - Deutsche Bank AG, Research Division

Maybe to leadoff on cash flow. Cliff, I know you mentioned that your positive operating cash flow is expected to be the ongoing pace in each of the next 2 quarters, but and then you also said higher CapEx. So is it also positive free cash flow in each of the next few quarters? And what is the incremental CapEx we're talking about that you alluded to you have to spend more on?

Clifford C. Stebe

Yes. I think the -- as compared to this quarter, which had a pretty low capital of just over $2 million, I think a more realistic expectation is probably closer to $5 million each of the next 2 quarters; as we work through the rest of the year, probably more in line with where the first quarter was. But the expectation is that we will continue to have positive free cash flow each of the next -- I would say, in totality, the next few quarters it may -- the timing of certain payments or certain receipts could influence 1 quarter or the next, but in totality, certainly free cash flow.

Myles A. Walton - Deutsche Bank AG, Research Division

And then you also mentioned minimal tax provision obviously for this year. Is that something that's going to be with you for a while as a benefit the way you see it?

Clifford C. Stebe

I think certainly through '15 at this point. It just takes a while to get through the 3-year of positive projected income to typically get that to flip. So through '15, probably likely through some portion of '16, depending on how much profitability we can drive over a relatively short period of time. We certainly don't want it out there any longer than it needs to be.

Myles A. Walton - Deutsche Bank AG, Research Division

Okay. And then, Dan, 2 questions. One is the $10 million POS [ph] take-out restructuring savings. Where are we in terms of run rate, call it, in the second half of this year? And I imagine $10 million is the full realization in '15. And then the other piece is, as you talk with customers, obviously, you're new into the organization. You brought in a new COO. What kind of receptivity you're getting? What kind of feedback you're getting about where the customers kind of want you? And where maybe -- you weren't where they wanted to before, but you have an opportunity to go to?

Daniel G. J. Korte

Myles, on the $10 million, we have broken through that number. We have exceeded our $10 million goal. It is completely implemented at this point. All the restructuring costs associated with it have been booked. So for the next 2 quarters, we will get 6/12 of the benefit of that cost reduction dropping right through the business. So there's nothing left to do other than to go get more cost reductions and make the number higher. So we're quite happy with the progress thus far. On the -- your comment on the organization, I mean, I think our customers are pretty happy with where we're at right now and where we're going. We've gotten -- I've gotten very specific feedback from 2 of our largest customers about wanting to do significantly more work with us in the future. They, quite frankly, like our vertically integrated approach. They like doing business with us. And they -- and we deliver on our commitments. We make our promises come true. And so I think the addition of Joe to the team to really drive individual plant performance, to drive integration and consolidation across the organization so we are truly leveraging the depth and breadth of this company, I think is just going to be very helpful to our customer set. And they see it that way as well.

Myles A. Walton - Deutsche Bank AG, Research Division

The one, if I could put in there if I could. The 650 growth that you had or Gulfstream growth that you had, corporate regional aircraft growth, was the $2 million -- that sounded kind of tooling-related. But the $2 million that was just on the 650 sounded production-related. And if I think about kind of your ship set there, that's a reasonably healthy step-up in terms of production rate implied. I mean, are we at the end of the production rate ramp on that so that we're now at kind of a level load on the 650?

Clifford C. Stebe

Yes. I think at this point, I think that's probably a fair assessment. I think there's a conversion of SAP that may have seen a few orders come in this quarter. But there's probably a little bit of production rate increase left there as well. So I think it's pretty much -- pretty level from here forward.

Operator

[Operator Instructions] Our next question comes from the line of Bill Hoffmann of RBC Capital Markets.

William Hoffmann - RBC Capital Markets, LLC, Research Division

Dan, I wonder if you could just talk a little bit about some of your customers, I think we'll talk -- Spirit, for example, just incremental outsourcing opportunities as you look into 2015. What are you seeing on the horizon? And then the other thing is, you talked about opportunities with Airbus, et cetera. Just wondering if you can give us some color what your thoughts are at this point.

Daniel G. J. Korte

Yes. Thanks, Bill. Spirit, we've had, probably in the last 3 weeks, at least 3 meetings with senior executives at Spirit about their strategic direction and how that could lead to potentially more work for LMI. Of course, it's all tied to being affordable in the marketplace. But we feel that we're pretty well-positioned to do more work with our largest customer in Spirit. The relationship is good. I must admit, I talked about the quality and execution issues. 4 or 5 months ago, we were having discussions with Spirit about quality and what we were doing to improve our quality systems. Those discussions, although we'll always have them, we've made some improvements. We've seen the results. They're happy with the quality that they're getting from us today. We have to stay vigilant. But we've moved on, in general, in our conversations to talking with those guys about new business and new business opportunities. So if that gives you a flavor of where we're at right now, I hope it's helpful. Airbus, we are -- we've got a couple of new opportunities we're bidding on. We're very early in our Airbus relationship. I met with Airbus at the Farnborough Air Show. I've got meetings in 2 weeks in DC with some Airbus folks. It's going to take a while because it's about getting our first contract, getting some of the certifications that we need. We have some Airbus work today in the former Valent organization. But we'd like to expand that work scope and we'd like to expand it to other areas of certification that would be required. And so I expect that to unfold over -- that will take months of time to progress those discussions until we'll actually see, I think, significant new work from Airbus. I mean we will -- but we will grow it. I mean, just as we were trying to grow work in our composite facilities, we are now starting to see some of that work scope coming in. But we worked a long time to organically grow our Composites business. So those things, you just -- they take a little bit of patience. But you make your investments and they pay off in the end.

William Hoffmann - RBC Capital Markets, LLC, Research Division

Thanks. And then just the last question would be on the military side, your, obviously, year-over-year softness. And everyone's experiencing it, but I just wonder your thoughts on whether you're at a more stable state right now on Military business.

Daniel G. J. Korte

I mean, our military business, as you know, Bill, is primarily driven by the Black Hawk. And I -- it's hard to judge where that program's going to go. I think it's going to be around, as I said before, for a very, very long time. I mean, I see it, quite frankly, at a pretty stable rate right now. But Congress and decision-makers in DOD can change their mind at any time. But my best prognosis is that, at least for the near term, it'll be flat. And if anything, at some point, we'll see more upward pressure. I don't see a whole lot of downward pressure on Black Hawk. But again, that's just my view in reading probably the same magazines that everybody else reads on this call.

Operator

And sir, I'm showing no questions in the queue at this time. I'd like to turn this program back to Dan Korte for closing remarks.

Daniel G. J. Korte

All right, great. Thanks, Nova. And let me close by saying that we're really excited about the progress we have made such a short period of time. And this is just the starting point. As we know, we can do much more and we're planning the right steps as we refine our long-term strategic focus. We believe that execution in the key areas I discussed earlier will exceed our customer expectations and position the company to achieve continued growth and success in the years to come. I'd like to end with my personal thanks to the LMI team, as they continue to excel in providing significant value to the important customers we serve. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: LMI Aerospace's (LMIA) CEO Daniel G. J. Korte on Q2 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts