CPS Technologies Corp.

and welcome to the CPS Technologies first quarter 2025 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Chuck Griffith, Chief Financial Officer at CPS Technologies. Chuck, the floor is yours.

Thank you, Tom. Good morning, everyone.

Today, I'm joined by Brian Mackey, our president and CEO. We look forward to discussing our first quarter 2025 results with you. But first, Chris Whitty, our investor relations advisor, will provide a brief safe harbor statement.

Chris? Thanks, Chuck, and good morning, everyone. Before I begin the business portion of today's call, I would like to point out that statements in this conference call that are not strictly historical are forward-looking statements. within the meaning of the Private Securities Litigation Reform Act of 1995, and should be considered as subject to the many uncertainties that exist in CPS's operations and environment. These uncertainties include, but are not limited to, the ongoing conflicts in Ukraine and Israel, other geopolitical events, economic conditions, market demands, and competitive factors. Such factors could cause actual results to differ maturely from those in any forward-looking statement. Additional information can be found in our filings with the SEC. Now, we'll turn the call over to Brian to offer his perspective on the first quarter after its second review of the financial results in greater detail. Brian?

Thank you, Chris, and good morning, everyone. I'm very pleased to report that our revenue for first quarter established a new record for our company at $7.5 million. This is particularly noteworthy as our previous quarterly record of $7.4 million included $2.8 million in armor revenue, while the most recent quarter had no armor revenue. In summary, we have fully replaced the loss of armor revenue with growth in sales of our other products. Additionally, we generated an operating profit for the quarter of approximately $130,000. While there is still room for improvement, this does put us back in the black. This affirms that our ongoing efforts are paying off and provides renewed encouragement to continue the work of improving our margins as the year progresses. year over year, even without any sales of hybrid tech, are primarily due to the strength of ongoing contracts, increased production outputs, and recent and ongoing SBIR war. This is compared to revenue in the first quarter of fiscal 2024 of $5.9 million. We are excited about the continued turnaround that is underway based on rising demand for our products, and we are well on our way to a record year for revenue for CPS technology. With a strong backlog, increased manufacturing capabilities, and improving efficiencies, we anticipate that our efforts will lead to growth in both margins and profitability as the year plays out. I will now turn the call over to Chuck to provide further details about our financial results, after which I'll provide some additional perspective. Chuck? Thanks, Brian. As was just mentioned, we're very pleased with this quarter's performance, particularly on the revenue side. The company's revenue for the quarter totals a record $7.5 million, compared with $5.9 million in June 1 of fiscal 2024. In the year-over-year comparison, most of the change was due to continued robust customer demand, strong order backlog, and our ability to increase manufacturing throughput through various measures, including the addition of a third shift of production. This all led to higher capacity utilizations. As Brian indicated, our strong first quarter had no revenue for hybrid tech armor versus last year, meaning that we're succeeding in broadening and growing the company's sales of core products to new and existing customers. We expect to see continued strong hotline performance in the quarters to come. We reported a growth profit in the first quarter of $1.2 million, or approximately 16.4% of sales, compared with its 0.9 million, or 15.3% of sales last year. This increase was due to higher overall revenue and improvement in manufacturing efficiencies, along with the fact that last year's margin has been negatively impacted by quality control issues. While we're pleased with the improvement in our margins, the entire CCS team remains committed to driving continued margin expansion as the year progresses. So, in general, the administrative expenses totaled $1.1 million in the first quarter versus $1.2 million in a prior year period. We continue to manage our costs even while ramping up production output and advancing a strategy of investing for future growth through continued product development initiatives in response to market demand. The company posted an operating profit of about $130,000 in the first quarter compared with an operating loss of approximately $260,000 last year. We reported net income of just under $100,000 or one cent per share versus a net loss or negative one cent per share in Q1 of fiscal 2024. Turning to the balance sheet, the end of the quarter was $1.9 million of cash and $1 million in marketable securities versus $3.3 million in cash and $1 million in marketable securities at the start of 2025. Trade accounts receivable have grown as our revenue has increased, totaling $6.3 million as of March 29, 2025, versus $4.9 million as of December 28, 2024. Inventories also grew as revenue grew, totaling $4.8 million at the end of the first quarter compared with $4.3 million at the start of the fiscal year. Turning to the liability side, payables and accruals totaled $4.2 million at the end of the first quarter versus $4.0 million as of December 28, 2024. Now Brian will provide a more in-depth discussion of the period. Thank you, sir. As previously noted, our quarterly revenue set a new record for the company. It represented an increase of 27% both year-over-year and sequentially from the fourth quarter of 2024. Demand remains strong for the company's Altic and Hermetic packaging products, and our order fulfillment has accelerated in response to customer demand. Although our previous order for Hybrotech Armor was completed in April of 2024, future orders for Armor Navy fleet. Our ballistic solutions address a large market for various types of ships as well as other military applications. We believe they have gained significant support within the Navy as well as on Capitol Hill. Early indications of a strong defense budget next year could positively impact this side of the business. While our revenue growth was impressive even without armored sails, we recognize there is still work to do to expand our margins and grow the bottom line. The priority of these efforts is well understood within our organization. We have a number of initiatives underway to enhance the company's profitability through higher asset utilization and improved operating efficiencies. Regarding order volumes, since the end of the COVID pandemic, we have seen the demand for our MNC products, some of which are incorporated into the power modules for electric turning, return to strong volume levels. we believe there are new opportunities emerging that may fuel significant future growth. Historically, computer server farms are not good candidates for out-of-the-products, as their power demands are continuous, whereas an out-of-the-base plate is instrumental in addressing the challenges related to frequent temperature cycling. Now, however, we are seeing significant movement toward wind farms, both offshore and on land, such as in Europe, which can be used to address the dramatically increasing need for electric power driven by artificial intelligence. There is significant interest in IDPTs that use optic materials for these high-voltage DC transmission applications, which would represent additional volume beyond our legacy traction business. While we cannot influence the adoption of our customers' technologies in these applications, we believe that products using optic materials offer competitive advantage particularly when used in remote and offshore applications, as these installations are difficult to service and therefore require the extended lifetime associated with Allocic products. These initiatives represent a key opportunity for continued CPS growth in the coming years, which would leverage our well-established product portfolio. Turning now to product development, which continues to expand our growing number of solutions, including our family of metalmakers composite products, which we collectively refer to as hybrid tech. We now have six active externally funded research programs, including five SBIRs, two of which are Phase II and three of which are Phase I, as well as one contract from NAVAIR. We are also waiting for responses to other proposals, including an additional potential Phase II contract. As a reminder, all three active Phase I awards began in the first quarter, are funded by the U.S. Army, and represent values of $250,000 each over a six-month period of performance. One of these is our first externally funded program for fiber-reinforced aluminum, or FRS, where we are leveraging its properties to improve the mileage and operational range of hybrid electric military ground vehicles, which is part of the ONI's Hybrid Electric Powertrain, Power, and Propulsion Systems Initiative, or HEPCF. This is an encouraging early indicator of market interest in the advantages that FRA can provide. FRA's lightweight relative to competing materials, as well as its higher strength at elevated operating temperatures, make it an appealing alternative for a variety of applications, including aerospace. Several relevant applications of FRA each have market sizes above $1 billion, including aerospace bearings and liners and replacement of titanium structures. We expect to have material samples in the hands of potential customers later this year. The other two active-phase launchers are both in support of U.S. Army artillery. One uses ultra-low-temperature co-fired ceramics to provide electromagnetic protection for artillery shells, while the other is focused on using additively manufactured tungsten to replicate the sheer properties of depleted uranium. All of our funded SBIR initiatives, again, five in total, Our exciting endorsements of our technology, which can lead to new growth opportunities going forward. Our product development team continues to address the challenging requirements of our customers in novel ways, and we are fully committed to expanding into new markets wherever and whenever we can. Of course, the product development process sometimes involves challenges, of which we are well aware. For example, we previously announced that we had received our first commercial purchase order for Hygrotech Radiation Shielding. Unfortunately, we recently received a stop work notification from our customer, which was followed promptly by a cancellation of the purchase order. The entire program we were supporting was canceled due to reasons unrelated to CPS. Relative subcontractors, including ourselves, will be paid for the work done prior to the cancellation. We will keep our investors informed if the contract is renewed in the future. In the meantime, we continue with our Phase 2 DOE radiation shielding contract, which extends into late Although we are early in things too, we continue to address early commercial interest in our radiation shielding offerings from customers with a variety of use cases. The market is affirming that our novel solution has real-world value. Our hypertech radiation shielding is targeting an estimated $4 billion market with multiple form factors, which include modular walls, cladding, glove boxes, and truck shelves. We continue our work to drive a broadening portfolio of products for commercialization in 2025, particularly in areas of hybrid tech radiation shielding and fiber-reinforced illumination. As we've said before, we believe CPS has unique technologies and capabilities to meet the banding requirements for a host of potential clients worldwide. We also remain on track to use our new internal 5-axis machining capability for our first customer shipments this summer. This additional production enhancement for hermetic packaging is helping lay the foundation for addressing a broader array of market opportunities. Specifically, we estimate the available market for 5-axis machined hermetic package components to exceed $50 million, with gross margins in the low to mid-30% range at high volumes and potentially higher on smaller orders. We continue to leverage our proprietary know-how, including the design, manufacture, and testing of aluminum infiltrated products under the hybrid tech name to deliver unique material properties. We are identifying specific customer challenges where we believe we can bring value to novel solutions based on our core competencies and material time. In closing, we are pleased with our ongoing successful turnaround in the outlook for 2025. Our production levels and shipments are at record levels, which we believe puts us in a position for our best year ever. We also anticipate, as production climbs and efficiencies increase, that our margins will continue to expand through the remainder of the year, leading to further improved bottom-line results, strengthening our balance sheet in the process. Given strong demand for our products, new market opportunities, and an expanding portfolio of products under development, the coming quarters look bright. I'd like to thank our employees for their passion and dedication, and our investors for their patience and interest in the future of CPS.

Currently, the floor is now open for questions. If you would like to join the queue to ask a question at this time, please press star 1 on your telephone keypad. Once again, please press star 1 on your keypad at this time if you wish to join the queue to ask a question. We do ask if listening on speakerphone this morning that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star one at this time if you wish to join the queue to ask a question.

Please hold a moment while we poll for questions. Thank you. Our first question this morning is coming from Kenneth Pounds.

Kenneth, your line is live. Please go ahead.

Good morning, gentlemen. Excellent quarter of It seems like you're really advancing on several different product categories. Is there potential to bring in other partners to help market your unique technologies?

Thank you, Ted, for the question.

Good morning. We have some partners that we utilize on a day-to-day basis in certain places. We have a long and established relationship with a partner in hermetic packaging, as well as several sales reps in different geographies. And I think going forward, we'll continue to look at those opportunities as they emerge and we get closer to commercialization in a given area. You know, for example, the private reinforced aluminum is very relevant to aircraft. And we have ongoing discussions with some of the participants in that market and are keeping our eyes open for opportunities that might be fruitful going forward.

All right. You talked a lot about the radioactive shielding. You said there was one contract was canceled, but there's other several important opportunities there.

Yeah, what we're hearing from the market is interest in our solution. We were originally funded by the DOE to develop a solution to be used in trucking. A lightweight barrier to radiation, particularly neutron gamma radiation, and under the simple concept that the lighter the truck is, the more cargo you can put on the truck, and targeting the transportation of NMRs, nuclear micro-reactors. What we found as soon as we started sharing our results from the early development effort was other market players were intrigued by what we're offering, particularly places like facilities. So if you're able to use one of our designs for a modular wall, you don't need a much thicker, much heavier concrete wall or a lead wall or some of these other alternatives that are problematic for specific applications, like if you have a small glove box. So we're getting a lot of interest, which is affirming that we have something that's unique and valuable, and we're exploring those even while we're still early in Phase 2.

All right. Thank you.

Thank you. Your next question is coming from Ron Richards. Ron, your line is live. Please go ahead.

Good morning, guys. Congratulations on the record revenues. I just had a question. Do you have like any other potential armor opportunities in the pipeline besides the Navy contract?

Yeah, the Navy contract is certainly number one. We do have other opportunities that we're pursuing. Most notably, I would point to the phase one arming solution that we developed with SBIR phase one funding, which was targeting flooring for military helicopters that have ballistic protection. So we used our method to develop a flooring. And during the phase one, we conducted a successful box drop test, which is literally, you know, can you drop a heavy box on it, and it provides the structural support you need. Unfortunately, the Army did not have any funding for phase two for any applicants, so we didn't even make a proposal. But after the phase one, we conducted our own ballistic shoot of those panels that we had developed, and it had very nice ballistic results. So you really need to do two things, have the structural support that passes the box crop test, and number two, ballistically stop a projectile from the bad guy underneath. And we were able to demonstrate that. So we're now sharing those results with people at Helicopter OEM and pursuing those conversations, and we're interested to see where that goes as well.

Okay, thank you.

Thank you. And once again, as a reminder, if you wish to join the queue at this time, please press star 1 on your telephone keypad. Once again, that will be star 1 on your keypad at this time to join the queue to ask a question. Our next question this morning is coming from Stephen Tossie. Stephen, your line is live.

Please go ahead. Thank you. Good point, guys.

Sorry I missed the annual meeting the other day. I had more traffic than not been expected, but was able to make it happen. Anyway, my question is about the current tariff environment. I mean, I've just had to keep track of all these things, but it seems like there are tariffs on aluminum the last I heard, and of course any overseas products might be subject to tariffs either way. And so, have you seen that?

Yeah, sure.

So, I guess the good news from our standpoint is that, you know, materials or raw materials don't make up a huge percentage of our finished products. So, aluminum is probably a good example. you know, the cost of aluminum in a base plate, you know, is probably in the neighborhood of, you know, 5 to 10 percent, you know, depending on the size of that base plate. And so an increase in the cost of aluminum, while certainly is not something that we're looking forward to, it's also not something that's going to have a, you know, huge impact on, you know, the bottom line in terms of what those tariffs might bring. And we also, again, I guess to sort of a two-sided coin, we often know that some of the oil will be domestically produced, but of course the other side of that coin is that the domestic producers realize that they can raise their prices too, maybe not as high as the foreign, you know, the importers, but certainly, you know, You know, they're going to take advantage of that opportunity if they can. So, you know, I don't think it's going to be a major problem for us, but it's certainly not a good thing. Let's put it that way. Yeah, on the import side, we're keeping an eye on the different supply chain items that are either coming directly to us from an overseas supplier or are sourced domestically but maybe originate somewhere else. And adjusting our purchasing accordingly. Obviously, there's a lot of uncertainty today. On the sales side, we're monitoring that as well because we do ship internationally. As of today, we have not seen any impact from retaliatory tariffs on the sales markets. And I just want to mention that we're constantly reviewing our supply chain, our vendors, our see, you know, who is out there and if there are opportunities for cost savings, you know, by going through a different source. So, you know, that's kind of an ongoing thing as well, which, you know, could potentially, you know, help us out if a vendor today gets hit particularly hard by tariffs, but there are other ones out there that won't.

All right. Great. Thanks. more kind of related question, if I might.

So, I haven't looked at the financials closely, but if you were going to tell me you had revenue of $7.5 billion, I would have thought the profit margin might have been larger than that. Was it a product mix, or am I just playing wrong about that?

So, I agree. I think that what we talked about recently is the fact that when we added our third shift, which started last summer, late last summer, you know, we had a lot of, we had a big learning curve to go through. And if you were to look at our project yields going back a year ago, you would see that they were, you know, very good or reasonably good. Those yields came down, down, down. They probably hit the trough or hit the bottom of last year, and they've now been coming back up again, they're still not to the level that we want them at, and they're still not to the level they were a year ago. So we're continuing to improve in those areas, but I think that's probably the major reason why we didn't see higher margins than what we did see. And as Brian mentioned during his talk earlier, you know, hopefully we do the same number in Q2, we'll see a better, you know, much better bottom line. Yes, and two things to add to that. The armor revenue was beneficial to our gross margin percentages. So without that, there is an impact there. But we do have a number of initiatives underway, both for internal operations as well as supply chain, which we anticipate will continue to move that number in the right direction.

Okay, great. Thanks. Go ahead. Sure.

Thank you. Your next question is coming from Greg Weaver. Greg, your line is live. Please go ahead.

Hi. Good morning, gentlemen. Nice to see you in the black here this quarter. Following on to the prior question, that's where I was going with the similar vein. So, Chuck, you mentioned about the yield issue. So, As I recollect, there were two issues. You had a process issue and then a staffing issue with green staff that was, you know, causing your fallout. I guess kind of where are you on both of those items because it relates to your ramp back?

Yeah, so I think that, you know, I think from a staffing standpoint where, you know, we're still working our way through that. I mean, certainly we've got some folks now, in particular on the third but there's still turnover. I don't think that will probably ever go away completely, but we're basically just working our way through it, and the more stability we can get, then obviously the better off we are. And I think, you know, like I said before, you know, we think if we were to do the same top line numbers again this quarter, then I would anticipate and I would hope that we'll see some improvement in the bottom line. Greg, I think the other part of your question was going back several months to thing now is unrelated to that.

All right, good. Thanks, Brian. That's helpful. All right, so do you dare at this kind of run rate with this product mix care to share any kind of goal you might have to where you'd like to see gross margins get to if you could tighten up some of these things? I mean, you mentioned utilization, but you're on a third shift, so I mean, you're running this thing pretty hard in terms of utilization.

Yeah, I mean, I think, you know, we do have some internal initiatives to, you know, for margin improvement. I think, you know, that, well, I mean, obviously, you can look and you can see that we have margins in the neighborhood of 30% for a couple of quarters, you know, back, I want to say, in 2023. Certainly, you know, if you want to talk about a goal, you know, The current product mix, we can get to that level. But, you know, certainly, as I said before, we're doing everything we can to try. And, you know, obviously, you know, 15.5% basically this past quarter, you know, if we can get to 20, get to 22, to 25, you know, that kind of thing, that would be great. Yeah, with the demand that we have, I mean, there's certainly an ROI on all of this work. So we have some initiatives that will bear fruit in the short term. Those will be relatively small in the timeframe. Some of the larger initiatives we have will take more time to play out and potentially have a bigger impact on margins. And the third shift is for our out-fick or no-matrix composite products, whereas on the genetic patching side, we're really at two shifts or, you know, one plus, you know,

numbers okay uh thanks brian so just last for me um i mean giving your top line run rate you mentioned how you're filling in the hole from the armor uh i gotta believe with this semi backdrop here that you have to be taking share from your competitor right at your end customer i mean uh what do you attribute the strength to i mean his business got that much better

I think it's a mixture of both. I think we're picking up market share. I think we're picking up some new customers, which is probably taking someone else's business. I think we're picking up additional products from existing customers, such as incremental packaging. But I also think both of these product lines, the incremental packaging and ALFIC, we're riding the growth of these markets as well as a combination of factors.

Okay.

Thank you.

I'm sorry. Yeah, I was just going to say, you know, what Brian mentioned earlier, you know, just about the growth of the market due to the expansion of, you know, the electrical grid and the fact that, again, you know, I know in the United States it's not as big a thing, but certainly we're seeing overseas the, you know, the desire for more and more wind farms And those are areas that you need an ALFIC ITVT module with an ALFIC base plate. And so we think that a lot of it is coming from the growth of the market.

Okay, great. Well, thank you for answering the questions and keep it going. Appreciate it. Thank you. Bye-bye.

Thank you. At this point, there appear to be no further questions in queue, so I'll turn the call back to Mr. Mackey for any closing remarks.

Great. Thanks, Tom. Thanks, everyone, for joining us today and your ongoing interest in CPS Technologies. We look forward to speaking with you again at the end of the second quarter. In the meantime, if you have any questions, please reach out to our Investor Relations Advisor. We will also be participating in the Sedoti Virtual Investor Conference later this month. Thank you.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you once again for your participation.