CPI Aerostructures Inc: Form 10-Q for the period ended Mar 31, 2026

The following discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in this report.

Forward Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q and in future filings by us with the Securities and Exchange Commission (“SEC”), the words or phrases “believe”, “expect,” “anticipate,” “intend”, “plan”, “may,” “will”, “should,” “could”, “estimate,” or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties. There can be no assurance that future developments will be those that have been anticipated. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Further, such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The risks are included in Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2025 (the “Form 10-K”).

The forward-looking statements contained in this Form 10-Q speak only as of the date of this report. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect subsequent events, changed circumstances, or changes in expectations.

Business Operations

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 participate in the aerosystems sector through our production of reconnaissance pod structures and fuel panel systems. Within the global aerostructures and aerosystems 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.

Backlog

We produce custom assemblies pursuant to long-term contracts and customer purchase orders. Funded backlog consists of the aggregate funded value of remaining performance obligations under such contracts and purchase orders, excluding the portion previously included in operating revenues pursuant to Accounting Standards Codification Topic 606 (“ASC 606”). Unfunded backlog is the estimated amount of future orders under the expected duration of the program. Substantially all of our unfunded backlog is subject to termination at will and rescheduling, without significant penalty. Funds are often appropriated for programs or contracts on a yearly or quarterly basis, even though the contract may call for performance that is expected to take a number of years. Therefore, our funded backlog does not include the full value of our contracts.

Backlog is not necessarily indicative of future revenues or the timing of such revenues. The realization of backlog depends on a number of factors, including program funding, customer requirements, and the continuation of the underlying programs. Backlog may also include amounts associated with options or anticipated orders under existing contracts that are not yet funded or awarded and are subject to change.

Our total backlog as of March 31, 2026 and December 31, 2025 is shown below.

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Approximately 96% of the total amount of our backlog at March 31, 2026 was attributable to government and military contractor contracts. Our backlog attributable to government contracts at March 31, 2026 and December 31, 2025 was as follows:

Our backlog attributable to commercial contracts at March 31, 2026 and December 31, 2025 was as follows:

The total backlog at March 31, 2026 is primarily comprised of long-term programs with Raytheon (Next Generation Jammer-Mid Band Pods and Advanced Tactical Pods), L3Harris (Next Generation Jammer-Low Band Pods), Lockheed Martin (F-16 RI/DCC’s), Raytheon (B-52 Radar Racks), Sikorsky (UH-60 BLACKHAWK Stabilator MRO) and USAF (T-38 Classic Structural Modification Kits).

The funded backlog at March 31, 2026 is primarily from purchase orders under long-term contracts with Raytheon (NGJ – Mid Band Pods and Advanced Tactical Pods), USAF (T-38 Classic Structural Modification Kits), and Lockheed Martin (F-16 RI/DCC’s).

Critical Accounting Estimates

We make a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K, for a discussion of our critical accounting estimates. There have been no significant changes to the application of our critical accounting estimates during the quarter ended March 31, 2026.

Results of Operations

Revenue

Total Revenue for the three months ended March 31, 2026 was $17,359,940 compared to $15,400,608 for the same period last year, an increase of $1,959,332 or 12.7%. The increase was driven primarily by favorable adjustments on our NGJ – Mid Band Pods and Advanced Tactical Pods program and NGJ – Low Band Pods program, partially offset by unfavorable adjustments to our F-16 RI/DCC’s program and Embraer Phenom-300 Engine Inlet Assemblies program.

Revenue from military subcontracts was $14,678,977 for the three months ended March 31, 2026 compared to $11,326,608 for the three months ended March 31, 2025, an increase of $3,352,369 or 29.6%. The increase was driven primarily by favorable adjustments on our NGJ – Mid Band Pods and Advanced Tactical Pods program and NGJ – Low Band Pods program.

Revenue from prime government military contracts was $1,764,056 for the three months ended March 31, 2025 compared to $2,793,612 for the three months ended March 31, 2025, a decrease of $1,029,556 or 36.9%. The decrease was driven primarily by a decrease in our USAF T-38 Pacer Classic Structural Modification Kits program due to timing of material receipts.

Revenue from commercial subcontracts was $916,907 for the three months ended March 31, 2026 compared to $1,280,388 for the three months ended March 31, 2025, a decrease of $363,481 or 28.4%. The decrease was driven primarily by a decrease in our Embraer Phenom-300 Engine Inlet Assemblies program, partially offset by the commencement of production on our Embraer Phenom-100 Engine Inlet Assemblies and Collins Compac Enclosures programs.

Cost of Sales

Total Cost of Sales for the three months ended March 31, 2026 and 2025 was $12,880,049 and $13,751,133, respectively, a decrease of $871,084 or 6.3%.

The components of the cost of sales were as follows:

Procurement for the three months ended March 31, 2026 was $7,509,709 compared to $8,294,588 for the three months ended March 31, 2025, a decrease of $784,879 or 9.5%, driven primarily by lower material receipts for Embraer Phenom-300 Engine Inlet Assemblies program and the Collins MS-110 program.

Labor costs for the three months ended March 31, 2026 were $1,316,157 compared to $1,642,586 for the three months ended March 31, 2025, a decrease of $326,429 or 19.9% primarily driven by decreased work performed on the A-10 Main Landing Gear Pods program due to termination.

Factory overhead for the three months ended March 31, 2026 was $3,937,186 compared to $4,118,581 for the three months ended March 31, 2025, a decrease of $181,395 or 4.4%.

Other cost of sales relates to items that can increase or decrease cost of sales such as changes in inventory reserves, changes in loss contract provisions, absorption variances and direct charges to cost of sales. Other cost of sales for the three months ended March 31, 2026 was $116,997 compared to a $(304,622) for the three months ended March 31, 2025, an increase of $421,619 or 138.4%. The increase is primarily the result less benefits realized on programs nearing completion and higher loss reserve requirements during the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.

Gross Profit

Gross profit and gross profit percentage (“gross margin”) for the three months ended March 31, 2026 and March 31, 2025 was $4,479,891 and 25.8% compared to $1,649,475 and 10.7%, respectively, an increase of $2,830,416, or 171.6%, for the reasons noted above associated with the A-10 program.

Favorable/Unfavorable Adjustments to Gross Profit

During the three months ended March 31, 2025 and 2024, circumstances required that we make changes in estimates to various contracts. Such changes in estimates resulted in changes in total gross profit as follows:

The net adjustment of $0.7 million for the three months ended March 31, 2026 is driven primarily by an unfavorable adjustment on our Embraer Phenom-300 Engine Inlet Assemblies program.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2026 were $2,650,263 compared to $2,835,777 for the three months ended March 31, 2025, a decrease of $185,514 or 6.5%. The decrease was primarily the due to lower salary related costs.

Interest expense

Interest expense for the three months ended March 31, 2026 was $291,935, compared to $488,091 for the three months ended March 31, 2025, a decrease of $196,156 or 40.2%. The decrease was the result of lower year-over-year interest rates charged on our outstanding debt under the Loan and Security Agreement.

Income (loss) Before Provision for Income Taxes

Income (loss) before provision for income taxes for the three months ended March 31, 2026 was $1,568,066 compared to $(1,672,893) for the three months ended March 31, 2025, an increase of $3,240,959 or 193.7% for the reasons noted above.

Provision/(Benefit) for Income Taxes

Provision for income taxes for the three months ended March 31, 2026 was $331,348 compared to (benefit) for income taxes of $(348,969) for the three months ended March 31, 2025, an increase of $680,317 or 195.0%.

The effective income tax rate for the three months ended March 31, 2026 and 2025 approximated the statutory rate of approximately 21%.

Net (Loss)/Income and Earnings per Share

Net income (loss) for the three months ended March 31, 2026 was $1,236,718 or $0.10 per basic share, compared to net loss of $(1,323,924) or $(0.10) per basic share, for the same period last year. Diluted income per share was $0.09 for the three months ended March 31, 2026 calculated utilizing 13,040,998 weighted average shares outstanding. Diluted (loss) per share was $(0.10) for the three months ended March 31, 2025 calculated utilizing 12,720,148 weighted average shares outstanding. The increase in net income was primarily driven by an increase in gross profit.

Liquidity and Capital Resources

General

At March 31, 2026, we had working capital of $22,725,875 compared to $20,388,755 at December 31, 2025, an increase of $2,337,120 or 11.5%. The increase was driven primarily by an increase in cash and contract assets partly offset by a decrease in accounts receivable.

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 made up 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.

Because ASC 606 requires us to use estimates in determining revenues, costs and profits and in assigning those amounts to accounting periods, there can be a significant disparity between earnings as reported and the actual cash we receive during any reporting period. Accordingly, it is possible that we experience shortfalls in our cash flow and may need to borrow money or take steps to delay certain cash outflows until the reported earnings materialize into actual cash receipts.

Several of our programs require us to expend up-front costs that may have to be amortized over a portion of production units. In the case of significant program delays and/or program cancellations, we could experience margin degradation, which may be material for costs that are not recoverable. Such charges and the loss of up-front costs could have a material impact on our liquidity and results of operations.

We continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well as exploring alternative funding sources.

At March 31, 2026, we had cash of $1,002,548 compared to $899,199 at December 31, 2025, an increase of $103,349 or 11.5%. This increase was primarily the result of positive cash flows from the reduction in accounts receivable during the quarter.

Bank Credit Facilities

On December 12, 2025, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Western Alliance Bank (the “Bank”). The Loan and Security Agreement provides for a revolving line of credit in the maximum principal amount of $10,000,000 (the “Revolving Line”) and a term loan in the original principal amount of $10,000,000 (the “Term Loan” and, together with the Revolving Line, the “Credit Facilities”). WMI and Compac, have guaranteed the Company’s obligations under the Loan and Security Agreement.

Borrowings under the Credit Facilities bear interest at a variable rate equal to the 1-month Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin as set forth in the Loan and Security Agreement. During the continuance of an event of default, all outstanding obligations bear interest at a rate equal to 5% above the rate otherwise applicable.

The SOFR Rate was 3.7% as of March 31, 2026 and as such, the Company’s interest rate on the Revolving Loan and Term Loan was 6.2% as of March 31, 2026.

The Credit Facilities mature on December 12, 2030. The Term Loan was funded in full on the closing date and is repayable in scheduled quarterly installments beginning on April 5, 2026. Maturities on long term debt are as follows:

Borrowings under the Revolving Line may be made, repaid and reborrowed from time to time before the maturity date, subject to the other conditions set forth in the Loan and Security Agreement. Voluntary prepayments of the Credit Facilities are permitted at any time without premium or penalty, other than customary breakage amounts, and the Loan and Security Agreement requires mandatory prepayments in certain circumstances.

The Loan and Security Agreement requires the Company to pay an unused commitment fee equal to 0.40% per annum on the unused portion of the Revolving Line and to pay fees and charges in connection with any letters of credit and any cash management services provided by the Bank and to reimburse the Bank’s expenses as provided in the Loan and Security Agreement.

The Company’s obligations under the Loan and Security Agreement, and the guaranties of WMI and Compac, are secured by a first-priority security interest in substantially all of the personal property assets of the Company and the guarantors, in each case subject to permitted liens and customary exclusions as set forth in the Loan and Security Agreement and related security documents.

The Loan and Security Agreement contains customary affirmative, negative and financial covenants. Among other things, these covenants impose limitations, subject to agreed exceptions, on the ability of the Company and its subsidiaries to incur additional indebtedness, grant liens, make certain investments, dispose of assets, pay dividends and other restricted payments, enter into certain transactions with affiliates and effect certain mergers or other fundamental changes. The Loan and Security Agreement also includes quarterly tested financial covenants, including a minimum Consolidated Fixed Charge Coverage Ratio of 1.25 to 1.00 and a maximum Funded Leverage Ratio that is initially 3.75 to 1.00 through December 31, 2026 and is reduced to 3.50 to 1.00 from January 1, 2027 onward, in each case as defined in and calculated under the Loan and Security Agreement.

The Loan and Security Agreement includes customary events of default, including payment defaults, covenant defaults, certain cross-defaults, certain events of bankruptcy or insolvency, certain unsatisfied judgments, certain ERISA events and certain change-of-control events. If an event of default occurs and is continuing, the Bank may, subject to the terms of the Loan and Security Agreement, declare all or a portion of the outstanding obligations under the Credit Facilities to be immediately due and payable, terminate the commitments and exercise other rights and remedies available to it, including with respect to the collateral.

As of March 31, 2026 and December 31, 2025, the Company had $19,173,672 and $18,373,672 outstanding under the Loan and Security Agreement, respectively.

Shelf Registration Statement and At-the-Market Offering Program

On March 31, 2026, the Company filed a shelf registration statement on Form S-3 registering the potential offer and sale from time to time of up to $30 million of the Company’s securities. In connection with the shelf registration statement, the Company also entered into an At Market Issuance Sales Agreement with Craig-Hallum Capital Group LLC relating to an at-the-market offering program pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to approximately $17 million from time to time, subject to market conditions and the Company’s capital needs. The registration statement was declared effective by the SEC on April 14, 2026.

Liquidity

We believe that our existing liquidity resources as of March 31, 2026 will be sufficient to meet our current working capital needs for at least the next 12 months from the date of issuance of our consolidated financial statements. However, our working capital requirements can vary significantly, depending in part on the timing of new program awards and the payment terms with our customers and suppliers. To the extent additional liquidity is required, we may utilize our cash balances, availability for borrowings under our credit facilities and other potential sources of liquidity, including our existing shelf registration statement and at-the-market offering program, although such additional liquidity may not be available on satisfactory terms and in adequate amounts, if at all.

Contractual Obligations

For information concerning our contractual obligations, see Contractual Obligations under Item 7 of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

Inflation

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 effort to mitigate and manage potential negative impacts 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.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective at the reasonable assurance level as of March 31, 2026.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

“Part I Item 1A - Risk Factors” of our Form 10-K for the year ended December 31, 2025, includes a discussion of significant factors known to us that could materially adversely affect our business, financial condition, or results of operations. There have been no material changes from the risk factors described in such report.