SOURCE: CPI Aerostructures, Inc.

CPI Aerostructures, Inc.

November 08, 2016 07:10 ET

CPI Aerostructures Announces 2016 Third Quarter Financial Results

Reports Backlog of $441.5M; Record Defense Backlog of $332.7M; Driven by Multi-Year Defense Contracts

EDGEWOOD, NY--(Marketwired - Nov 8, 2016) - CPI Aerostructures, Inc. ("CPI Aero®") (NYSE MKT: CVU) today announced financial results for the three-month and nine-month periods ended September 30, 2016.

Summary Highlights

  • Backlog of $441.5 Million at September 30, 2016, up $54.2 Million, or 14%, From 2015 Year-End

  • Record Defense backlog of $332.7 Million; up 20% at September 30, 2016 from 2015 year-end; multi-year defense contracts now represent 75% of total backlog

  • Raytheon Next Generation Jammer Pod award validates technical capabilities for Electronic Warfare/Intelligence, Surveillance and Reconnaissance pod structures

  • Embraer E175-E2 award recognizes world class program management and supply chain management capabilities

  • Expect revenue growth in 2017 and a return to profit

Revenue for the 2016 third quarter was $22.1 million compared to $26.8 million for the 2015 third quarter. Gross profit was $5.0 million for the third quarter of 2016, versus $5.6 million for the third quarter of 2015. Pre-tax income for the 2016 third quarter was $2.7 million compared to $3.5 million in the 2015 third quarter. Net profit for the 2016 third quarter was $1.7 million, or $0.19 per diluted share, compared to $2.4 million, or $0.28 per diluted share, in the 2015 third quarter.

Third quarter 2016 results include $2.7 million in zero-margin revenue related to the A-10 Wing Replacement Program (WRP). In reporting first quarter 2016 results, CPI Aero announced that it had incurred a non-cash charge of approximately $13.5 million related to its estimate to perform through the conclusion of the order. Accordingly, the company is recording A-10 WRP revenue for the remainder of the program at zero gross profit. The results summarized below are presented on an adjusted basis that excludes the impact of the A-10 WRP from the applicable periods.

Third Quarter 2016 vs. Third Quarter 2015 (As Adjusted)

  • Revenue was $19.4 million compared to $23.9 million
  • Gross profit was $5.0 million compared to $5.6 million
  • Pre-tax income was $2.7 million compared to $3.5 million
  • Net income was $1.7 million compared to $2.4 million
  • Earnings per diluted share were $0.19 compared to $0.28

Nine Months 2016 vs. Nine Months 2015 (As Adjusted)

  • Revenue was $58.7 million to $55.8 million 
  • Gross profit was $13.7 million compared to $13.1 million
  • Pre-tax income was $6.2 million compared to $6.4 million
  • Net income was $3.9 million compared to $4.4 million and
  • Earnings per diluted share were $0.45 compared to $0.51

"Our continued focus on operational excellence and program execution resulted in another quarter of solid financial performance," stated Douglas McCrosson, president and chief executive officer of CPI Aero. "The decline in revenue and income for the third quarter of 2016 as compared to the third quarter of 2015 was expected and largely attributed to a reduction in revenue for the E-2D outer wing panel ("OWP") kits. The multi-year E-2D OWP contract awarded in late 2014 front-loaded certain program activities from later years into 2015 that accelerated the timing of revenue recognition. We were pleased to see steady revenue and improving margin from our commercial market and meaningful contributions from our newer multi-year defense programs, such as the E-2D for Japan, T-38 and F-16, in the third quarter of 2016.

"We also continued to build momentum heading into 2017 with significant contract awards from Raytheon and Embraer that increased backlog at September 30 to a record $441.5 million. Subsequent to the close of the third quarter, we announced a $5 million defense contract with Lockheed Martin/Sikorsky, and I'm optimistic that our strategy to focus on the defense market will result in additional defense contracts during the closing months of 2016. The success of this strategy can already be measured by our record backlog. As of September 30, 2016, $247 million of the backlog consists of defense programs announced during the past 24 months, affording us substantial revenue visibility in future years."

"Looking ahead, we believe we have the foundation in place for strong long-term value creation," continued Mr. McCrosson. "As exemplified by our two separate contracts from Raytheon on its Next Generation Jammer Pod in the third quarter, our program management, supply chain management and technical expertise differentiate CPI Aero from our competitors and are highly valued by our customers. Our defense programs strike a good balance between modernization and readiness that we believe place us in the best position to be successful in light of uncertain and evolving U.S. defense budget priorities. Our commercial business remains steady from year-ago levels and we expect that growth in our defense business should more than offset possible headwinds in our business jet product lines. 

Mr. McCrosson concluded, "In the near-term, we see a clear path to greater revenue and profits driven by programs transitioning from ramp-up to full-production volumes in fiscal 2017 and margin expansion opportunities from cost reduction and efficiency initiatives undertaken over the past two years. Our bid pipeline further supports our optimism as we are also well positioned on future defense initiatives planned by the U.S. Department of Defense, such as the F-16 Service Life Extension Program (SLEP), the T-X trainer, and the F-15 Wing Replacement Program, either as a prime contractor or partnered with one of our current defense customers." 

Financial Outlook
Mr. McCrosson stated, "We are maintaining our 2016 adjusted revenue outlook for a range of $82.5 million to $88.5 million and narrowing our outlook for 2016 adjusted pre-tax income to the lower end of our previously stated range of $9.8 million to $10.5 million. Our updated adjusted pre-tax income outlook for fiscal 2016 reflects the adoption of a new executive compensation policy that better aligns the interests of shareholders and management and additional legal and accounting fees associated with preparing our full year 2015 audited financial statements. We expect to provide 2017 guidance when we announce fourth quarter and full year 2016 results, however, given the recent wins coupled with our bid pipeline, we have enough visibility today to project revenue growth in fiscal 2017 over fiscal 2016 of 5 to 10 percent and a return to positive earnings per share for the year."

Conference Call
Management will host a conference call today at 8:30 a.m. ET to discuss these results as well as recent corporate developments. After opening remarks, there will be a question and answer period. Interested parties may participate in the call by dialing 844-378-6486 or 412-542-4181. Please call in 10 minutes before the conference call is scheduled to begin. The conference call will also be broadcast live over the Internet. Additionally, a slide presentation will accompany the conference call. To listen to the live call, please go to www.cpiaero.com, click on the Investor Relations section, then to the Event Calendar. If you are unable to listen live, the conference call will be archived and can be accessed for approximately 90 days.

About CPI Aero
CPI Aero is a U.S. manufacturer of structural assemblies for fixed wing aircraft, helicopters and airborne Intelligence Surveillance and Reconnaissance pod systems in both the commercial aerospace and national security markets. Within the global aerostructure supply chain, CPI Aero is either a Tier 1 supplier to aircraft OEMs or a Tier 2 subcontractor to major Tier 1 manufacturers. CPI also is a prime contractor to the U.S. Department of Defense, primarily the Air Force. In conjunction with its assembly operations, CPI Aero provides engineering, program management, supply chain management, and MRO services. CPI Aero is included in the Russell Microcap® Index.

The above statements include forward-looking statements that involve risks and uncertainties, which are described from time to time in CPI Aero's SEC reports, including CPI Aero's Form 10-K for the year ended December 31, 2015, and Form 10-Q for the three-month periods ended March 31, 2016 and June 30, 2016.

CPI Aero® is a registered trademark of CPI Aerostructures, Inc. For more information, visit www.cpiaero.com, and follow us on Twitter @CPIAERO.

 
CPI AEROSTRUCTURES, INC.
STATEMENTS OF OPERATIONS
 
    For the Three Months Ended   For the Nine Months Ended
    September 30,   September 30,
    2016   2015   2016   2015
    (Unaudited)   (Unaudited)
         
Revenue   $ 22,110,829   $ 26,790,881   $ 57,061,826     $ 68,611,766
Cost of sales     17,086,461     21,194,449     58,642,561       55,564,894
                           
Gross profit (loss)     5,024,368     5,596,432     (1,580,735 )     13,046,872
Selling, general and administrative expenses     2,014,147     1,898,965     6,603,321       5,968,123
Income (loss) from operations     3,010,221     3,697,467     (8,184,056 )     7,078,749
Interest expense     338,156     218,382     937,523       703,436
Income (loss) before provision for                          
(benefit from) income taxes     2,672,065     3,479,085     (9,121,579 )     6,375,313
                           
Provision for (benefit from) income taxes     986,000     1,033,000     (3,378,000 )     2,011,000
                           
Net income (loss)     1,686,065     2,446,085     (5,743,579 )     4,364,313
                           
Other comprehensive income (loss)                          
  net of tax -                          
  Change in unrealized loss on                          
  interest rate swap     25,936     1,382     (44,547 )     3,906
                           
Comprehensive income (loss)   $ 1,712,001   $ 2,447,467   $ (5,788,126 )   $ 4,368,219
                           
                           
Income (loss) per common share - basic   $ 0.19   $ 0.29   $ (0.67 )   $ 0.51
                           
Income (loss) per common share - diluted   $ 0.19   $ 0.28   $ (0.67 )   $ 0.51
Shares used in computing income (loss) per common share:                          
  Basic     8,678,608     8,564,417     8,628,716       8,544,475
  Diluted     8,692,420     8,625,308     8,628,716       8,613,316
                           
 
CPI AEROSTRUCTURES, INC.
BALANCE SHEETS
 
    September 30,   December 31,
    2016   2015
    (Unaudited)   (Note 1)
ASSETS                
Current Assets:                
  Cash   $ 665,317     $ 1,002,023  
  Accounts receivable, net of allowance for doubtful accounts of $470,748 as of September 30, 2016 and $75,000 as of December 31, 2015    
9,004,826
     
7,665,837
 
  Costs and estimated earnings in excess of billings on uncompleted contracts     95,743,826       102,622,387  
  Prepaid expenses and other current assets     2,655,376       1,065,473  
                 
Total current assets     108, 069,345       112, 355,720  
                 
Plant and equipment, net     2,362,655       2,358,736  
Deferred income taxes     5,351,000       1,890,000  
Other assets     204,240       108,080  
Total Assets   $ 115,987,240     $ 116,712,536  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current Liabilities:                
  Accounts payable   $ 13,704,363     $ 18,379,469  
  Accrued expenses     1,056,659       1,057,682  
  Billings in excess of costs and estimated earnings on uncompleted contracts     830,746       175,438  
  Current portion of long-term debt     1,092,237
      1,011,491
 
  Contract loss     2,032,494       549,723  
  Line of credit     21,938,685       23,700,000  
  Income tax payable     24,876       189,000  
                 
Total current liabilities     40,680,060       45,062,803  
                 
Long-term debt, net of current portion     9,296,095       483,961  
Other liabilities     702,509       633,663  
                 
Total Liabilities     50,678,664       46,180,427  
                 
Shareholders' Equity:                
  Common stock - $.001 par value; authorized 50,000,000 shares, 8,722,569 and 8,583,511 shares, respectively, issued and outstanding     8,722       8,584  
  Additional paid-in capital     52,701,839       52,137,384  
  Retained earnings     12,646,015       18,389,594  
  Accumulated other comprehensive loss     (48,000 )     (3,453 )
Total Shareholders' Equity     65,308,576       70,532,109  
Total Liabilities and Shareholders' Equity   $ 115,987,240     $ 116,712,536  
                 

CPI AEROSTRUCTURES, INC.
ADJUSTED STATEMENT OF EARNINGS
30-SEP-16

Adjusted Earnings (arrived at by eliminating the Company's A-10 Program with Boeing from reported results) is not derived in accordance with generally accepted accounting principles ("GAAP"). Adjusted Earnings is a key metric CPI Aero has used in evaluating its financial performance. Adjusted Earnings is considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act of 1933, as amended. CPI Aero considers Adjusted Earnings important in evaluating its financial performance on a consistent basis across various periods. Due to the significance of the non-cash and non-recurring change in estimate recognized in the three months ended March 31, 2016, Adjusted Earnings enables the Company's Board of Directors and management to monitor and evaluate the business on a consistent basis. CPI Aero uses Adjusted Earnings as a measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future operating decisions and investments. The presentation of Adjusted Earnings should not be construed as an inference that CPI Aero's future results will be unaffected by unusual or non-recurring items or by non-cash items, such as changes in estimates. Adjusted Earnings should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities. 

     
    For the Nine months ended September 30, 2016
             
    GAAP       Adjusted
    as Reported   Adjustments   Earnings
                         
                         
Revenues   $ 57,061,826     $ 1,665,466     $ 58,727,292  
                         
Cost of sales     58,642,561       (13,618,684 )     45,023,877  
                         
  Gross profit (loss)     (1,580,735 )     15,284,150       13,703,415  
                         
Selling, general and administrative exp     6,603,321               6,603,321  
                         
  Income (loss) from operations     (8,184,056 )     15,284,150       7,100,094  
                         
Interest expense     (937,523 )             (937,523 )
                         
Income before provision for (benefit from) income taxes     (9,121,579 )     15,284,150       6,162,571  
                         
Provision for (benefit from) income taxes     (3,378,000 )     5,658,000       2,280,000  
                         
Net income (loss)   $ (5,743,579 )   $ 9,626,150     $ 3,882,571  
                         
  Diluted earnings (loss) per share   $ (0.67 )           $ 0.45  
                           
     
    For the Three months ended September 30, 2016
             
    GAAP       Adjusted
    as Reported   Adjustments   Earnings
                         
                         
Revenues   $ 22,110,829     $ (2,678,199 )   $ 19,432,630  
                         
Cost of sales     17,086,461       (2,678,199 )     14,408,261  
                         
  Gross profit     5,024,368               5,026,368  
                         
Selling, general and administrative exp     2,014,147               2,014,147  
                         
  Income from operations     3,010,221               3,010,221  
                         
Interest expense     (338,156 )             (338,156 )
                         
Income before provision for (benefit from) income taxes     2,672,065               2,672,065  
                         
Provision for income taxes     986,000               986,000  
                         
Net income   $ 1,686,065             $ 1,686,065  
                         
  Diluted earnings per share   $ 0.19             $ 0.19  
                           
     
    For the Nine Months Ended September 30, 2015
             
    GAAP       Adjusted
    as Reported   Adjustments   Earnings
             
             
Revenues   $ 68,611,766   $ (12,803,792 )   $ 55,807,974
                     
Cost of sales     55,564,894     (12,811,561 )     42,753,333
                     
  Gross profit     13,046,872     7,769       13,054,641
                     
Selling, general and administrative exp     5,968,123             5,968,123
                     
  Income from operations     7,078,749     7,769       7,086,518
                     
Interest expense     703,436             703,436
                     
Income before provision for income taxes     6,375,313     7,769       6,383,082
                     
Provision for income taxes     2,011,000             2,011,000
                     
Net income   $ 4,364,313   $ 7,769     $ 4,372,082
                     
  Diluted earnings per share   $ 0.51           $ 0.51
                       
     
   
For the Three Months Ended September 30, 2015
             
    GAAP       Adjusted
    as Reported   Adjustments   Earnings
             
             
Revenues   $ 26,790,881   $ (2,894,487 )   $ 23,896,394
                     
Cost of sales     21,194,449     (2,889,279 )     18,305,170
                     
  Gross profit     5,596,432     (5,208 )     5,591,224
                     
Selling, general and administrative exp     1,898,965             1,898,965
                     
  Income from operations     3,697,467     (5,208 )     3,692,259
                     
Interest expense     218,382             218,382
                     
Income before provision for income taxes     3,479,085     (5,208 )     3,473,877
                     
Provision for income taxes     1,033,000             1,033,000
                     
Net income   $ 2,446,085     (5,208 )   $ 2,440,877
                     
  Diluted earnings per share   $ 0.28           $ 0.28
                       

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