CPI Aerostructures, Inc.

Fourth-quarter 2020 revenue increased 11.9% to $25.4 million versus $22.7 million a year ago. Military contract revenue rose 12.9% to $23.4 million, while commercial aviation revenue was just under $2 million and essentially flat. Gross profit was $4.6 million versus $2.5 million, and gross margin expanded 730 basis points to 18.2%. Net income was $1.3 million, or $0.11 per diluted share, versus a $1.4 million net loss, or $0.12 per share, in Q4 2019. For full-year 2020, revenue was essentially flat, gross profit increased 30.5% to about $12 million, gross margin expanded 340 basis points, and net loss narrowed to $1.3 million, or $0.11 per share, from a $4.5 million loss, or $0.38 per share, in 2019. Cash was $6 million at year-end, total debt was $28.7 million excluding a $4.8 million PPP loan, funded backlog was $169.6 million, total backlog was $476.2 million, and 56% of funded backlog is expected to convert to revenue in 2021. Management expects 2021 to deliver higher revenue, improved profitability, and improved cash flow versus 2020.

Doug McCrosson framed 2020 as a difficult year marked by COVID-19, a financial restatement, and legal issues, but said the company stayed focused on executing its defense backlog. He emphasized the strategic shift toward defense work, noting military programs were 90% of revenue in 2020 versus 79% in 2019, and said the company is at an inflection point. His tone was constructive and increasingly confident, pointing to new program starts, strong proposal activity, and expectations for continued momentum in 2021.

Tom Powers highlighted the quarter’s improved operating performance, with revenue of $25.4 million, gross profit of $4.6 million, gross margin of 18.2%, and net income of $1.3 million. He also noted full-year gross profit of about $12 million and that the net loss narrowed to $1.3 million. On the balance sheet, cash was $6 million, debt was $28.7 million excluding the $4.8 million PPP loan, and the company reduced debt by $2.3 million during the year; he also said the company was in compliance with all covenants on its amended bank credit facility. Management reiterated that working capital improvements, cash conversion, and lower restatement-related fees should support better 2021 cash generation.

Analysts focused on how to think about 2021 gross margin, top-line cadence, and cash flow. Doug said margins in 2021 might be somewhat below the 18.2% fourth-quarter level, though “maybe not appreciably lower,” because of new-start programs, and he said the year would likely not have the same back-ended pattern seen in 2020. On cash flow, he clarified the improvement target was versus the reported GAAP 2020 results, but said he would also expect stronger performance versus the adjusted view. He also quantified the business jet program exit’s backlog impact at roughly $30 million to $40 million.