Q1 2024 CPS Technologies Corp Earnings Call
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Speaker Change: Good morning, everyone and welcome to the Cps technologies first quarter earnings call. At this time, all participants have been placed on a listen only mode.
Operator: Good morning everyone, and welcome to the CPS Technologies first quarter earnings call. At this time, all participants have been placed in a listen-only mode, and we will open the floor for questions after the presentation. It is now my pleasure to turn the floor over to your host, Chuck Griffith of CPS Technologies. Chuck, it is over to you.
Operator: And we will open the floor for questions. After the presentation. It is now my pleasure to turn the floor over to your host Chuck Griffith of Cps technologies Chuck S T.
Charles K. Griffith: Thank you, Jenny, and good morning, everyone. Today, I'm joined by Brian Mackey, our President and CEO. We look forward to discussing our first quarter results with you. But first, Chris Witty, our Investor Relations Advisor, will provide a brief Safe Harbor statement.
Charles K. Griffith: Thank you Jenny and good morning, everyone today, I'm joined by Brian Mackey, Our President and CEO, we look forward to discussing our first quarter results with you, but first Chris witty our Investor Relations adviser will provide a brief safe Harbor statement Chris.
Chris Witty: Thanks, Chuck and good morning, everyone before we 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 90 to 95 and should be considered as subject to the many uncertainties that exist in cps's operation.
Chris Witty: Thanks, Chuck. And good morning, everyone.
Chris Witty: Before we 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 wars in Ukraine and Israel, other geopolitical events, economic conditions, market demands, and competitive factors.
Chris Witty: Such factors could cause actual results to differ materially 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 highlights. Afterwards, Chuck will review the financial results in greater detail.
Brian: And environment.
Brian: These uncertainties include but are not limited to the wars in Ukraine, and Israel other geopolitical events economic conditions market demands and competitive factors such factors could cause actual results to differ materially from those in any forward looking statements additional information can be found in our filings with the SEC.
Brian Mackey: First quarter revenue was $5.9 million with an operating loss of approximately $260,000. Revenue declined year over year due to production constraints related to continued quality control testing, as well as production inefficiencies due to labor shortages and turnover. Bottom-line results were, similarly, negatively impacted due to non-revenue-producing spend in the first quarter, which I will discuss in more detail later. We anticipate that while demand remains strong across our product portfolio, the coming quarters, as we've discussed in the past, will also face headwinds from the anticipated drop-off in near-term armor revenue. I'll now turn the call over to Chuck to provide more details about our financial results, after which I'll provide some additional detail. Chuck? Thank you.
Chris Witty: Now I will turn the call over to Brian to offer his perspective on the first quarter highlights after which Chuck will review the financial results in greater detail Brian.
Brian Mackey: Yeah.
Chuck: Thank you Chris.
Chuck: First quarter revenue was $5 $9 million with an operating loss of approximately $260000.
Chuck: Revenue declined year over year due to production constraints.
Chuck: Weighted to continued quality control testing as well as production inefficiencies due to labor shortages and turnover.
Chuck: Bottom line results were similarly negatively impacted due to non revenue producing spend in the first quarter, which I will discuss in more detail later.
Chuck: We anticipate that while demand remains strong across our product portfolio the coming quarters as we've discussed in the past we will also face headwinds from the anticipated drop off in near term armor revenue.
Brian Mackey: I'll now turn the call over to Chuck to provide more details about our financial results after which I'll provide some additional detail Chuck.
Charles K. Griffith: As mentioned earlier, the company's revenue totaled $5.9 million in the first quarter compared with $7.1 million last year. We've had some level of difficulty filling opening manufacturing positions. Additionally, while we are cautiously optimistic that our quality issues have been resolved, we continue to run tests which occupy machine time that would otherwise be spent on production for customers. We do, however, believe that strong demand across our other offerings should lead to top-line growth as the year progresses. In addition, our Navy partner, Kinetic Protection, remains cautiously optimistic about additional work for other Navy ship classes, with contracts possible later in 2024.
Brian Mackey: Brian.
Chuck: As mentioned earlier, the Companys revenue totaled $5 $9 million in the first quarter compared with $7 $1 million last year, we've had some level of difficulty filling opening manufacturing positions. Additionally, while we are cautiously optimistic that our quality issues have been resolved, we continue to run tests, which occupied machine.
Charles K. Griffith: Time that would otherwise have been spent on production for customers.
Charles K. Griffith: We do however believe that strong demand across our other offerings should lead to top line growth as the year progresses.
Charles K. Griffith: In addition, our Navy partner kinetic protection remains cautiously optimistic about additional work for other Navy ship classes with contracts possible later in 2024.
Charles K. Griffith: Gross profit in the first quarter totaled $0.9 million, or approximately 15.3% of sales compared with $2.2 million, or 31.6% of sales last year. This decrease was due to lower sales volumes in Q1 2024 on consistent fixed costs, as well as the aforementioned testing being done on the quality issue. That said, we anticipate gross margins to improve in the second half of 2024. Selling, general, and administrative, or SG&A, expenses totaled $1.2 million in the first quarter versus $1.6 million in the prior-year period, as we remain focused on cost controls, even while investing in new business development initiatives aimed to accelerate long-term growth.
Charles K. Griffith: Gross profit in the first quarter totaled $9 million or approximately 15, 3% of sales compared with $2 2 million or 31, 6% of sales last year.
Charles K. Griffith: This decrease was due to the lower sales volumes in Q1, 2024 on consistent fixed costs as well as the aforementioned testing being done on the quality issues that said, we anticipate gross margins to improve in the second half of 2024.
Charles K. Griffith: Selling general and administrative or SG&A expenses totaled $1 2 million in the first quarter versus $1 $6 million in the prior year period.
Charles K. Griffith: As we remain focused on cost controls, even while investing in new business development initiatives aimed to accelerate long term growth.
Brian Mackey: The company had an operating loss of $260,000 in the first quarter compared with operating income of approximately $694,000 last year, and we posted a net loss of $143,000, or one cent per share, versus net income of $459,000, or three cents per diluted share, in Q1 of fiscal 2023. Turning to the balance sheet, we ended the quarter with $8.7 million of cash versus $8.8 million at the start of 2024. Trade accounts receivable as of March 30, 2024 totaled $3.8 million versus $4.4 million as of December 31, 2023.
Charles K. Griffith: The company had an operating loss of $260000 in the first quarter compared with operating income of approximately $694000 last year, and we posted a net loss of 143000 or <unk> <unk> per share versus net income of $4 59000, or <unk> <unk> per diluted share in Q1 of fiscal <unk>.
Brian Mackey: 2023.
Brian Mackey: Turning to the balance sheet, we ended the quarter with $8 7 million of cash versus $8 8 million at the start of 2024.
Brian Mackey: Trade accounts receivable as of March 32024 totaled $3 8 million versus $4 4 million as of December 31, 2023.
Brian Mackey: Inventories totaled $4.6 million at the end of the first quarter, essentially equivalent to the $4.6 million at the end of the fiscal year. Turning to the liability side, payables and accruals totaled $3.3 million at the end of the first quarter versus $3.6 million as of the end of December. Now Brian will provide a more in-depth discussion of the first quarter. Thank you, Chuck.
Brian Mackey: Inventories totaled $4 6 million at the end of the first quarter essentially equivalent with a $4 6 million at the end of the fiscal year.
Brian Mackey: Turning to the liability side payables and accruals totaled $3 3 million at the end of the first quarter versus $3 6 million as of the end of December.
Brian Mackey: Now Brian will provide a more in depth discussion of the first quarter.
Brian Mackey: Thank you Chuck.
Brian Mackey: First of all, I would like to discuss CPS's vision for the future. Over the last few years, we've invested significant amounts of time, energy, and money in the growth of CPS, and we continue to do so. Today, we have three more salaried engineers and material scientists than we did in Q1 of 2023, including the addition of a lead for new product introduction in the first quarter of 2024. These additions provide more depth to our technical team, enable us to be more responsive to customer requests, and improve our ability to win orders.
Brian Mackey: First of all I would like to discuss Cps vision for the future over.
Brian Mackey: Over the last few years, we've invested significant amounts of time energy and to the growth of the Cps and we continue to do so.
Brian Mackey: Today, we have three more salaried engineers and material scientists than we did in Q1 of 2023, including the addition of a lead for new product introduction in the first quarter of 2024.
Brian Mackey: These additions provide more depth to our technical team.
Brian Mackey: Enable us to be more responsive to customer requests and improve our ability to win orders, having said that the financial return from these new personnel will take time to develop.
Brian Mackey: Having said that, the financial return from these new personnel will take time to develop. As a direct example, in the first quarter, we completed and shipped eight new first articles. This compares to two in the same period last year.
Brian Mackey: As a direct example in the first quarter, we completed and shipped eight eight new first articles. This eight compares to two in the same period last year. These first articles are new parts, which Cps is not made in the past, but if done successfully will lead to significant production runs in the future.
Brian Mackey: These first articles are new parts which CPS has not made in the past, but if done successfully, will lead to significant production runs in the future. Some of these would be an expansion of our portfolio with an existing customer, while others indicate a business opportunity with a new customer. Producing these first articles is engineering-intensive, and this was certainly one factor in the lower margins we saw in Q1.
Brian Mackey: Some of these would be an expansion of our portfolio with an existing customer while others indicate a business opportunity with a new customer.
Brian Mackey: Producing these first articles as engineering intensive and this was certainly one factor in the lower margins we saw in Q1.
Brian Mackey: Nevertheless, we believe that incurring costs such as these today will be a significant contributing factor to the growth of CPS in the future. Also, our Manufacturing Licensing Agreement with Triton Systems for Fiber Reinforced Aluminum Composites, or FRA, will soon set the stage for expanded offerings to address market needs, expanding our product portfolio heading into fiscal 2025. Our relationships in the aerospace and defense markets provide insight into the market demand for strong, durable, and lightweight materials.
Brian Mackey: Nevertheless, we believe that in current costs such as these today will be a significant contributing factor to the growth of Cps in the future.
Brian Mackey: Also our manufacturing licensing agreement with trading systems for fiber reinforced aluminum composites or foray will soon set the stage for expanded offerings to address market needs expanding our product portfolio heading into fiscal 2025.
Brian Mackey: Our relationships in the aerospace and defense markets provided insight into the market demand for strong durable and lightweight materials.
Brian Mackey: FRA composites address these needs. As a reminder, FRA composites are comprised of high-strength aluminum alloys, discontinuously reinforced with short ceramic fibers. These materials have demonstrated high strength at elevated temperatures, lightweight, and superior endurance characteristics, which will facilitate the introduction of many new products for our military, commercial, and industrial end markets. We are on track to initiate our manufacturing trials for FRA composites later this quarter. And we have already begun speaking with customers about possible relevant applications.
Brian Mackey: Foray composites address these needs.
Brian Mackey: As a reminder, fri.
Brian Mackey: <unk> are comprised of high strength aluminum alloys, discontinuously reinforced with short ceramic fibers. These materials have demonstrated high strength at elevated temperatures lightweight and superior endurance characteristics, which will facilitate the introduction of many new products for our military commercial and industrial end markets.
Brian Mackey: We are on track to initiate our manufacturing trials for FRE composites later this quarter and we have already begun speaking with customers about possible relevant applications. We're very excited to have these complementary products coming to market.
Brian Mackey: We're very excited to have these complementary products coming to market. We have also previously announced the award we recently received from the Massachusetts Manufacturing Accelerate Program. In response to customer demand for products requiring 5-axis machining capability, we requested and received $200,000 to support the purchase of a 5-axis CNC machine. These funds expand our manufacturing capabilities and enable us to be more responsive to customer requirements. We have ordered this CNC machine and also expect to have this up and running later this quarter.
Brian Mackey: We also previously announced the award we recently received from the Massachusetts manufacturing has accelerated program in.
Brian Mackey: In response to customer demand for products, requiring five axis machining capability, we requested and received $200000 to support the purchase of a five axis CNC machine.
Brian Mackey: These funds expand our manufacturing capabilities enable us to be even more responsive to customer requirements. We have ordered a CNC machine and also expect to have this up and running later this quarter.
Brian Mackey: Again, this will pave the way for higher production of hermetic packaging and other products later this year. In addition, while our current armor contract is coming to completion, we are cautiously optimistic that, working with kinetic protection, new Navy orders may be forthcoming later in 2024. We continue to believe these ballistic solutions have a large potential market across different types of ship classes, as well as other military markets. We also continue to work with another customer on providing ballistic protection against higher threat levels. At the same time, we know that further SBIR opportunities, including follow-on contracts, are possible in the weeks and months to come.
Brian Mackey: Again, this will pave the way for higher production of Hermetic packaging and other products later this year.
Brian Mackey: In addition, while our current armor contract is coming to completion, we are cautiously optimistic that working with kinetic protection New Navy orders may be forthcoming later in 2024, we continue to believe these ballistic solutions have a large potential market across different types of ship classes as well as other military markets.
Brian Mackey: We also continue to work with another customer on providing ballistic protection against higher threat levels.
Brian Mackey: At the same time, we know that further <unk> opportunities, including follow on contracts are possible in the weeks and months to come at.
Brian Mackey: At the moment, we have six submitted proposals awaiting funding decisions from the DOE, DOD, and NASA, including four Phase I's and two Phase II's. These ongoing R&D efforts are enabling us to directly address clearly defined market requirements. I'd like to share some details from our most recently completed SBIR program, which effectively demonstrates our ability to address problems identified by our customers, in this case, the Department of Energy. CPS was initially funded $200,000 by the DOE in response to our proposal entitled Modular Radiation Shielding for Transportation and Use of Microreactors.
Brian Mackey: At the moment, we have six submitted proposals awaiting funding decisions from the Doe, Dod and NASA, including for Phase, one and two phase twos.
Brian Mackey: These ongoing R&D efforts are enabling us to directly address clearly defined market requirements.
Brian Mackey: I'd like to share some details from our most recently completed SB IR program, which effectively demonstrates our ability to address problems identified by our customers in this case the department of energy.
Brian Mackey: Cts was initially funded $200000 by the Doe and response to our proposal entitled modular radiation shielding for transportation use of micro reactors. The problem statement focused on the ability to produce lightweight and low complexity radiation shielding that would be of paramount importance.
Brian Mackey: The problem statement focused on the ability to produce lightweight and low complexity radiation shielding that would be of paramount importance for the deployment of the Advanced Nuclear Microreactor. Lower shielding density promotes higher power density during transit for power, remote, or mobile applications, including mining operations, disaster relief efforts, shipping, and defense. During the nine month phase one period, which ended just last week, CPS successfully incorporated its proprietary techniques related to both injection molding and metal matrix composites or MMCs. We designed, fabricated, and evaluated a novel MMC consisting of an aluminum matrix with both tungsten and boron carbide reinforcement particles.
Brian Mackey: Deployment of advanced nuclear micro reactors.
Brian Mackey: Lower shielding density promotes higher power density during transit for power remote or mobile applications, including mining operations disaster relief efforts shipping in defense.
Brian Mackey: During the nine months phase one period, which ended just last week Cps successfully incorporated as proprietary techniques related to bolt injection molding and metal matrix composites or Mcs.
Brian Mackey: We designed fabricated and evaluated a novel NMC, consisting of an aluminum matrix with bolt tungsten carbide reinforcement particles.
Brian Mackey: The resulting composite offers both neutron and gamma radiation shielding in an elegant, compact solution, as opposed to relying on multiple layers of dissimilar materials. Although further optimization is necessary, our baseline composite material demonstrated the capacity for neutron shielding and was highly effective at shielding gamma radiation at a much lower mass compared to traditional materials. In fact, as a barrier to gamma radiation, our composite demonstrated performance similar to lead or tungsten, but with a reduction in mass of more than 55%.
Brian Mackey: In composite offers both neutron and gamma radiation shielding and an elegant compact solution as opposed to relying on multiple layers of dissimilar materials.
Brian Mackey: Although further optimization as necessary our baseline composite material demonstrated the capacity for neutral shielding and was highly effective at shielding gamma radiation at much lower mass compared to traditional materials in fact, as a barrier to gamma radiation or composite demonstrated performance similar to <unk>.
Brian Mackey: But with a reduction in mass of more than 55%.
Brian Mackey: Our MMC design can be easily modified to suit different protection needs with variable volumes of both gamma and neutron absorbers. Our proposed solution will greatly reduce the mass of material needed while being highly customizable in size, shape, and composition. The novel CPS process improves upon existing research to fabricate integrated radiation shields by achieving greater reinforcement loading with a robust, cost-effective, and mature processing technology.
Brian Mackey: Our MFC design can be easily modified to suit different production protection needs with variable volumes of both gamma and neutron absorbers.
Brian Mackey: Our proposed solution will greatly reduce the massive material needed, while being highly customizable and size shape and composition.
Brian Mackey: The novel Cps process improves upon existing research to fabricate integrated radiation shields by achieving greater reinforcement loading with a robust cost effective and mature processing technology.
Brian Mackey: It's a great accomplishment, especially for just a phase one program. Our technical team was invited to present its results just last week at the National Reactor Innovation Center Program Review at Idaho National Laboratory. We're now following up on several leads that developed from that event. The feedback that our presentation received also highlighted the value of our approach for stationary applications, i.e., building construction, due to the dramatically reduced weight required.
Speaker Change: Great accomplishment, especially for just the phase one program.
Brian Mackey: Our technical team was invited to present its results just last week at the National Reactor Innovation Center program review at Idaho National Laboratory. We're now following up on several leads was developed from that event.
Brian Mackey: The feedback on our presentation received also highlighted the value of our approach for stationary applications I E building construction due to the dramatically reduced weight requirements.
Brian Mackey: We are also awaiting DOE's response to our Phase 2 proposal, which, if awarded, would provide an additional $1.1 million in funding over a 24-month period. It should come as no surprise that we're very pleased with the results of this to date, which has already generated meaningful dialogue related to near-term opportunities for fielding our solution. DOD initiatives like Project Pele, which is working to demonstrate a mobile nuclear reactor for U.S. military applications, demonstrate the potential dual uses for our novel material solution.
Brian Mackey: We're also awaiting the Dod's response to our phase III proposal.
Brian Mackey: If awarded would provide an additional $1 1 million funding over a 24 month period.
Brian Mackey: It should come as no surprise, we're very pleased with the results of this to date, which has already generated meaningful dialogue related to near term opportunities for fielding our solution.
Brian Mackey: Initiatives like project, Pele, which is working to demonstrate a mobile nuclear reactor for U S. Military applications again demonstrate the potential do dual users for all four our novel materials solutions.
Brian Mackey: Although we do not control the timing of when our proprietary offerings will enter the market, we continue to build our portfolio in service to our customers. In the last few years, CPS has redoubled efforts to expand its product line to meet new technology-based requirements. One key element of this has been our participation in the SBIR programs of various federal agencies. In the past three years, five of our 14 Phase I proposals have been selected for awards. Historically, the government's rate of funding phase one proposals for all applicants has been about 20%, and this has been even more competitive in recent years, perhaps down to 15%.
Brian Mackey: Although we do not control the timing of when our proprietary offerings will enter the market, we continue to build our portfolio and service to our customers.
Brian Mackey: Within the last few years Cps has redoubled efforts to expand its product to meet new technology based requirements. One key element of this has been our participation in the SBA IR programs of various federal agencies within the past three years five of our 2014 phase one proposals had been selected for award.
Brian Mackey: Historically, the government's rate of funding phase one proposals for all applicants has been about 20% and this has been even more competitive in recent years, perhaps down to 15%.
Brian Mackey: So we're very pleased with our award rate so far, which is over 35%. This speaks volumes as to the capabilities of our team and our existing intellectual property. But more importantly, we see these awards as an affirmation that we are addressing the problem statements of our customers as they define them within the context of the SBIR format. We know that providing such technical solutions will provide real growth opportunities going forward, many of which have potential applications with both commercial and military customers. In the meantime, we continue to fulfill the long-term supply agreement announced last year, providing power module components and systems for a variety of rail and other applications to a multinational semiconductor manufacturer.
Brian Mackey: So we're very pleased with our award rates, so far which is over 35%. This speaks volumes as to the capabilities of our team and our existing intellectual property.
Brian Mackey: But more importantly, we see these awards is affirmation that we are addressing the problem statements of our customers as they define them within the context of the svar format.
Brian Mackey: We know that providing such technical solutions will provide real growth opportunities going forward.
Brian Mackey: Many of which have potential applications with both commercial and military customers in.
Brian Mackey: In the meantime, we continue to fulfill the long term supply agreement announced last year, providing power module components and systems for a variety of rail and other applications to a multinational semiconductor manufacturer.
Brian Mackey: We remain on track for the shipment of product under this contract over the course of 2024. As I said earlier, we are actively bidding on opportunities to accelerate growth in the future while mitigating the negative impact this year due to the completion of our current naval armor contract. We continue to believe that expansion across other product lines should cover roughly half of the $2 million quarterly revenue shortfall in 2024 related to Armor, setting the stage for growth next year and beyond. We'd now like to open the call up for questions. Operator. Thank you very much.
Brian Mackey: We remain on track for the shipment of product under this contract over the course of 2024.
Brian Mackey: As I said earlier, we are actively bidding on opportunities to accelerate growth in the future while mitigating the negative impact this year due to the completion of our current naval armor contract.
Brian Mackey: We continue to believe that expansion across other product lines should cover roughly half of the $2 million quarterly revenue shortfall in 2024 related to armor.
Brian Mackey: Setting the stage for growth next year and beyond.
Brian Mackey: We would now like to open the call up for questions.
Brian Mackey: Operator.
Operator: Thank you very much. We are now opening the floor to questions. If you have any questions, please press star 1 on your phone keypad now. We ask that while you're asking your question, you please pick up your handset if you're listening on a speakerphone to provide optimum sound quality. Please hold a moment whilst we poll for any questions. Just a reminder there; it is star 1 on your phone keypad if you would like to ask a question. I'm not seeing anyone come into the queue.
Speaker Change: Thank you very much we are now in England floor for questions. If you have any questions. Please press star one on your phone keypad now we ask about you're posing your question. Please pickup your handset if you're listening on a speaker phone to provide optimum sound quantity. Please hold a moment, whilst we poll for any questions.
Operator: Just to remind you that it is.
Operator: One on your phone keypad, if you would like to ask a question.
Operator: I'm not seeing anyone.
Operator: Keith.
Operator: Oh, we do have a question in. Your first question is coming from Wolf Sheck. Wolf, your line is live.
Speaker Change: We do have a question.
Wolf Sheck: Your first question is coming from.
Wolf Sheck: Your line is open.
Wolf Sheck: Thank you good morning, gentlemen, thanks.
Wolf Sheck: Thank you. Good morning, gentlemen. Thanks for your presentation, sir. It's nice to make your acquaintance this way. Based on your presentation this morning, it sounds like you have a lot going for the company. What do you think will be the first product that you should be able to unleash, and what kind of revenues do you think you'll be able to generate from it this year?
Wolf Sheck: Thanks to higher presentation Sir.
Wolf Sheck: And this particular acquaintances way based on your presentation. This morning. It sounds like you have a lot going forward.
Wolf Sheck: The company.
Wolf Sheck: Do you think will be the first product.
Wolf Sheck: You should be able to operation what kind of revenues you can generate from it.
Wolf Sheck: In this current year.
Speaker Change: But I think probably the most straightforward as the buybacks is particularly for hermetic packaging, because thats been a request of customers over a period of time that we've been producing hermetic package products to begin with so in the past we've been not cost competitive on those because we don't have that <unk>.
Brian Mackey: Well, I think probably the most straightforward is the five axis, particularly for hermetic packaging, because that's been a request from customers over a period of time, you know, that we've been producing hermetic package products to begin with. But in the past, we weren't cost competitive on those because we didn't have that five axis capability in house. So that's a, you know, low risk, near-term execution opportunity.
Brian Mackey: Access capability in house, so that's a.
Brian Mackey: Low risk near term execution opportunity once we have that machining capability in house.
Brian Mackey: Once we have that machining capability in house, we'll be able to offer those products at competitive prices. Now, that'll be first articles, and there'll be customer engagement with that that will then turn around, you know, further down the calendar into volume orders. But that's the most direct answer to your questions.
Brian Mackey: We'll be able to offer those products that are cost competitive pricing.
Brian Mackey: Now that'll be first articles and there'll be customer engagement of that that will then turnaround further down the calendar into volume orders, but that's the most direct answer to your question is other things like the fiber reinforced aluminum.
Brian Mackey: Other things like fiber-reinforced aluminum. We will be setting up manufacturing this quarter to begin trials, and then we'll be replicating the performance results that are known to be attributed to FRA materials. And from there, we'll be working with these customers to take that forward, and that will also have a timeline to it where we validate the performance characteristics against standardized testing criteria for various material performance properties. And then translating that into products for a given application starting probably the nearest on the timeline with those aerial applications, whether it's bearing liners for rotary weights, rotary aircraft, and similar applications.
Brian Mackey: We are setting up manufacturing this quarter to begin trials and then we'll be replicating. The performance results that are known to be attributed to FRE materials and from there we'll be working with these customers on playing that forward and that will also have a timeline to it where we validate the performance characteristics.
Brian Mackey: Against.
Brian Mackey: Standardized testing criteria for various material performance properties, and then translating that into <unk>.
Brian Mackey: Products for a given application starting.
Brian Mackey: Probably.
Brian Mackey: <unk> on the time line with those aerial applications better whether it's Barry liners for rotary wings rotary aircrafts.
Brian Mackey: All of our applications.
Brian Mackey: Thank you. What companies do you think will be your most interested in these products? Do you have any feeling for that type of distribution?
Speaker Change: Thank you what companies do you think will be your.
Speaker Change: We'll be most interesting these products.
Brian Mackey: Yes.
Speaker Change: If you include that type of distribution.
Brian Mackey: Well, on the Hermetic packaging, we certainly, you know, it's customers that we're currently servicing today are the nearest opportunity. They're very familiar with us, we're familiar with them, we know which products they are interested in getting quotes on with components that include 5-axis machining. To come back to the FRA, it's the OEMs out there that, you know, you could list that are in the business of aerial vehicles, whether it's helicopters or even, you know, drones and related aircraft like that, where lightweight but high strength and durability have value. Okay.
Speaker Change: Well on the Hermetic packaging, we certainly are.
Brian Mackey: Customers that were currently servicing today are the nearest opportunity they're very familiar with us we're familiar with them, we know which products are interested in getting quotes on with components that include five axis machining.
Brian Mackey: To come back to the FARA.
Brian Mackey: The Oems out there that you could list that are in the business of aerial vehicles, whether its helicopters or even.
Brian Mackey: Drones and related aircraft like that where lightweight high strength and durability values.
Brian Mackey: Yes.
Brian Mackey: Okay.
Wolf Sheck: Okay. One last thing, based on the comments in the conversation, it seems as though maybe you should put out some type of material on the streets so they can fully understand what the company is all about and what the potential is, of not going excessively, but you know, going within the proper constraints, but making people aware of the potential.
Speaker Change: The last thing thanks, So based on this okay.
Wolf Sheck: And the conversation it.
Wolf Sheck: It seems as though maybe you should put out some type of material so to speak.
Wolf Sheck: I fully understand what the company so all of that and what the potential is.
Wolf Sheck: Hum.
Wolf Sheck: Not going excessively going with it is that profit constraints.
Wolf Sheck: People are aware of the potential.
Speaker Change: Right, yes that makes sense.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you thank you Wolf.
Operator: Thanks very much. Just as a reminder, if you have any remaining questions, you may press star 1 on your phone keypad to join the queue. And our next question is coming from Stephen Fossey. Stephen Fossey, your line is live.
Wolf Sheck: Thank you. Thank you very much.
Speaker Change: Thanks, very much just as a reminder, if you have any remaining questions. You May press star one on your phone keypad to join Nikki.
Stephen Fossey: And our next question is coming from Steven foresee Stephen foresee your line is live.
Stephen Fossey: Thank you. Good morning.
Stephen Fossey: Thank you good morning.
Stephen Fossey: So I'm wondering if you could provide a little bit more.
Stephen Fossey: So I'm wondering if you could provide a little bit more information or color, whatever you want to call it, about the labor situation. Do you see that as kind of a temporary situation, more of a long-term availability problem that might translate into higher costs?
Stephen Fossey: Information or color or whatever you want to call. It about the labor situation do you see that as a.
Stephen Fossey: Kind of a temporary situation more of a long term availability problem that might translate into higher cost.
Charles K. Griffith: Sure Steve, so actually I think this was it was more of a temporary problem during Q1. We, we believe that we're now currently fully staffed for the purposes of our, you know, business that we're going to be or our production that's going to be going on in Q2, the second half of Q2 and Q3 and on. So I think that was more temporary, you know, if we get to the point where we have to add a whole bunch of people, that might... You know rear its head again, but but I think for now, we were just talking about it the other day that we're probably fully staffed or we are fully staffed, and we should be in much better shape going forward.
Speaker Change: Sure Steve So.
Charles K. Griffith: So actually I think this was it was more of a.
Stephen Fossey: Okay, great. Thanks. And if I could ask one more quick question,
Charles K. Griffith: Temporary during Q1 problem.
Stephen Fossey: We believe that we are now currently fully staffed.
Stephen Fossey: For purposes of of our business that we're going to be our production thats going to be going on in Q2, the second half of Q2 and Q3 and on.
Stephen Fossey: I think that was more temporary.
Stephen Fossey: If we get to the point, where we have to add a whole bunch of people that might.
Stephen Fossey: Rear its head again, but.
Stephen Fossey: But I think for now we're just talking about it the other day that where we're probably fully staffed or we are fully staffed and we shouldnt be.
Stephen Fossey: In much better shape going forward.
Speaker Change: Okay, great. Thanks.
Stephen Fossey: Okay.
Speaker Change: And if I could ask one more quick question.
Stephen Fossey: On the shielding work, you've highlighted it, so you're obviously kind of excited about that. How does that compare in a, obviously, it's just a phase one, but, in terms of cost versus current solutions, I mean, is it a, You know, do you save? cost in the. Assembled System, versus. You know, multi-layer system or is it a more of a this is a great elegant solution for applications that are more narrow, driven by weight. Thanks. Yeah.
Stephen Fossey: On the shielding Richard you've highlighted it so you've obviously kind of excited about that.
Stephen Fossey: Yes.
Stephen Fossey: How does that compare in a.
Stephen Fossey: It's just the phase one but.
Stephen Fossey: In terms of cost versus current.
Stephen Fossey: Solutions.
Stephen Fossey: Is it a.
Stephen Fossey: Yes.
Stephen Fossey: Yes.
Stephen Fossey: Do you save.
Stephen Fossey: Cost in the.
Stephen Fossey: Assembled system.
Stephen Fossey: Versus.
Stephen Fossey: Multilayer system or is it.
Stephen Fossey: More of a.
Stephen Fossey: This is a great elegant solution.
Stephen Fossey: Sort of applications that are more narrow.
Stephen Fossey: Driven by weight.
Brian Mackey: Yeah, yeah, the first application that we initially responded to was for the mobility of these micro reactors. So, you know, you're trying to transport these things to places where either the military might have a setup or there might be disaster relief going on and that kind of thing.
Stephen Fossey: Yes.
Stephen Fossey: Yes.
Brian Mackey: First application, which we initially responded too was.
Brian Mackey: For the mobility of these micro reactors. So youre trying to transit these things to places where either the military might have a setup or there might be disaster relief going on in that kind of thing and obviously the more weight that you have in the protection aspect of that truck.
Brian Mackey: And obviously, the more weight that you have in the protection aspect of that truck, the less weight availability you have for the actual reactor itself. So you're able to increase the power density of the product that's being carried, which has a very, very real benefit for the user, the customer. And as we mentioned, the other thing that quickly became very apparent was even for non-mobile applications, the construction costs related to massive amounts of concrete have a very real cost factor for the structure of that building, the concrete pad that it's built upon, and those other things, and the crane that's used to move pieces around.
Brian Mackey: The less weight availability you have for the actual reactor itself. So you are able to increase.
Brian Mackey: The power density of the product that's being carried.
Brian Mackey: Which is a very real benefit for the user of the customer.
Brian Mackey: And as we mentioned the wood.
Brian Mackey: Quickly became very apparent was even for non mobile applications. The construction costs related to massive amounts of concrete.
Brian Mackey: Have a very real cost factor to the structure of that building the concrete pad that is built upon and those other things in the crane, that's used to move pieces around so being able to make a less dense.
Brian Mackey: So being able to make a less dense, more adaptable piece of material that's uniform, so you can attach it to it, or you can modify it to suit the shape and the needs of that construction is also more valuable. Now, concrete's not particularly expensive, but when you go to a tremendous amount of it and it's limiting your ability to build the structure that you want and move things in and out of it for testing and things like that, those are some of the conversations that we're already having.
Brian Mackey: More adaptable piece of material that's uniform. So you can attach to it you can.
Brian Mackey: Modify it to suit.
Brian Mackey: Shape and the needs of that construction.
Brian Mackey: It is also more valuable now concrete is not particularly expensive, but when you go to a tremendous amount of it and it's limiting your ability to build the structure that you want and move things in and out of it for testing and things like that those are some of the conversations that we're already having and we don't have details about the cost.
Brian Mackey: And we don't have details about that cost comparison, but we can tell from the reaction we've had to it that it's intriguing to users, so those are things that we're going to continue to explore further.
Brian Mackey: Comparison, but we can tell from the reaction we've had to it that is intriguing to the users. So those are the things that we're going to continue to explore further.
Speaker Change: Oh, great. Thanks.
Stephen Fossey: Oh, great. Thanks. And if I could, if you could indulge me in just one more?
Speaker Change: And if I could if you could indulge me just one more.
Stephen Fossey: The deal with Triton is how much of that is an application poll versus a technology push. Is it a case of here's an application, we know we can do it. Does the market versus this is a cool thing which expands on our capabilities and, as far as possible, Mac, with the appeal of FRA?
Speaker Change: Of course, the deal with <unk>.
Stephen Fossey: Brighton is how much of that is a.
Stephen Fossey: And application pull versus a technology push is it a cases he has an application. We know we can do it does the market.
Stephen Fossey: Versus this is a cool thing, which expands on our capabilities in.
Stephen Fossey: It is possible markets.
Brian Mackey: The appeal of FRIs to the market is fairly obvious, and one of the benefits of where we stand today is that the properties of the material were well evaluated and tested by the Triton team. So the appeal of those the material performance is known to the market and is of interest. And what we're able now to do is indicate that we're a reliable, dependable element of their supply chain. If you're a helicopter OEM and you're interested in that material because of its performance benefits, you're not gonna take it on unless you're sure that that supplier is gonna be around for a long time.
Stephen Fossey: The appeal of FRE for the market is fairly obvious and one of the benefits of where we stand today is that the properties of the material, we're well evaluated and tested.
Brian Mackey: By the trading team so the appeal of those.
Brian Mackey: The material performance is known to the market and is of interest and what we're able now to do is indicate that were.
Brian Mackey: Reliable dependable element of their supply chain, if youre, a helicopter OEM and you're interested in that material because of its performance benefits youre not going to take it on unless you're sure that that supplier is going to be around for a long time. So we're able to do that and address these market requirements by offering this material that is already out there.
Brian Mackey: So we're able to do that and address these market requirements by offering this material that is already of interest to them because they need lightweight, they need durability, and that's what this material provides. So it's driven by what these aerial applications first of all require.
Brian Mackey: Interest to them.
Brian Mackey: Because they need lightweight they need durability.
Brian Mackey: And Thats what this material provides so it's driven by what these aerial applications first of all required but we also expect there'll be other applications as well as we play this forward.
Speaker Change: Okay, great. Thanks appreciate that.
Stephen Fossey: Okay, great. Thanks. I appreciate that. That's all.
Speaker Change: That's all.
Speaker Change: Thank you very much. Your next question is coming from David Davis Your line is live.
Operator: Thank you very much. Your next question is coming from Davis Moshier. Davis, your line is live.
Davis Moshier: Hey, good morning, guys. Thanks, Nicole.
Davis Moshier: Hey, good morning, guys. Thanks for the call.
Davis Moshier: A question.
Davis Moshier: Question. Historically, you've had a 40-40-20 split between departments. Do you see that remaining consistent? And which kind of product lines are you seeing the most demand for going forward and growth capacity?
Davis Moshier: Historically.
Davis Moshier: If I have a.
Davis Moshier: A 40 40 20 split between.
Davis Moshier: Departments do you see that remaining consistent and which kind of product lines.
Davis Moshier: Seeing the most demand for going forward and growth capacity.
Charles K. Griffith: Yeah, so I think, obviously, for the short term, with the completion of the Kinetic Protection Armor Order for the aircraft carriers, that 20 piece is going to make it more like 50-50 with the other two divisions, or maybe 48-48, but whatever. With the others. You know, but I think that, you know, we do have, we're very optimistic that there will be something more coming down the armor pipe, either with kinetic protection or as we continue to work on other armor applications with other possible customers.
Davis Moshier: Yes, so I think obviously for the short term.
Charles K. Griffith: With the completion of the.
Charles K. Griffith: The connect protection armour order for.
Charles K. Griffith: For the aircraft carriers that 'twenty pieces are going to make it more like 50 50 with the other with the other two divisions are.
Charles K. Griffith: Maybe 48 48, but whatever with.
Charles K. Griffith: With the others, but.
Charles K. Griffith: But I think that.
Charles K. Griffith: We do have.
Charles K. Griffith: We're very optimistic that there will be something more coming down the armor pipe either with kinetic protection or.
Charles K. Griffith: As we continue to work on other armor applications with other possible.
Charles K. Griffith: Possible customers.
Charles K. Griffith: But I think in terms of the rest of it.
Charles K. Griffith: But in terms of the rest of it, I think Hermetic Packaging certainly has the opportunity for more growth. It's a bigger market, and we have, as Brian mentioned earlier, we have, I think, seven of the eight FAIs in our first articles that we did in the first quarter come from the Hermetic Packaging side of the business. So that certainly has the potential for more near-term growth. I think the other aspects are probably more important, you know, in the long term.
Charles K. Griffith: I think.
Charles K. Griffith: Hermetic packaging certainly has the opportunity for more growth.
Charles K. Griffith: A bigger market and.
Charles K. Griffith: We have.
Charles K. Griffith: As Brian mentioned earlier, we have.
Charles K. Griffith: Seven of the eight.
Charles K. Griffith: <unk> come in the first articles that we did in the first quarter come from.
Charles K. Griffith: Okay, Hermetic packaging side of the business.
Charles K. Griffith: So that that certainly has the potential for more near term growth I think the other.
Charles K. Griffith: Aspects are probably more in the long term.
Charles K. Griffith: More and more in the long term area in terms of growth at <unk>.
Charles K. Griffith: More in the long-term area in terms of growth, the FRA, the shielding, those, you know, certainly the FRA, we may see some small, small amount of revenue before the end of the year, but it's really not going to be material until we get into 2025, 2026, that kind of thing. Yeah, and the armament opportunities ahead of us could quickly bring that back to historic ratios. So, as we wrap up this order, we have ongoing conversations in that direction. Unfortunately, it's lumpy, and we have this current situation, but very real opportunities that could bring that ratio back to the original number that you mentioned, you know, in that range, plus or minus.
Charles K. Griffith: <unk>.
Charles K. Griffith: Shielding those those.
Charles K. Griffith: But certainly the FRE, we may see some small small amount of revenue before the end of the year.
Charles K. Griffith: But it's really not going to be material until we get into 'twenty five 'twenty six that kind of thing yes. The army opportunities ahead of us.
Charles K. Griffith: Could quickly bring that back to the.
Charles K. Griffith: You have to work and ratios.
Charles K. Griffith: So as we wrap up this order we have.
Charles K. Griffith: Ongoing conversations in that direction. Unfortunately, it's lumpy and we have this current situation, but very real opportunities that would bring that could bring that ratio back to the original number that you mentioned.
Charles K. Griffith: That range plus or minus.
Speaker Change: Got it thank you.
Davis Moshier: Thank you. And then, what kind of capital requirements are you expecting for this year, and do you expect to reach profitability for the full year 2024?
Charles K. Griffith: And then.
Davis Moshier: Capital requirements are you expecting this year.
Davis Moshier: <unk> reached profitability for full year 2024.
Charles K. Griffith: So I think in terms of capital, the capital requirements, we're in good shape with that. We, you know, the five-axis machine, you know, basically that money has already been allocated. You know, we're, as you can see from our balance sheet, we're in very good shape from a cash standpoint. So, you know, even if, God willing, somebody came and said, hey, we need you to start making FRA for us at a really high volume, and we needed to go out and buy a new infiltrator for a million dollars. That wouldn't be a stumbling block. We could easily handle that.
Davis Moshier: So I think in terms of the capital.
Charles K. Griffith: The capital requirements.
Charles K. Griffith: <unk>.
Charles K. Griffith: The.
Charles K. Griffith: We're in good shape with that.
Charles K. Griffith: Yeah.
Charles K. Griffith: The.
Charles K. Griffith: Five access machine basically that that money has already been allocated.
Charles K. Griffith: As you can see from our balance sheet, we're in very good shape from a cash standpoint so.
Charles K. Griffith: Even if god.
Charles K. Griffith: God willing.
Charles K. Griffith: Somebody came and said Hey, we need you to start making foray for us at a really high volume and we needed to go out and buy a new infiltrator for $1 million that wouldn't that wouldn't.
Charles K. Griffith: Be a stumbling block we could easily handle that.
Charles K. Griffith: So.
Charles K. Griffith: But I think in terms of just generally speaking.
Charles K. Griffith: But I think, in terms of just generally speaking, we're in good shape on the capital requirement side. We're able to get what we need to get, and that's not a problem. Regarding your second question about profitability, that's a good question. You know, at this point in time, I'm not sure we are certainly expecting, you know; we projected profitability over the last three quarters in total. And, you know that, but it's it's not going to be like, you know, like two years ago where we had $2 million in profit at the end of the year; it's going to be much, much narrower.
Charles K. Griffith: Good shape on the capital requirement side, we're able to get what we need to get when we get it in.
Charles K. Griffith: And thats not a problem regarding your second question about profit but profitability.
Speaker Change: That's that's a good question.
Charles K. Griffith: At this point in time.
Speaker Change: I'm not sure.
Charles K. Griffith: We certainly are expecting we projected profitability over the last.
Charles K. Griffith: Three quarters in total.
Charles K. Griffith: And.
Charles K. Griffith: That's.
Charles K. Griffith: But but it's not going to be like.
Charles K. Griffith: Like two years ago, where we had $2 million.
Charles K. Griffith: Profit at the end of the year, it's going to be much much more narrow and.
Charles K. Griffith: And and, and certainly. If things go poorly, it could shift to the other side and could be non-profitable here, but we're hoping that we can get profitable for the last three quarters anyway.
Speaker Change: And certainly.
Charles K. Griffith: If things go.
Charles K. Griffith: Really it could shift to the other side and could could be non nonprofit a full year, but.
Charles K. Griffith: But we're hoping that we can we can get get profitable for the last for the last three quarters anyway.
Charles K. Griffith: But it will be tight.
Speaker Change: Great. Thank you.
Charles K. Griffith: Okay.
Operator: Thank you very much. Your next question is coming from Greg Weaver. Greg, your line is connected.
Charles K. Griffith: Thank you very much and your next question is coming from Greg Weaver, Greg Your line is live.
Greg Weaver: Hi, good morning Brian and Chuck. Just a quick question, so the 5-axis tool, the press release has it as an award, so that money was an award, not a loan, right? Correct. And we have to cover what they're awarding us. So basically, we're talking about a $400,000 piece of equipment, including installation, blah, blah, blah. And we got half of it.
Greg Weaver: Hi, Good morning, Brian and Chuck.
Greg Weaver: Just two quick questions sort of buybacks as tool.
Greg Weaver: Press release is it is it awards.
Greg Weaver: That money was kind of <unk>.
Greg Weaver: Toward not a loan right.
Greg Weaver: Correct right.
Greg Weaver: So basically they are covering have we have to cover what they are awarding us. So basically we're talking about $400000 piece of equipment, including installation blah blah blah.
Greg Weaver: And we got half of it is a dollar for dollar match requirements. So we were we are receiving the 200 came from Massachusetts.
Charles K. Griffith: We are receiving $200,000 from Massachusetts with the commitment to spend that much; a portion of that is on labor and other things, so in aggregate, it's a $400,000 investment, but it's not a loan; there's no obligation to return it or anything like that; it's putting it to good use to add jobs to the manufacturing community of Massachusetts.
Charles K. Griffith: The commitment to spend that much.
Charles K. Griffith: A portion of that is on labor and other things. So in aggregate. It's a 400 case spend but it is not alone. It's not there's no obligation to return it or anything like that it's putting it to good use to add jobs to the manufacturing.
Charles K. Griffith: The entity of Massachusetts.
Greg Weaver: Okay, great. That's great. And on the testing constraints you referenced, right, you're trying to, you know, make sure the parts are good before you ship them out. Is that a temporary situation? Or is that an ongoing thing now, just to be sure? And are you buying more equipment to help get the bottleneck there? It sounds like it's a bottleneck.
Speaker Change: Great that's great.
Greg Weaver: On the testing constraints, you reference strike to trying to make.
Greg Weaver: To make sure the parts are good for you ship them out.
Greg Weaver: Is that a temporary situation or are you or is that an ongoing thing now just in light of just to be sure and are you buying more equipment to help ease the bottleneck there it sounds like it's a bottleneck.
Charles K. Griffith: Yeah, so it is a temporary situation. We, you know, basically, what it's requiring is that, you know, some of our production equipment is going to be used to make, in this case, base plates for further testing. So instead of making them and selling them to customers, we're making them, and then we're testing them. And during the initial part of the problem, where we're trying to find the solutions, we would do like 50 pieces at a time.
Speaker Change: Yes, so it is a temporary situation.
Charles K. Griffith: We.
Charles K. Griffith: Basically what it's requiring is that some of our production equipment is going to to make.
Charles K. Griffith: This case based place for.
Charles K. Griffith: For further testing.
Charles K. Griffith: So instead of making them and selling for the customer, we're making them and then we're testing testing them and we.
Charles K. Griffith: During the initial part of the problem, we're trying to find the solutions.
Charles K. Griffith: We would do like 50 pieces at a time.
Charles K. Griffith: In the first quarter, we made a decision that we've got to start getting... You know, we think we know where we're going. Now we need to start getting statistically significant runs. So instead of 50 pieces, we're looking at 500 pieces and 500 more and 500 more. So that's a significant amount of production that would otherwise have gone to a customer at a pretty good, pretty good price.
Charles K. Griffith: In the first quarter, we made the decision we've got to start getting.
Charles K. Griffith: We think we know where we're going now we need to start getting statistically significant runs. So instead of 50 pieces. We're looking at 500 pieces and 500 more than 500 more so that's that's significant.
Charles K. Griffith: The amount of production that would otherwise have gone to.
Charles K. Griffith: To a customer at.
Charles K. Griffith: At a pretty good.
Charles K. Griffith: Pretty good amount. So so we do feel we're getting to the end of that there is additional testing being done this quarter.
Charles K. Griffith: So we do feel we're getting to the end of that. There is additional testing being done this quarter. But I think the expectation is, as Brian likes to say, we're not ready to spike the football yet, but we're getting very close to the goal line. So I think, you know, hopefully, we'll be able to put that behind us relatively soon.
Charles K. Griffith: But I think the expectation is that.
Charles K. Griffith:
Charles K. Griffith: As Brian likes to say, we're not ready to spike the football yet, but we're getting very close to the goal line. So I think hopefully we'll be able to put that behind us relatively soon.
Speaker Change: Okay great.
Greg Weaver: Okay, great. And in the just reported quarter, how large was the armor revenue?
Charles K. Griffith: In the just reported quarter, how large was the RMR revenue.
Charles K. Griffith: The ARMA revenue was between $1.7 million, maybe, something like that.
Greg Weaver: Roughly.
Charles K. Griffith: <unk> revenue was between it was one.
Charles K. Griffith: $1 7 million, maybe something like that.
Greg Weaver: Okay, and that's basically nil for the current quarter.
Charles K. Griffith: Okay and that's that's.
Greg Weaver: No in the current quarter.
Charles K. Griffith: No, no, there's been some, there's been some. We definitely have. We've definitely shipped stuff in Q2 as well. It's down, but it's not.
Greg Weaver: No no theres been some there's been some.
Charles K. Griffith: Yeah.
Charles K. Griffith: We definitely we definitely ship stuff in Q2 as well.
Charles K. Griffith: Down, but it's but it's not gone yet.
Greg Weaver: Okay, we'll be gone by Q3. So, what should I think about then in terms of gross margin because, as I recollect, the armor business was a nice adder, but yet here, with 1.7 million units of armor, you had 15% gross margin, right? I mean...
Charles K. Griffith: Okay will be gone by Q3, so well what should I think about that in terms of gross margin because as I recollect the armor business was.
Greg Weaver: Nice adder, but yet here with $1 $7 million of armor, you had 15% gross margin rate right.
Charles K. Griffith: Right, yeah, we expect the margin to go up. As I said, I think there was a significant expense that went through the testing process. And that all, you know, that becomes part of our cost of sales. So that's definitely had a negative impact on margin. You know, the other thing is, you know, Brian mentioned that we have three more engineers now than we did a year ago.
Greg Weaver: Yeah.
Charles K. Griffith: We expect the margin to go up.
Charles K. Griffith: As I said I think there was a there was significant.
Charles K. Griffith: <unk> expense that goes through.
Charles K. Griffith: The.
Charles K. Griffith: The testing process.
Charles K. Griffith: And that all.
Charles K. Griffith: It becomes part of our cost of sales. So that's definitely had a negative impact on margin.
Charles K. Griffith:
Charles K. Griffith: Thing is.
Charles K. Griffith: Brian had mentioned that we have three more engineers now than we than we did a year ago.
Charles K. Griffith: I think that we were viewing this as sort of an investment. Unfortunately, GAP says that's not an investment; you have to expense those people immediately. So I think that I don't expect we're going to be getting back to the levels that we were at, you know, a year ago when we were in the, you know, high 20s, you know, even I think one quarter we're at 30. But I do think that we should be improving over what we had in the first quarter because of a number of these other expenses that we won't have going forward, even at a lower run rate.
Charles K. Griffith: I think that.
Charles K. Griffith: We were viewing this as sort of an investment. Unfortunately, GAAP says that's not an investment you have to expense those people immediately.
Charles K. Griffith: So I think that.
Charles K. Griffith: I don't expect we're going to be getting back to the levels that we were at a.
Charles K. Griffith: A year ago, when we were in the high <unk>, even I think one quarter, we were at 30.
Charles K. Griffith: But I do think that we should be improving over what we had in the first quarter because of a number of these other expenses that.
Charles K. Griffith: We won't have going forward.
Charles K. Griffith: Even at a lower run rate.
Charles K. Griffith: Yes, yes, yes, I think that I think.
Charles K. Griffith: Yes, yeah, yeah, I think that, you know, fingers crossed, God willing, you know, that this quarter probably had the lowest that it's going to be, but yeah, but I think it should go up a bit more.
Charles K. Griffith: My fingers crossed God willing.
Charles K. Griffith: This quarter, probably had the lowest that it's going to be but.
Charles K. Griffith:
Charles K. Griffith: Yes.
Charles K. Griffith: I think it should go up a bit more.
Speaker Change: Okay I'll do it.
Greg Weaver: Okay, that'll do it for me now. Hopefully, we can catch up next week at the Sidoni.
Speaker Change: For me now hopefully we can catch up for the next week at the Sidoti. Thanks.
Greg Weaver: Thanks. Sounds great. Great. Thanks. Bye bye. Thank you.
Speaker Change: Great great. Thanks, Okay.
Speaker Change: Thank you very much while we appear to be at the end of our question and answer session I will now hand back over to Brian for any closing comments.
Operator: Thank you very much. Well, we appear to be at the end of our question and answer session. I will now hand it back over to Brian for any closing comments.
Operator: Great.
Brian Mackey: Great. Thanks, everyone, for joining us today and for your ongoing interest in CPS technologies. We look forward to speaking with you again after the end of the second quarter. If you have any questions in the interim, please reach out to our investor relations advisor.
Brian Mackey: Thanks to everyone for joining us today and for your ongoing interest in Cps technologies.
Brian Mackey: We look forward to speaking with you again after the end of the second quarter do you have any questions in the interim please reach out to our Investor Relations adviser.
Speaker Change: Thank you very much everyone. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Operator: Thank you very much, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.