CPS TECHNOLOGIES CORP/DE/ Q1 FY2024 earnings call

• The company invested in additional engineering and material science personnel, with 3 more salaried employees than Q1 2023, including a lead for new product introduction. - Completed and shipped 8 new first articles in Q1, up from 2 in the prior year; these first articles are new parts that could lead to future production runs. - Entered a manufacturing licensing agreement with Triton Systems for fiber reinforced aluminum composites (FRA), with manufacturing trials for FRA to start later in the quarter. - Received $200,000 from the Massachusetts Manufacturing Accelerate program to purchase a 5-axis CNC machine, expanding manufacturing capabilities. - Achieved success in a SBIR Phase I program for modular radiation shielding, with a Phase II proposal submitted; results presented at Idaho National Laboratory.

Revenue for the first quarter was $5.9 million, down from $7.1 million in the prior year. Gross profit totaled $0.9 million, approximately 15.3% of sales, compared to $2.2 million or 31.6% of sales in the prior year. The decline in revenue and gross profit was due to production constraints from quality control testing, labor shortages, and inefficiencies.

• Anticipate gross margins to improve in the second half of 2024. - Acknowledge headwinds from the anticipated drop-off in near-term ARMOR revenue. - Expect the financial return from new personnel to take time to develop. - Manufacturing trials for FRA composites to start later in the quarter.

• Uncertainties from geopolitical events (e.g., wars in Ukraine and Israel), economic conditions, market demands, and competitive factors. - Labor shortages and turnover that impacted production and margins in Q1. - Timing uncertainties related to SBIR Phase II funding and market entry of new products like FRA composites.

Q: What's the first product likely to generate near-term revenue?

A: Hermetic packaging using the newly acquired 5-axis CNC machine; once in-house capability is established, it will allow cost-competitive pricing for first articles that could lead to volume orders.

Q: Labor situation in the long term?

A: It was a temporary issue in Q1; currently, the company is fully staffed for future production, but could reappear if needing to hire a large number of people.

Q: How does the shielding work compare cost-wise to current solutions?

A: The shielding solution reduces weight and material usage, providing benefits for mobile applications (e.g., transiting micro reactors) and stationary applications (e.g., building construction) due to lower weight requirements.

Q: Status of Armor revenue?

A: Down from prior year, but not gone yet; there are ongoing conversations for future Armor opportunities, though it's lumpy.

Q: Details on the 5-axis tool award?

A: The $200,000 award from the Massachusetts Manufacturing Accelerate program is not a loan; it's to expand manufacturing capabilities and is being used to purchase a 5-axis CNC machine.

Q: Testing constraints status?

A: It's a temporary situation; the company is moving towards resolving testing issues, with expectation to put the testing constraints behind soon as they get close to resolving the quality problems.