Structural Monitoring Systems (ASX:SMN) reinforces cash flow strength and CVM upside

Structural Monitoring Systems Plc has used its March quarter investor webinar to reinforce a clear shift in the investment case: the Company is no longer just a future-facing aerospace technology story — it is now a cash-generating avionics business with meaningful upside from its CVM™ platform.

AEM CEO Rick Freeman, who joined the business eight months ago, told investors he sees “a clear path” to growth, driven by a strong customer-focused product strategy and improving operational performance.

A business now generating cash

The March quarter results highlighted a business gaining momentum.

Year-to-date revenue is up 19% on FY25, EBITDA has increased 82%, and the Company has returned to positive cash flow. At the same time, SMN has repaid its RBC term loan, leaving the Group free of bank debt and better positioned to fund growth initiatives internally.

Management emphasised that this improvement is being driven by a combination of stronger pricing, better margins and improved operational efficiency, alongside disciplined inventory reduction.

The result is a business that is increasingly self-funding — a critical shift as SMN continues to invest in new product development.

AEM driving performance

At the core of this performance is AEM’s avionics division.

Avionics revenue is up 43% year-to-date, supported by strong demand for digital audio systems and radio products. The recently launched MTP138 radio is expected to expand the Company’s reach into offshore oil and gas, wind farm and marine aviation markets, particularly outside North America.

Management also confirmed that two additional product development programs — described as potential “game changers” — are progressing well and are expected to support growth into FY27 and beyond.

Importantly, these products are designed with software-enabled functionality, creating opportunities for future upgrades and recurring revenue streams over time.

Contract manufacturing adds flexibility

SMN has also repositioned its contract manufacturing business as a strategic contributor.

After previously moving to wind down the segment, management has now re-engaged with selected customers where the work meets margin and capability thresholds. This provides both operational leverage and a buffer against variability in other product lines.

Freeman described contract manufacturing as both a defensive and offensive lever — improving factory utilisation while supporting overall group performance.

CVM progressing through certification

The key long-term catalyst remains CVM™, the Company’s structural health monitoring technology.

Freeman confirmed that Boeing has completed and validated all technical documentation, with the process now progressing through Boeing’s internal regulatory review and FAA certification pathway. A revised certification plan was submitted to the FAA in early April, with review and approval expected in the coming months.

Once approved, Boeing is expected to submit the 737NG Service Bulletin to the FAA — a critical milestone for commercialisation.

While CVM systems have already been installed on Delta and United aircraft, Freeman clarified that airlines cannot yet use the technology to defer heavy maintenance inspections. As a result, invoicing is linked to certification and regulatory approval, not installation alone.

Understanding the CVM commercial model

One point highlighted during the webinar is that CVM™ should not be viewed as a simple fixed-price, per-aircraft hardware sale.

The Company’s CVM™ commercial model is structured around a combination of equipment supply, licensing and broader commercial rollout. Revenue is tied to certification milestones and customer adoption, rather than installation alone.

References to historical pricing, fleet values or aggregate program numbers should therefore be treated cautiously. The commercial model has evolved over time and is not static.

As disclosed previously, SMN has arrangements in place with key industry participants, including Delta, designed to support the broader adoption and commercialisation of CVM™ technology. While certain arrangements may include participation in downstream commercial outcomes, the specific terms remain confidential and commercially sensitive.

The key takeaway is that CVM™ value is expected to be realised progressively — as certification is achieved, adoption increases and commercial rollout expands across airline operators.

For now, the Company’s most recent Quarterly remains the clearest reference point: progress is subject to Boeing and FAA processes, and SMN will update the market as material milestones are achieved.

Positioned for re-rating

Freeman also addressed recent independent research comparing SMN with global avionics peers.

While acknowledging the Company’s smaller scale, he indicated that SMN is undervalued relative to its improving financial profile and growth prospects. He pointed to a pathway to higher valuation supported by avionics growth, CVM progress and disciplined capital allocation.

The Company is also entering a new phase, with potential avionics acquisitions under consideration, alongside continued investment in internal R&D. These options are expected to be discussed further during the Board’s upcoming strategy sessions.

The bigger picture

The webinar reinforced a broader shift in how SMN should be viewed.

AEM is now a proven, cash-generating avionics platform. CVM remains a significant long-term opportunity, but its economics are milestone-driven and more complex than simple per-aircraft assumptions.

For investors, the story is no longer binary.

SMN now offers a combination of near-term earnings support and longer-term technology upside — with multiple pathways to value creation.

The question is no longer whether the business can deliver without CVM.

The question is how the market chooses to value it as that platform continues to scale.

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