CPI Aerostructures, Inc. (NYSE: CVU) is a leading provider of structural aircraft parts and aerosystems for both the commercial and defense markets. With a strong presence in the global aerostructure and aerosystem supply chain, the company has established itself as a trusted Tier 1 supplier to major aircraft original equipment manufacturers (OEMs) and a prime contractor to the U.S. Department of Defense (DOD).
Business Overview
CPI Aerostructures operates through its wholly-owned subsidiaries, CPI Aero and Welding Metallurgy, Inc. (WMI). The company specializes in the contract production of structural aircraft parts, including fixed-wing aircraft and helicopter components, as well as the manufacture of various reconnaissance pod structures and fuel panel systems. This diversified product portfolio positions CPI Aerostructures as a key player in both the commercial and defense aerospace markets.The company's customer base includes leading aircraft OEMs, such as Raytheon, Collins Aerospace, Lockheed Martin, Embraer, and Sikorsky, as well as the U.S. Air Force. CPI Aerostructures provides a range of services, including engineering, program management, supply chain management, kitting, and maintenance, repair, and overhaul (MRO) services, in addition to its core manufacturing capabilities.
Financial Performance
CPI Aerostructures has demonstrated a solid financial track record, with annual revenue reaching $86.47 million in 2023 and net income of $17.20 million. The company's operating cash flow for the year was $3.93 million, while free cash flow amounted to $3.79 million.For the first quarter of 2024, the company reported revenue of $19.08 million, a decrease of 13.3% compared to the same period in 2023. This decline was primarily driven by decreases in the Raytheon NGJ – Mid Band Pods, Sikorsky UH-60 BLACKHAWK Hover Infrared Suppression System (HIRSS) Module Assemblies, and Lockheed Martin F-16 Rudder Island/Drag Chute Canisters (RI/DCC's) programs, partially offset by increases in the USAF T-38 Pacer Classic Structural Modification Kits and Collins Aerospace Pods programs.
Gross profit for the first quarter of 2024 was $3.55 million, with a gross margin of 18.6%, compared to $4.66 million and a gross margin of 21.2% in the same period of 2023. The decrease in gross profit and margin was primarily due to an unfavorable mix of programs and higher unfavorable adjustments to gross profit, which totaled $1.17 million in the first quarter of 2024 compared to $721,005 in the same period of 2023.
Selling, general, and administrative (SG&A) expenses for the first quarter of 2024 were $2.71 million, a decrease of 5.4% compared to the same period in 2023, primarily due to lower personnel-related expenses.
Net income for the first quarter of 2024 was $168,238, compared to $983,305 in the same period of 2023, a decrease of 82.9%. This decline was primarily driven by the lower gross profit and higher interest expense.
Backlog and Outlook
As of March 31, 2024, CPI Aerostructures' total backlog stood at $510.37 million, with $103.60 million in funded backlog and $406.77 million in unfunded backlog. Approximately 96% of the total backlog was attributable to government and military contractor contracts.The company's backlog is primarily comprised of long-term programs with major defense and commercial customers, including Raytheon, Collins Aerospace, the USAF, Lockheed Martin, Embraer, Sikorsky, and Boeing. Key programs include the Next Generation Jammer (NGJ) – Mid Band Pods, Airborne Reconnaissance Pods, T-38 Classic Structural Modification Kits, F-16 RI/DCC's, B-52 Radar Racks, Phenom 300 Engine Inlets, CH-53K Welded Tubes, UH-60 BLACKHAWK Gunner Windows, and A-10 Main Landing Gear Pods.
CPI Aerostructures has not provided any specific guidance for the full year 2024. However, the company's diversified customer base and strong backlog of government and military contracts suggest a relatively stable outlook, despite the challenges faced in the first quarter of 2024.
Liquidity and Capital Resources
As of March 31, 2024, CPI Aerostructures had cash of $3.02 million and working capital of $15.17 million. The company's liquidity position is supported by its revolving credit facility with BankUnited, which had an outstanding balance of $19.08 million as of the end of the first quarter.In February 2024, the company entered into a Thirteenth Amendment to the Credit Agreement, which extended the maturity date of the revolving line of credit to August 31, 2025 and adjusted the maximum principal amount of the revolving loans. The Credit Agreement requires the company to maintain certain financial covenants, including a minimum debt service coverage ratio, maximum leverage ratio, minimum net income, and minimum adjusted EBITDA.
Management believes that the company's existing resources, along with its cash flows from operations, will be sufficient to meet its current working capital needs for at least the next 12 months. However, the company's working capital requirements can vary significantly, depending on the timing of new program awards and the payment terms with customers and suppliers.
Risks and Challenges
CPI Aerostructures faces several risks and challenges that could impact its financial performance and growth prospects. These include:1. Reliance on a limited number of large customers: A significant portion of the company's revenue is derived from a limited number of large customers, such as Raytheon, Collins Aerospace, and the U.S. government. The loss of any of these major customers could have a material adverse effect on the company's business.
2. Exposure to program delays and cancellations: Many of CPI Aerostructures' programs require significant upfront costs that may need to be amortized over a portion of production units. Delays or cancellations of these programs could result in margin degradation and the loss of these upfront costs.
3. Competitive pressures: The aerospace manufacturing industry is highly competitive, and CPI Aerostructures faces competition from both domestic and international players, which could put pressure on the company's pricing and profit margins.
4. Supply chain disruptions and inflation: The current inflationary environment and supply chain challenges in the U.S. could impact the company's costs, availability of materials, and ability to meet customer demand.
5. Regulatory and compliance risks: As a government contractor, CPI Aerostructures is subject to various regulatory requirements and compliance obligations, which could result in additional costs and potential liabilities if not properly managed.