CPI AEROSTRUCTURES INC

Previous wording

On February 20, 2024, the Company entered into a Thirteenth Amendment to the Credit Agreement (the “Thirteenth Amendment”). Under the Thirteenth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Company’s existing revolving line of credit to August 31, 2025; and (b) setting the aggregate maximum principal amount of all revolving line of credit loans to $19,800,000 from January 1, 2024 through March 31, 2024, $19,080,000 from April 1, 2024 through June 30, 2024, $18,360,000 from July 1, 2024 through September 30, 2024, $17,640,000 from October 1, 2024 through December 31, 2024, $16,920,000 from January 1, 2025 through March 31, 2025, $16,200,000 from April 1, 2025 through June 30, 2025 and $15,480,000 thereafter, and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each such period.

Current wording

On November 13, 2024, the Company entered into a Fourteenth Amendment to the Credit Agreement (the “Fourteenth Amendment”). Under the Fourteenth Amendment, the parties amended the Credit Agreement by: (i) extending the maturity date of the Company’s existing revolving line of credit (the “Revolving Credit Loans”) to August 31, 2026; (ii) reducing the Base Rate Margin (as defined in the Credit Agreement) from 3.50% to 2.0%; (iii) resetting the aggregate maximum principal amount of all Revolving Credit Loans to $16,890,000 from January 1, 2025 through March 31, 2025, $16,140,000 from April 1, 2025 through June 30, 2025, $15,390,000 from July 1, 2025 through September 30, 2025, $14,640,000 from October 1, 2025 through December 31, 2025, $13,890,000 from January 1, 2026 through March 31, 2026, $13,140,000 from April 1, 2026 through June 30, 2026, and $12,390,000 from July 1, 2026 onward and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each such period; and (iv) requiring the Company, if it does not deliver to BankUnited, N.A. by December 31, 2025, a commitment letter with banks and terms and conditions reasonably acceptable to the Lenders for refinancing the obligations under the Credit Agreement, to make a payment by January 31, 2026, equal to 2% of the aggregate outstanding principal amount of the Revolving Credit Loans as of December 31, 2025, with 50% of such payment applied to reduce the aggregate outstanding principal and the remaining 50% retained by the Lenders as an amendment fee with respect to the Fourteenth Amendment.

Previous wording

We are engaged in the contract production of structural aircraft parts for fixed wing aircraft and helicopters in both the commercial and defense markets. We also have a strong and growing presence in the aerosystems sector of the market, with our production of various reconnaissance pod structures and fuel panel systems. Within the global aerostructure and aerosystem supply chain, we are either a Tier 1 supplier to aircraft OEMs or a Tier 2 subcontractor to major Tier 1 manufacturers. We also are a prime contractor to the U.S. DOD, primarily the USAF. In conjunction with our assembly operations, we provide engineering, program management, supply chain management and kitting, and MRO services.

Current wording

We are engaged in the contract production of structural aircraft assemblies for fixed wing aircraft and helicopters in both the commercial and defense markets. We also have a strong and growing presence in the aerosystems sector of the market, with our production of various reconnaissance pod structures and fuel panel systems. Within the global aerostructure and aerosystem supply chain, we are either a Tier 1 supplier to aircraft OEMs or a Tier 2 subcontractor to major Tier 1 manufacturers. We also are a prime contractor to the U.S. DOD, primarily the USAF. In conjunction with our assembly operations, we provide engineering, program management, supply chain management and kitting, and MRO services.

Previous wording

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include revenue recognition, the valuation of deferred income taxes, and the valuation of inventory. Actual results could differ from those estimates.

Current wording

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include revenue recognition, and the valuation of deferred income taxes. Actual results could differ from those estimates.

Previous wording

Assessing the realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or all the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as a cumulative loss in recent years, as a significant piece of negative evidence to overcome. As of December 31, 2023, the Company achieved three years of consecutive book and taxable income, along with projections of profitability, for which management determined that there is sufficient positive evidence to conclude that it is more likely than not that a portion of the deferred tax assets will be realized. As such, $14,170,891 of the valuation allowance was released during the fourth quarter of 2023, leaving a balance in the valuation allowance of $569,143 as of December 31, 2023.

Current wording

Assessing the realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or all the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as a cumulative loss in recent years, as a significant piece of negative evidence to overcome. For the period ended December 31, 2023, the Company achieved three years of cumulative book and taxable income, along with projections of profitability, for which management determined that there was sufficient positive evidence to conclude that it is more likely than not that a portion of the deferred tax assets will be realized. As such, $14,170,891 of the valuation allowance was released during the fourth quarter of 2023. During 2024 the Company continued to assess its ability to realize its deferred tax asset. The Company continued to be profitable in 2024 and there was no significant change to the Company’s forecast of income or its ability to realize the deferred tax asset at December 31, 2024. The increase of $404,224 is most significantly related to the state valuation allowance.

Previous wording

Revenue generated from prime government contracts for the year ended December 31, 2023 was $11,842,145 compared to $8,663,308 for the year ended December 31, 2022, an increase of $3,178,837, or 36.7%. This increase is primarily a result of increased revenue recognized on the T-38 Pacer Classic program.

Current wording

Revenue generated from prime government contracts for the year ended December 31, 2024 was $11,677,152 compared to $11,842,145 for the year ended December 31, 2023, a slight decrease of $164,993, or 1.4%. This decrease is the result of decreased revenue recognized on the T-38 Pacer Classic program.

Previous wording

Revenue generated from government subcontracts for the year ended December 31, 2023 was $69,672,602 compared to $69,023,729 for the year ended December 31, 2022, an increase of $648,873, or 0.9%. The increase in revenue was primarily related to increases in the Raytheon - SDTA program and the Lockheed Martin F-16 Rudder Island program, partly offset by decreases in the Sikorsky HIRRS program and the NGC E-2D WOWP program.

Current wording

Revenue generated from government subcontracts for the year ended December 31, 2024 was $64,704,370 compared to $69,672,602 for the year ended December 31, 2023, a decrease of $4,968,232, or 7.1%. The decrease was primarily related to various programs that neared completion in 2024 including NGC E-2D and Sikorsky HIRRS programs coupled with the timing of work performed on the Lockheed Martin F-16 program. These decreases were partly offset by NGJ Mid Band production and Sikorsky Welded Tubes.

Previous wording

Revenue generated from commercial contracts for the year ended December 31, 2023 was $4,951,574 compared to $5,648,727 for the year ended December 31, 2022, a decrease of $697,153, or 12.3%. The decrease in revenue resulted from decreased revenue recognized on the Gulfstream G650 program, which concluded in 2022.

Current wording

Revenue generated from commercial contracts for the year ended December 31, 2024 was $4,697,342 compared to $4,951,574 for the year ended December 31, 2023, a decrease of $254,232 or 5.1%. The decrease in revenue resulted from decreased revenue recognized on the timing of work performed on the Embraer Phenom 300 Inlet program.

Previous wording

Cost of sales for the year ended December 31, 2023 was $69,400,693 compared to $67,031,502 for the year ended December 31, 2022, an increase of $2,369,191 or 3.5%.

Current wording

Cost of sales for the year ended December 31, 2024 was $63,840,803 compared to $69,400,693 for the year ended December 31, 2023, a decrease of $5,559,890 or 8.0%.

Previous wording

Labor costs for the year ended December 31, 2023 were $7,054,308 compared to $6,829,405 for the year ended December 31, 2022, an increase of $224,903 or 3.3%. The increase is primarily the result of higher labor cost incurred on the Boeing A-10 Warthog program.

Current wording

Labor costs for the year ended December 31, 2024 were $7,303,563 compared to $7,054,308 for the year ended December 31, 2023, an increase of $249,255 or 3.5%. The increase is primarily the result of work performed on the Boeing A-10 program, offset by decreases on our Raytheon NGJ – Mid Band Pods program due to efficiencies.

Previous wording

Other cost of sales relates to items that can increase or decrease cost of sales such as changes in inventory levels, changes in inventory valuation, changes to inventory reserves, changes in loss contract provisions and direct charges to cost of sales. For the year ended December 31, 2023, there were costs in the amount of $297,617 compared to a reduction of costs in the amount of $1,622,673 for the year ended December 31, 2022, an increase of $1,920,290 or 118.3%. The increase is primarily the result of a higher level of cost decrease in 2022 related to changes in inventory levels and loss contract reserve reductions.

Current wording

Other cost of sales relates to items that can increase or decrease cost of sales such as changes in inventory levels, changes in inventory valuation, changes to inventory reserves, changes in loss contract provisions and direct charges to cost of sales. For the year ended December 31, 2024, there were costs in the amount of $282,894 compared to $297,617 for the year ended December 31, 2023, a decrease of $14,723 or 4.9%.

Previous wording

Gross profit for the year ended December 31, 2023 was $17,065,628 compared to $16,304,262 for the year ended December 31, 2022, an increase of $761,366 or 4.7%. Gross profit percentage (“gross margin”) for the year ended December 31, 2023 was 19.7% compared to 19.6% for year ended December 31, 2022.

Current wording

Gross profit for the year ended December 31, 2024 was $17,238,061 compared to $17,065,628 for the year ended December 31, 2023, an increase of $172,433 or 1.0%. Gross profit percentage (“gross margin”) for the year ended December 31, 2024 was 21.3% compared to 19.7% for year ended December 31, 2023.

Previous wording

During the years ended December 31, 2023 and 2022, we made changes in estimates to various contracts. Such changes in estimates resulted in changes in total gross profit as follows:

Current wording

During the years ended December 31, 2024 and 2023, we made changes in estimates to various contracts. Such changes in estimates resulted in changes in total gross profit as net unfavorable adjustments totaling $3,750,020 and 1,450,502 for the years ended December 31, 2024 and December 31, 2023.******

Previous wording

Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2023 were $10,758,624 compared to $11,410,067 for the year ended December 31, 2022, a decrease of $651,443 or 5.7%. The decrease was primarily due to decreased insurance expense and legal fees.

Current wording

Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2024 were $10,506,439 compared to $10,758,624 for the year ended December 31, 2023, a decrease of $252,185 or 2.3%. The decrease was primarily due to a reduction of consulting and legal fee expenses.

Previous wording

Interest expense for the year ended December 31, 2023 was $2,455,214, compared to $2,271,101 for the year ended December 31, 2022, an increase of $184,113 or 8.1%. The increase is the result of higher year-over-year interest rates charged on our outstanding debt under the Credit Agreement, partially offset by a year-over-year decrease in the amount of our outstanding debt under the Credit Agreement.

Current wording

Interest expense for the year ended December 31, 2024 was $2,288,834, compared to $2,455,214 for the year ended December 31, 2023, a decrease of $166,380 or 6.8%. The decrease is the result of a year-over-year decrease in the amount of our outstanding debt under the Credit Agreement coupled with a lower year-over-year interest rates charged.

Previous wording

Income before provision for income taxes for the year ended December 31, 2023 was $3,851,790 compared to $2,623,094 for the year ended December 31, 2022, an increase of $1,228,696 or 46.8%. The increase was driven by the aforementioned increase in gross profit and decrease in SG&A, partially offset by the increase in interest expense described above.

Current wording

Income before provision for income taxes for the year ended December 31, 2024 was $4,442,788 compared to $3,851,790 for the year ended December 31, 2023, an increase of $590,998 or 15.3%. The increase was driven by the aforementioned increase in gross profit and decreases in both SG&A and interest expense described above.

Previous wording

The income tax (benefit) for the year ended December 31, 2023 was ($13,349,414), which was an effective tax (benefit) rate of (346.6%), as compared to the income tax (benefit) of ($6,553,131) for the year ended December 31, 2022, which was an effective tax (benefit) rate of (249.8%). The income tax (benefit) in 2023 and 2022 was primarily due to reductions of the Company’s deferred tax asset valuation allowance recorded by the Company in the fourth quarter of 2023 and the fourth quarter of 2022 of $14,170,891 and $6,473,532, respectively.

Current wording

The income tax (benefit) for the year ended December 31, 2024 was $1,143,454, which was an effective tax (benefit) rate of 25.7%, as compared to the income tax (benefit) of ($13,349,414) for the year ended December 31, 2023, which was an effective tax (benefit) rate of (346.6%). The income tax recorded in 2024 and income tax benefit realized in 2023 was primarily due to federal and state statutory rates in 2024 and the reduction of the Company’s deferred tax asset valuation allowance recorded by the Company in the fourth quarter of 2023, respectively.

Previous wording

Net income for the year ended December 31, 2023 was $17,201,204 compared to $9,176,225 for the year ended December 31, 2022, an increase of $8,024,979 or 87.5%. The increase in net income was driven by the aforementioned increase in gross profit, decrease in SG&A and the 2023 income tax (benefit), partially offset by the aforementioned increase in interest expense.

Current wording

Net income for the year ended December 31, 2024 was $3,299,334 compared to $17,201,204 for the year ended December 31, 2023, a decrease of $13,901,870 or 80.8%. The decrease in net income was driven by the 2023 income tax benefit.

Previous wording

Basic earnings per share was $1.40 for the year ended December 31, 2023 calculating utilizing 12,311,219 weighted average shares outstanding as compared to $0.74 for the year ended December 31, 2022 calculated utilizing 12,389,890 weighted average shares outstanding, an increase of $0.66 per share, or 88.8%. Diluted earnings per share was $1.38 for the year ended December 31, 2023 calculated utilizing 12,471,961 weighted average shares outstanding as compared to $0.74 for the year ended December 31, 2022 calculated utilizing 12,389,890 weighted average shares outstanding, an increase of $0.64 per share, or 86.4%.

Current wording

Basic earnings per share was $0.26 for the year ended December 31, 2024 calculating utilizing 12,593,213 weighted average shares outstanding as compared to $1.40 for the year ended December 31, 2023 calculated utilizing 12,311,219 weighted average shares outstanding, an decrease of $1.14 per share, or 81.4%. Diluted earnings per share was $0.26 for the year ended December 31, 2024 calculated utilizing 12,709,237 weighted average shares outstanding as compared to $1.38 for the year ended December 31, 2023 calculated utilizing 12,471,961 weighted average shares outstanding, an decrease of $1.12 per share, or 81.2%. Decrease in the basic and diluted earnings per share are due to the reduction of the Company’s deferred tax asset valuation allowance recorded by the Company in the fourth quarter of 2023 which favorably impacted 2023 by $1.12 per share.

Previous wording

General*.*At December 31, 2023, we had working capital of $15,402,381 compared to working capital of $12,896,602 at December 31, 2022, an increase of $2,505,779, or 19.4%. This increase is primarily the result of an increase in contract assets and cash, partially offset by an increase in accrued expenses and accounts payable and a decrease in current portion of long-term debt.

Current wording

At December 31, 2024, we had working capital of $17,122,111 compared to working capital of $15,402,381 at December 31, 2023, an increase of $1,719,730, or 11.2%. The increase is primarily the result of an increase in net contract assets and a decrease to accrued expenses offset by decreases in accounts receivable and inventory, and an increase in accounts payable.

Previous wording

Cash Flow. A large portion of our cash is used to pay for materials and processing costs associated with contracts that are in process and which do not provide for progress payments. Costs for which we are not able to bill on a progress basis are components of contract assets on our consolidated balance sheet and represent the aggregate costs and related earnings for uncompleted contracts for which the customer has not yet been billed. These costs and earnings are recovered upon shipment of products and presentation of billings in accordance with contract terms.

Current wording

A large portion of our cash is used to pay for materials and processing costs associated with contracts that are in process and which do not provide for progress payments. Costs for which we are not able to bill on a progress basis are components of contract assets on our consolidated balance sheet and represent the aggregate costs and related earnings for uncompleted contracts for which the customer has not yet been billed. These costs and earnings are recovered upon shipment of products and presentation of billings in accordance with contract terms.

Previous wording

At December 31, 2023, our cash balance was $5,094,794 compared to $3,847,225 at December 31, 2022, an increase of $1,247,569, or 32.4%. The increase was driven by $3,928,341 in cash provided by operations, partly offset by our pay down of outstanding debt during 2023 of $2,679,766.

Current wording

At December 31, 2024, our cash balance was $5,490,963 compared to $5,094,794 at December 31, 2023, an increase of $396,169 or 7.8%. The increase was driven by $3,558,935 in cash provided by operations, partly offset by our pay down of outstanding debt during 2024 of $2,694,498 and purchase of equipment of $403,854.

Previous wording

Our working capital requirements can vary significantly, depending in part on the timing of the conclusion of mature programs and new program awards and the payment terms with our customers and suppliers. There is currently no availability for borrowings under the BankUnited Facility and the Company finances its operations from internally generated cash flow. Note 8 to our consolidated financial statements included in Part II - Item 8 includes a discussion regarding the BankUnited Facility and recent amendments thereto which provide, among other things, for increases in principal payments and the interest rate on the loans provided for therein. Management has (i) negotiated and executed a further amendment to the Credit Agreement which extended the maturity date of the Credit Agreement to August 31, 2025, (ii) obtained and regularly seeks additional progress payment and advance payment customer contract funding provisions, (iii) maintained procedures to minimize investments in inventory and contract assets, (iv) remained focused on its military customer base and (v) maintained its approximately $118.2 million backlog of funded orders, 98% of which are for military programs. Based upon the aforementioned factors, it is management’s estimation that there will likely not be any individual conditions or combination of events that will occur in the coming year which would cause the Company to be unable to meet its obligations or otherwise continue as a going concern. However, there can be no assurance that such plans will accomplish their intended goals.

Current wording

Our working capital requirements can vary significantly, depending in part on the timing of the conclusion of mature programs and new program awards and the payment terms with our customers and suppliers. There is currently no availability for borrowings under the BankUnited Facility and the Company finances its operations from internally generated cash flow. Note 8 to our consolidated financial statements included in Part II - Item 8 includes a discussion regarding the BankUnited Facility and recent amendments thereto which provide, among other things, for increases in principal payments and the interest rate on the loans provided for therein. Management has (i) negotiated and executed a further amendment to the Credit Agreement which extended the maturity date of the Credit Agreement to August 31, 2026, (ii) obtained and regularly seeks additional progress payment and advance payment customer contract funding provisions, (iii) maintained procedures to minimize investments in inventory and contract assets, (iv) remained focused on its military customer base and (v) maintained its approximately $85.0 million backlog of funded orders, 97% of which are for military programs. Based upon the aforementioned factors, it is management’s estimation that there will likely not be any individual conditions or combination of events that will occur in the coming year which would cause the Company to be unable to meet its obligations or otherwise continue as a going concern. However, there can be no assurance that such plans will accomplish their intended goals.

Previous wording

Inflation historically has not had a material effect on our operations, although the current inflationary environment in the U.S., and its impact on interest rates, the supply chain, the labor market and general economic conditions, are factors that the Company actively monitors in an attempt to mitigate and manage potential negative impacts on and risks faced by the Company. The majority of the Company’s long term contracts with its customers reflect fixed pricing and its long term contracts with its suppliers reflect fixed pricing. When bidding for work, the Company takes inflation risk and supply side pricing risk into account in its proposals.

Current wording

Inflation historically has not had a material effect on our operations, although the current inflationary environment in the U.S., and its impact on interest rates, supply chain, labor markets and general economic conditions, are factors that the Company actively monitors in an attempt to mitigate and manage potential negative impacts on and risks faced by the Company. The majority of the Company’s long term contracts with its customers and suppliers reflect fixed pricing. When bidding for work, the Company takes inflation risk and supply side pricing risk into account in its proposals.