Business Overview and History
CPI Aerostructures, Inc. (CVU) is a leading U.S. manufacturer of structural aircraft parts and aerosystems for the commercial and defense markets. With a strong presence across the aerospace supply chain, the company has established itself as a trusted Tier 1 and Tier 2 supplier to major OEMs and the U.S. Department of Defense.
CPI Aerostructures was founded in 1980 and is headquartered in Edgewood, New York. The company specializes in the contract production of structural aircraft parts for fixed-wing aircraft and helicopters in both the commercial and defense markets. In addition to aerostructures, CPI Aero has a strong presence in the aerosystems sector, producing various reconnaissance pod structures and fuel panel systems. The company also provides engineering, program management, supply chain management, and maintenance/repair services.
From its early years, CPI Aero established itself as a Tier 1 supplier to aircraft original equipment manufacturers (OEMs) and a Tier 2 subcontractor to major Tier 1 manufacturers. The company also became a prime contractor to the United States Department of Defense, primarily the United States Air Force. This diversification across tiers and markets has been a key factor in the company's long-term stability and growth.
Over its 40+ year history, CPI Aerostructures has navigated various industry challenges, including market volatility, supply chain disruptions, and regulatory changes. In the late 1990s, the company expanded its offerings to include military contracts, diversifying its revenue streams and reducing reliance on the commercial aviation sector. This strategic move proved pivotal during the post-9/11 industry downturn, as CPI Aerostructures was able to leverage its defense business to offset declines in commercial orders.
In the 2010s, CPI Aerostructures further strengthened its position in the aerospace market through targeted acquisitions and the development of new proprietary technologies. The company's 2016 acquisition of Welding Metallurgy, Inc. (WMI) bolstered its capabilities in complex structural welding, a critical skill for military and commercial aircraft programs. Additionally, the company's investments in automation and digital manufacturing have enhanced its operational efficiency and competitiveness.
Financial Overview
CPI Aerostructures has demonstrated a consistent financial performance, with revenue of $86.47 million and net income of $17.20 million in the fiscal year 2023. The company's gross profit margin for the year was 19.7%, reflecting its ability to maintain profitability amid industry challenges. Operating cash flow for 2023 was $3.93 million, with free cash flow of $3.79 million.
In the first nine months of 2024, CPI Aerostructures generated $59.31 million in revenue and $2.33 million in net income, with a gross profit margin of 21.7%. The company's operating cash flow for the nine-month period was $0.84 million, and it reported free cash flow of $0.51 million.
The most recent quarter (Q3 2024) saw revenue of $19.42 million, net income of $749,680, operating cash flow of $715,150, and free cash flow of $586,890. Compared to the same quarter in the previous year, revenue decreased by 4.8%, while net income increased by 148.8%, operating cash flow increased by 137.6%, and free cash flow increased by 94.6%. The decreases in revenue were primarily due to lower sales on the USAF T-38 Pacer Classic Structure Modification Kits program and Northrop Grumman E-2D Advanced Hawkeye Outer Wing Panels program, partly offset by increases in the Raytheon NGJ Mid Band Pods program.
The company's balance sheet remains healthy, with a current ratio of 1.60 and a quick ratio of 1.56 as of September 30, 2024. CPI Aerostructures has effectively managed its working capital, with a cash conversion cycle of 100 days as of the end of the previous fiscal year. The debt-to-equity ratio stands at 0.73, indicating a manageable level of leverage.
Liquidity
As of September 30, 2024, CPI Aerostructures had $1.71 million in cash. The company has a revolving credit facility with a maximum borrowing capacity of $19.8 million, declining to $12.39 million by July 2026. The facility matures in August 2026, providing the company with additional financial flexibility.
Diversified Customer Base and Backlog
CPI Aerostructures serves a diverse customer base, including major aerospace OEMs such as Lockheed Martin, Sikorsky, Raytheon, and Embraer, as well as the U.S. Department of Defense. In the first nine months of 2024, the company's top four customers accounted for 83% of its total revenue, highlighting its reliance on a small number of key clients.
As of September 30, 2024, CPI Aerostructures' total backlog stood at $506.02 million, of which $91.50 million was funded and $414.52 million was unfunded. The company's backlog is predominantly composed of government and military contracts, which accounted for 96% of the total. This diversified backlog provides the company with a strong foundation for future growth and revenue visibility.
CPI Aerostructures operates in a single operating and reportable segment, providing contract production of structural aircraft parts for both the commercial and defense markets. The company's primary revenue sources are from government subcontracts and prime government contracts. Government subcontract revenue accounted for 82.5% of total revenue in the first nine months of 2024, coming from the production of structural parts for fixed-wing aircraft and helicopters for military customers. This includes work on programs such as the Raytheon Next Generation Jammer-Mid Band Pods, Lockheed Martin F-16 RIDCCs, Sikorsky UH-60 BLACKHAWK Gunner Windows, and L3Harris Next Generation Jammer-Low Band Pods.
Revenue from prime government contracts made up 11.9% of total revenue, derived from direct contracts with the U.S. government, predominantly the U.S. Air Force, for programs like the T-38 Pacer Classic Structural Modification Kits. The remaining 5.6% of revenue came from commercial subcontracts, such as the Embraer Phenom 300 Engine Inlet Assemblies program.
Operational Challenges and Initiatives
Like many aerospace suppliers, CPI Aerostructures has navigated various operational challenges in recent years. The COVID-19 pandemic had a significant impact on the company's performance, leading to delays in customer programs and supply chain disruptions. In response, the company implemented cost-saving measures, including workforce reductions and the consolidation of its manufacturing footprint.
In 2024, CPI Aerostructures faced additional headwinds, including ongoing supply chain constraints and inflationary pressures. To mitigate these challenges, the company has focused on strengthening its supplier relationships, implementing lean manufacturing practices, and passing on increased costs to its customers through contract adjustments.
Furthermore, the company has invested in the development of new technologies and production capabilities to enhance its competitiveness. In 2024, CPI Aerostructures secured a long-term agreement with MST Manufacturing, a critical supplier, to ensure the continued availability of key components.
Regulatory Compliance and Settlement with the SEC
In June 2024, CPI Aerostructures reached a settlement with the Securities and Exchange Commission (SEC) related to the restatement of certain financial statements between 2018 and 2022. As part of the settlement, the company agreed to undertake various remedial actions, including the implementation of enhanced internal controls and the certification of its compliance with the agreed-upon terms. CPI Aerostructures committed to fully remediate its material weaknesses in internal controls over financial reporting by the end of 2024.
The settlement underscores the importance of robust financial reporting and internal control systems, which are critical for maintaining investor confidence and ensuring regulatory compliance in the highly regulated aerospace industry.
Outlook and Future Opportunities
Despite the operational challenges faced in recent years, CPI Aerostructures remains well-positioned to capitalize on the long-term growth prospects of the aerospace industry. The company's diverse customer base, strong backlog, and continued investments in technology and manufacturing capabilities position it as a valuable partner to both commercial and military customers.
Looking ahead, the company's focus on program execution, operational efficiency, and diversification will be crucial in navigating the evolving industry landscape. Additionally, CPI Aerostructures' position as a trusted supplier to major OEMs and the U.S. Department of Defense provides a solid foundation for sustained growth and profitability.
The company's substantial government-related backlog provides a solid foundation for its business, though it continues to navigate the evolving dynamics of the aerospace industry. CPI Aerostructures' ability to maintain a strong gross margin through favorable adjustments to contract estimates, despite facing lower revenue and higher material and labor costs on certain programs, demonstrates its resilience and adaptability.
Conclusion
CPI Aerostructures has demonstrated its resilience and adaptability in the face of industry headwinds, leveraging its diverse capabilities and customer relationships to navigate challenges and capitalize on emerging opportunities. As the aerospace industry continues to evolve, the company's commitment to operational excellence, technological innovation, and regulatory compliance will be key to its long-term success. With a strong backlog, improved financial performance, and a focus on high-value government and military contracts, CPI Aerostructures is well-positioned to capitalize on future growth opportunities in the aerospace and defense sectors.