CPI Aero(CVU) - 2019 Q3 - Quarterly Report

Part I - Financial Information Consolidated Financial Statements This section presents the unaudited consolidated financial statements for CPI Aerostructures, Inc. as of September 30, 2019, and for the three and nine-month periods then ended Consolidated Balance Sheets Total assets increased to $153,621.1 thousand by September 30, 2019, driven by contract assets, with liabilities and shareholders' equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash | $468.5 | $4,128.1 | | Contract assets | $121,458.1 | $113,333.5 | | Total current assets | $146,017.0 | $140,204.6 | | Total assets | $153,621.1 | $143,713.7 | | Liabilities & Equity | | | | Line of credit | $26,738.7 | $24,038.7 | | Total current liabilities | $45,085.5 | $41,854.4 | | Total liabilities | $53,455.6 | $50,290.3 | | Total Shareholders' Equity | $100,165.5 | $93,423.3 | - The company adopted the new lease standard (ASC 842) on January 1, 2019, resulting in the recognition of $4.3 million in operating lease right-of-use assets and corresponding lease liabilities[8][27][29] Consolidated Statements of Income and Comprehensive Income Revenue for the nine months ended September 30, 2019, grew 29.6% to $74,452.9 thousand, with net income nearly doubling to $6,036.0 thousand Financial Performance Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $25,711.2 | $19,017.3 | $74,452.9 | $57,470.2 | | Gross Profit | $4,963.1 | $3,871.2 | $15,335.1 | $12,505.9 | | Income from Operations | $2,368.1 | $1,286.7 | $7,224.3 | $5,313.7 | | Net Income | $1,666.9 | $585.9 | $6,036.0 | $3,099.9 | | Diluted EPS | $0.14 | $0.07 | $0.51 | $0.35 | Consolidated Statements of Cash Flows Net cash used in operating activities increased to $4,039.9 thousand for the nine months ended September 30, 2019, resulting in a $3,659.6 thousand net decrease in cash Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,039.9) | $(3,049.4) | | Net cash used in investing activities | $(334.9) | $(521.5) | | Net cash provided by financing activities | $715.2 | $2,968.6 | | Net decrease in cash and restricted cash | $(3,659.6) | $(602.3) | Notes to Consolidated Financial Statements This section details accounting policies, including the WMI acquisition dispute, revenue recognition, lease standard adoption, debt, tax positions, and customer concentration - The company operates as a single reportable segment, with the Chief Executive Officer acting as the chief operating decision maker[17] - A dispute exists with Air Industries Group over a post-closing working capital adjustment for the WMI acquisition, potentially reducing the purchase price by approximately $4.2 million; the company has filed a motion in court to enforce its position[33] - As of September 30, 2019, the company had $255.2 million in remaining performance obligations (backlog), with 18% expected to be recognized as revenue in the remainder of 2019 and 82% in 2020[51] - The company recorded a benefit from income taxes of $276 thousand for the nine months ended September 30, 2019, after reducing a liability for an uncertain tax position by approximately $1.4 million based on new information from the IRS regarding a net operating loss carryback[99] - The company has significant customer concentration; for the nine months ended September 30, 2019, its four largest commercial customers accounted for 26%, 16%, 13%, and 13% of revenue, respectively[101] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the 29.6% revenue increase, backlog growth, operational results, and liquidity, affirming sufficient resources for the next 12 months Backlog Total backlog grew to $533,905 thousand by September 30, 2019, with government contracts comprising approximately 91% of the total Backlog Summary (in thousands) | Backlog Type | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Backlog | $533,905 | $457,380 | | Funded | $104,509 | $94,474 | | Unfunded | $429,396 | $362,906 | | Government Backlog | $484,268 | $386,394 | | Commercial Backlog | $49,637 | $70,986 | Results of Operations Nine-month revenue increased 29.6% to $74.5 million, driven by WMI and the Jammer program, while net income nearly doubled to $6.0 million Revenue Growth (Nine Months Ended Sep 30) | Metric | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $74.5M | $57.5M | +$17.0M | +29.6% | | Gross Profit | $15.3M | $12.5M | +$2.8M | +22.6% | | Net Income | $6.0M | $3.1M | +$2.9M | +94.7% | - The increase in nine-month revenue was driven by the inclusion of WMI revenue ($9.1 million) and higher production rates on the Next Generation Jammer pod program ($8.1 million)[125] - Gross profit margin for the nine months decreased by 1.2 percentage points to 20.6%, which management attributes to lower margins from the newly acquired WMI business[143] - Net unfavorable adjustments to gross profit from changes in contract estimates were $327 thousand for the first nine months of 2019, an improvement from net unfavorable adjustments of $683 thousand in the same period of 2018[144] Liquidity and Capital Resources The company maintains $100.9 million in working capital, relying on its $30 million credit facility, with $26.7 million outstanding - Working capital increased to $100.9 million at September 30, 2019, from $98.4 million at December 31, 2018[156] - The company's credit facility with BankUnited was amended in June 2019, extending the maturity date for its Revolving Loan and Term Loan to June 30, 2021[163] - As of September 30, 2019, the company had $26.7 million outstanding under its $30 million revolving credit facility[165] Quantitative and Qualitative Disclosures About Market Risk This section is deemed not applicable - Not applicable[171] Controls and Procedures Disclosure controls were effective as of September 30, 2019, with a prior material weakness remediated - Management concluded that disclosure controls and procedures were effective as of September 30, 2019[173] - A material weakness identified in 2018 related to invoice coding was remediated during the first quarter of 2019[174] - The evaluation of internal controls over financial reporting excluded the WMI acquisition, which occurred on December 20, 2018[175] Part II - Other Information Legal Proceedings The company initiated legal action against Air Industries Group for a $3.6 million working capital dispute related to the WMI acquisition - On September 27, 2019, the company filed a motion against Air Industries Group in connection with a working capital dispute related to the WMI acquisition[178] - The company is seeking a judgment of approximately $3.6 million and an order of specific performance to comply with the Stock Purchase and Escrow Agreements[178] Risk Factors No material changes to risk factors have occurred since the 2018 Form 10-K filing - No material changes have occurred to the risk factors disclosed in the company's 2018 Form 10-K[179] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold during the nine months ended September 30, 2019 - There were no sales of unregistered equity securities during the reporting period[180] Exhibits This section lists filed exhibits, including CEO/CFO certifications and XBRL financial data - Exhibits filed include CEO/CFO certifications and XBRL financial data[184]