CPS Technologies Corp.

Welcome to the Winter 2024 November Investor Summit. The next presenting company is CPS Technologies Corporation. If you would like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit Send to submit your question. I would now like to turn the floor over to today's host, Brian Mackey, CEO of CPS Technologies. Sir, the floor is yours.

Thanks, Tom. Good afternoon, everyone. Thanks for joining. This is Brian from CPS, also joined here by Chuck Griffith, our Chief Financial Officer. Very interested to walk you through some background on CPS and answer any questions that you may have. Before we jump in, Chuck, perhaps you can cover the forward-looking statements and guidance.

Sure. So statements made in this document that are not historical facts, but which apply prospectively, including those relating to 2024 or 2025 financial results, are forward-looking statements that involve risks and uncertainties. These forward-looking statements are identified by the use of terms and phrases such as will, intends, believes, expects, plans, anticipates, and similar expressions. Investors should not rely on forward-looking statements because they are subject to a variety of risks and uncertainties and other factors that could cause actual results to differ materially from the company's expectations. Additional information concerning risk factors is contained from time to time in the company's SEC filings, including its annual report on Form 10-K and other periodic reports filed with the SEC. Forward-looking statements contained in this document Presentations speak only as of the date of this release. Subsequent events or circumstances occurring after such date may render these statements incomplete or out of date. The company expressly disclaims any obligation to update the information contained in this presentation. Okay, great.

Thank you, Chuck. There's the two mugshots of the two of us, myself and Chuck. I joined about a year plus, August of last year, whereas Chuck's been here for five plus April of 2019. The other three members of our management team, business, development, operations, and R&D, are between the two of us. So we're all between one and five years as far as the management team here at CPS. You see our facility there. We are located in Norton, Massachusetts, on the south side of Boston with a single facility, roughly 40,000 square feet, where we run three shifts of production for some of our products. Moving to the next slide, quick synopsis of CPS. We've been publicly traded since 1987, even though we have a small market cap, and we really lean into high-performance materials, typically for mission-critical applications, and we'll talk in detail about some of that. We do have a balanced revenue between domestic and international. You see some of the numbers there, and that's also related to the markets we serve, where about half of our business goes into aerospace and defense. and you see some background there on the number of employees, et cetera. When I joined about 14, 16 months ago, we had about 95 employees, but much fewer on the temporary hourly, and that has been the increase in numbers there to about 50 currently is related to a scale-up of our production team, including the addition of third shift, and we'll talk about that in some detail as well. We are ISO certified, and we do handle ITARQ. with ITAR compliance with some of the products that we provide, particularly into the defense market. So a quick background on CPS. You see some of our bigger customers there on the right-hand side, at least those for whom we can disclose their names. On the left-hand side are the four focus areas for our company, metal matrix composites, hermetic packaging, composite armor, and product development. And these four pages will dive further into those details. And some of the different markets you see on the bottom left, there is some diversity of what we do. So fluctuations in any one do not dramatically impact the company. And a lot of proprietary technology that goes into those four product areas, and I'll speak to that in some detail on the next several days. So first, metal matrix composites are part of the long history of the company, which goes back to the corporate vision. Fundamentally, if you visited our facility, what you would see a lot of is infiltration, typically by aluminum, of preforms. That's the two-part exercise that we do that flows into all of our product lines. And those metal matrix composites that are made by that process yield different material properties, and those material properties allow and enable the product performance for our customers. And you see those four areas of focus that we'll go into on the next several pages. And that's all under the vision of addressing the material science challenges of mission-critical applications. Typically, there's a high cost of failure for the materials that we provide to our customers, and that's part of the value that we offer. Firstly, some detail about Metal Matrix composites. On the far right-hand side, you see a black product. That is an IGBT that our customers produce. Attached to the bottom of that is our base plate in silver with the aluminum skin. That is the product that we provide, hundreds of thousands of those per year to these customers that are going into things like electric trains and wind turbines, et cetera. And the process that we use to produce those metal matrix composites provides them with high thermal conductivity, which dissipates the heat from those electronics, and also thermal expansion matching. So the thermal expansion with temperature matches the electronics that that base plate is attached to so you maintain good contact and it expands the lifespan of that product. And we've done that for many years. Bottom right, recent news, recently accepted a $12 million purchase order for a customer in this market. It's a customer we've worked with for a long time and that order will be fulfilled over a 12-month period. The second product line, which has been a part of CPS for a number of years, is hermetic packaging for microelectronics. You see some of those images on the upper right-hand side. Those are typically the size of a business card or smaller. So those are the products that we provide that are used for microelectronics packaging. So we're selling those either to a prime contractor or to a company that's packaging those with their microelectronics and selling into aerospace and defense. Virtually 100% of these products are going into aerospace and defense. You see some images there, whether it's avionics or satellites. But that glass-to-metal seal or glass-to-ceramic seal that we provide protects those electronics from contamination, gases, and other things that would negatively impact the performance of those products. Some of these also use our metal matrix composite technology within the base of that product, which also provides it with the lightweight, the strength and the thermal conductivity that's necessary. Earlier this year, we added 5-axis machining capability to our facility. Some of these products require that to be competitive. We were able to use matching funds dollar for dollar from the Commonwealth of Massachusetts in addition to our own money to bring that capability in-house. Third area of focus for us is hybrid tech armor. This is a very different application for our metal matrix composite technology. Again, we're infiltrating products with aluminum, whereas for the base plates for things like electric trains, it's providing thermal conductivity. The difference here is the result you get out of this for this product is ballistic performance. So these panels will literally stop a bullet, and they're rated to do so. We satisfy the U.S. Navy's criteria for ballistic performance. And over a two- to three-year period, we fulfilled an order from the United States Navy. We were the subcontractor. The prime contractor was Kinetic Protection, or KP. So we sold the strike faces to Kinetic Protection, who provided them to the United States Navy. For the 12 United States Navy aircraft carriers, they've now been installed on the USS Abraham Lincoln, and they'll continue to be installed on other vessels as those come back into port for refit. We're continuing to work with KP on pursuing other opportunities with the United States Navy such as destroyer class vessels and other ships that may require ballistic protection at weapon stations around the perimeter of the vessel. Fourth area of focus is our advanced research. You see a number of things in the table there which have occurred in the last three to four years. Those are different externally funded programs typically through the SBIR program where we've used our core technology to address specific defined requirements as laid out by customers and potential customers. Some of those images, there's a thermal energy storage where you're extending the flight of a long-range missile by capturing the thermal energy that is created by that missile in an aluminum infiltrated nitinol composite, which is shown in that picture, Similarly, bottom right, another infiltrated product, but in this case, radiation shielding for the Department of Energy, where you have both tungsten and boron carbide to block gamma radiation and neutron radiation. Those two are currently phase two funded SBIRs with roughly $1 million each from the government over a two to two and a half year period. The other picture is a controlled fragmentation warhead that we've developed during a phase one effort. The bottom three of that table are all funded efforts that are currently underway to the tune of a total of about $2.5 million. These things are part of the growth path that we're pursuing to augment the product lines that we already have, and a lot of them do fall under SBIR. I'm not going to go into detail on this page, but I'll summarize in the bottom right, and certainly anyone is welcome to circle back through the details. If you're not familiar with SBIR, It can be a very powerful tool for a small company like CPS because the technology developed provides SBIR data rights to us as a small business, which also can enable sole source contracts from the government. A typical question from a government contract officer might be, I need you to share your intellectual property with another company because I'm required to have a competitive bid before you provide to the U.S. military. And the proper and correct answer is we already competed during the phase one SBIR development effort and we are supposed to be sole source because we took the risk of developing this for the United States. It can be very powerful and it even withstands the growth of the company beyond the definition of a small business, whether that's organic or inorganic. Finally, on this topic, a quick summary of the 11 different things that we have underway. They build on the two core technologies we've used for nearly 40 years, which are quick set injection molding of the preform and then quick cast aluminum infiltration of that preform to create the final product. These are a variety of things that we're working on in a number of areas, mostly with external funding and in some select cases with internal funds to build out our product portfolio. And we continue to pursue those to add to the product lines we have and build on the business that we already have here in North. Each of these four product areas, whether it's MMC, hermetic packaging, armor, or product development, each requires its own strategy to maintain and to develop. I'm not going to go into detail on each of the four here, but we do approach each of them uniquely, and they each have different competitive landscapes. But in summary, we act on each of those plans that you see on the page, but the fourth one is where we expect the greatest growth opportunities over time to build on the stability that the other three provide us historically. Chuck, I'll pause there and let you touch on recent financials.

Sure.

All right.

So, excuse me, should we be seeing the income statement up there? Obviously, this year has not been a very good year for us from the standpoint of revenue and profit. It's been more of a transition year, I believe. Obviously, we had the armor order finished up in the first quarter, and we've been attempting to replace that revenue with other sources of revenue. We've seen some of that in terms of the $12 million order that's come in. And in addition, a lot of the issue hasn't been so much the lack of orders. It's been we've had some difficulties in terms of producing what we have orders for. And we think that we've, you know, one of the reasons we started the third shift is because of that. And we think we've probably solved that issue and expect that we should have some much better results in Q4 as well as in 2025. So I think that we're very optimistic or cautiously optimistic, I guess, about the future. But I think, you know, as far as we're moving forward, I think we're in a good position. Why don't we look at the balance sheet? That's better. So we continued on the strong cash position. Although we show going from $8.8 to $4.7 million in cash, we did invest a million dollars of that into marketable securities in order to get a better longer-term interest rate, longer-term and better interest rates on the cash that we don't think we'll be needing for the short-term. None of those securities go out beyond a year, and they can be converted to cash at any time we need to. We do have a very strong current ratio. Even now at 4.0, the industry average is 2.3. We don't have or we have virtually no debt. We had $20,000 at the end of the third quarter. That should be completely off the books by mid Q1 of next year. And at that point, we would have basically no debt unless we bring something else on, but we're not planning to. But the bottom line is we do have a good amount of resources available if we If we need to spend a million dollars on an R&D project, we're in a good position to be able to do that. And we do still have our $3 million line of credit with our bank, which we have nothing drawn against. But if we needed it, we could always use it. So I think from the balance sheet side, we're very, very strong and looking forward to the future.

Just to highlight a couple of things that Chuck brought up, we did add a third shift of production that became active in late August of this year to address the increased demand from our customers, particularly for the Metal Matrix composite products. That was a ramp-up that occurred over a number of weeks prior to that, which included training and things like that on the first shift before we went live on the third shift in late August. That was a ramp-up effort that did not generate revenue in Q3 because by the time that product got to the customers, that's into Q4. So we continue with third shift today and continue to see increased volumes going out to customers to fulfill those orders. And that's also related to that new $12 million purchase order, which we recently accepted. That order today is cancelable at any time by either party. But we accepted that order while working with our customer on negotiation for That order, we continue to produce, they continue to receive product while that price and volume negotiation is finalized and we're in the final steps of that process, changing that from a cancelable order to a non-cancelable, more typical purchase order agreement. That concludes the formal portion of our presentation. We would be happy to take any questions that you may have at this time if you enter them in the Q&A box. And Chuck, while we're waiting on that, maybe we've gotten some questions of late about our recent SEC filings. We wanna speak to that.

Sure, I think you're referring to the S3 that we filed a couple of months ago, I guess. Yeah, so we had the S3 on file, as many of you probably know, Those last for three years and then they have to be renewed. We don't have any immediate plans to raise any additional capital through that S3 filing. However, we do feel that having it on file so that it's available to us is important. And as many of you may know, we had that mean stock run up in our share price back in 2021. And certainly if something like that was to happen again, we'd like to be in a position where we could take advantage of that in that situation. But certainly we don't have any plans at this point in time about raising capital at $1.40, $1.50 a share, wherever we are at this time.

Right.

Thank you. And I think the other thing that you'll see on our financials is the fact that there's a certain amount of fixed costs for our business between facility, utilities, personnel, et cetera. And as our revenue ramps back up with our increase in production capacity and shipping volume, we anticipate that moving back in the proper direction. We think Q4 is a transitional quarter with continued optimism as we enter 2025, Q1, and beyond. At this point, I think we've covered all the bases and we do have time for questions if anyone has a question they'd like to enter.

Okay. Making sure I'm navigating here properly. There's one question.

Let's see. There's a question regarding a follow-on Navy contract. Yeah, just again as background, the order we fulfilled was for the 12 aircraft carriers in the Navy fleet. We're in active conversations, particularly for the destroyer class of Navy vessel. There's 88 destroyers in the fleet. Those are smaller and have fewer weapon stations. than the 12, of course, very large aircraft carriers. There's personnel from the Navy who are interested in the solution. With our partner, Kinetic Protection, we're working a number of angles with the United States Navy to pursue that. We don't have control of the timing and other bureaucratic elements that can impact that, but we know that we have a solution that they like. It is lightweight, so it has less impact on the weight of the vessel. It does offer the ballistic protection that satisfies the Navy. Some of the competitive solutions have a much more less robust approach. Some of them use fabric or Velcro or things like that that deteriorate over time in the salt spray of the ocean environment. So we like what we have to offer. We know it satisfies the need. The timing of that is hard to predict. We continue to work a number of angles on that, whether it's a larger broad contract or something smaller to sort of get our foot in the door. There's a number of things that we have with some members of Congress supporting, but working that all the way through to the finish line is very difficult to predict for obvious reasons.

All right, if there's no further questions, I think we'll leave it there.

Feel free to reach out. through us or through Chris Witte at Darrow IR, our investment relations advisor. Always happy to have a call offline if there's follow-up questions. Other than that, we'll leave it there, and thanks for your interest in CPS, and thanks for joining today.

Thank you. This concludes the CPS Technologies Corporation presentation, and this is the final presentation for the Winter 2024 November Investor Summit. Thank you for your participation. You may disconnect at this time.