Q3 2024 CPS Technologies Corp Earnings Call
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Speaker Change: Good day everyone and welcome to the CPS Technology's third quarter earnings call.
Speaker Change: At this time, all participants have been placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we will open the floor for your questions in comments after the presentation.
Speaker Change: It is now my pleasure to turn the floor over to your host, Chuck Griffith, Chief Financial Officer of CPS Technologies. Serve the floor's yours.
Chuck Griffith: Thank you Matthew and good morning everyone. Today I'm joined by Brian Mackey, our president and CEO. We look forward to discussing our third quarter results with you. But first, Chris Witty, our investor relations advisor, will provide a brief, say, parper 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.
Chris Witty: 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.
Chris Witty: These uncertainties include, but are not limited to, the wars in Ukraine and Israel, other geopolitical events, economic conditions, market demand, and competitive factors. Such factors could cause extra results to differ materially from those in any forward-looking statement. Additional information can be found in our findings with the SEC.
Speaker Change: I'm an out-to-in-the-call of a Brian to offer his perspective on the third quarter of highlights after which Chuck will review the financial results in greater detail. Brian?
Chuck Griffith: and Chris, good morning. The record revenue was $4.2 million with an operating loss of approximately $1.5 million.
Chuck Griffith: Rob new decline year over a year primarily due to the end of our US Navy armor contract with Connecticut protection as we previously discussed. While another major customer also purchased significant new less year over a year as it worked through some excessive inventory.
Chuck Griffith: Chuck will review this further in a moment.
Chuck Griffith: While the quarters results were negatively impacted by such factors as well as third shift start-up costs and supply chain issues.
Chuck Griffith: We've recently improved product throughput and with recent winds under our belt, are much more optimistic about the fourth quarter in the arms.
Chuck Griffith: I'll now turn the call over Chuck to provide further details about our financial results after which I'll provide some additional perspectives. Chuck, thanks Brian.
Chuck Griffith: As was just mentioned, the company's revenue totaled $4.2 million in the third quarter compared with $6.3 million last year.
Chuck Griffith: Most of the year over year change was due to the end of our contract with kinetic protection, as expected, related to the armorshipments for the US Navy fleet of aircraft carriers.
Chuck Griffith: We previously announced that the completion of this program would negatively impact results by approximately $2 million in revenue per quarter.
Chuck Griffith: Kinetic Protection does remain cautiously optimistic about landing additional work for other naval ship classes in the coming year and is focused on bringing advance ballistic shielding to the remainder of the surface fleet.
Chuck Griffith: We've reported the gross loss in the third quarter of one half million dollars or approximately negative 12% of sales compared with a gross profit of 1.2 million dollars or 20% of sales last year.
Chuck Griffith: This decrease was due to lower overall revenue and reduced manufacturing efficiencies along with cost associated with hiring and training the third shift that began operating last week of August as I just mentioned.
Chuck Griffith: During the quarter, this new staff worked alongside other workers for training, impacting overall costs of goods sold, with virtually no corresponding top-line revenue component in the quarter. We anticipate the gross margins will improve as volumes climb in the fourth quarter in fiscal 2025.
Chuck Griffith: As previously discussed, we didn't occur the expensive hiring and training our third shift, but solely very limited impact on the revenue in Q3. However, our first four weeks of Q4 are off to a solid start, especially relative to the first four weeks of Q3.
Chuck Griffith: This is attributable both to the addition of a third shift as well as abnormally motion, and thoroughly in Q3.
Chuck Griffith: Given our expanding manufacturing capability and recent new contracts were optimistic about further growth in fiscal 2025 along with the operating leverage and improved margins that that should bring.
Chuck Griffith: While we'll continue to work to stabilize the support, stabilize and support our increased manufacturing operations, many of the initiatives necessary to increase output our showing results.
Chuck Griffith: and the Selling General of Administrative Expenses, SNA.
Chuck Griffith: Total $1 million in the third quarter versus $1.1 million in the prior year period.
Chuck Griffith: As we did remain focused on controlling costs even while investing in new business development initiatives aimed to accelerate long-term growth.
Chuck Griffith: The company posted an operating loss of $1.5 million in the third quarter compared with operating income of approximately $1 million last year.
Chuck Griffith: and we reported that that loss of 1.0 million or 7 cents per share versus net income of 0.2 million or 1 cent per diluted share in Q3 of fiscal 2023.
Chuck Griffith: Turning to the balance sheet, we ended the quarter with $4.7 million of cash and $1 million in marketable securities, versus 8.8 million in cash and no marketable securities at the end. Sorry, at the start of 2024.
Chuck Griffith: Trade and Council, Reefable Lab of September 28, total 3.7 million versus 4.4 million at the end of December 2023. Inventories also total 4.4 million at the end of the third quarter compared with 4.6 million at the start of the fiscal year.
Chuck Griffith: Turning to the liability side, payables in accruals total 3.3 million at the end of the third quarter versus 3.6 million as of December 31, 2023. Now I'll turn the call back over to Brian and he will provide more in-depth discussion of the period. Thanks, Chuck.
Brian Mackey: Well, the third quarter saw a low revenue both year over year and sequentially versus Q2. We are now optimistic about the outlet for CPS.
Brian Mackey: Obviously the completion of the armor contract with kinetic protection will continue to be headwind while we continue to pursue a follow-on order from the United States Navy.
Brian Mackey: and the other, however, there were certain challenges that are now largely behind us. First, as previously mentioned, one customer was holding off on additional purchases as it worked through existing inventory, or as I've now resumed, and we anticipate growth in the coming months and quarters.
Brian Mackey: At the same time, we successfully trained a third shift of operators and are now able to successfully turn orders into shipments at an increased rate. Something that has constrained us past few quarters.
Brian Mackey: While on manufacturing operations remained lean and efficiently, we have a greater ability to improve our capacity utilization at the same time. Have recently won several orders that position us well for the remainder of this year and the out.
Brian Mackey: Specifically, I'm referring to the Phase 2 SBIR Award with the Department of Energy, which we've discussed in the past. The new $20 dollar contract with our existing semiconductor customer and a new development contract with the Navy that was secured very recently.
Brian Mackey: The DOE Phase 2 award provides funding of $1.1 million over 24 months for CPS to continue its development effort for modular radiation shielding for transportation and use of microreactors.
Brian Mackey: This is the second phase to award this June in a great recognition for our team. As it acknowledges our ability to develop into liver novel, yet practical solutions in response to well-defined requirements.
Brian Mackey: We're committed to addressing critical customer needs. In this case, likely shielding for nuclear radiation for a host of agencies in their mission critical programs.
Brian Mackey: was regarding the subject of the customer, new contract represents a larger agreement than we had in recent years, and it is expected to significantly boost revenue with this whole 2025.
Brian Mackey: As we know, to concurrently with earnings, the contractor power models of components that cancel of all by either party in light of the ongoing negotiations and the manufacturer ramp that is required.
Brian Mackey: Today the science contract enables us to continue these discussions about future volumes and pricing requirements, even as we meet the near-term production requirements of our long-term customer.
Brian Mackey: Under the contract, deliveries are scheduled to take place over a 12-month period starting now. With components to be utilized primarily in high speed rail, wind turbines, and EV or HV applications.
Brian Mackey: This is a very positive development for CPS technologies as we work out final details on pricing and delivery to ensure the best outcome for us and our shareholders as well as our customers.
Brian Mackey: Recently, we've also received a new contract from the US Navy for further application or a no-matrix composite solutions.
Brian Mackey: This contract value that $200,000 provides one of your development work at CPS over the next 12 months.
Brian Mackey: Our research will focus on addressing the requirements of the Naval Air Systems Command's worth Navair, specifically by providing lightweight, high-strength materials.
Brian Mackey: CPS's MMC solutions, in this case, five-verse materials infiltrated with aluminum provide higher strength than the new aluminum without the increased weight of steel.
Brian Mackey: We also remain cautiously optimistic about the likelihood of kinetic protection winning new armored orders for additional classes of naval vessels in fiscal 2025. As our ballistic solutions address a large market across various types of ships as well as other military applications.
Brian Mackey: We continue to be actively involved in seeking out other SBIR opportunities as well as bidding on new applications with an expanding array of customers. And we are waiting for a proposal submitted to US agencies, including several within the DOD as well as with NASA.
Brian Mackey: We're also optimistic about our expanded product line at now, including five of reinforce the aluminum for FRA components.
Brian Mackey: Manufacturing trial time is going well and we're continuing to speak with customers in the aerospace and defense industry about FRA capabilities for stronger, more durable and lighter weight applications comprised of high strength aluminum powerways. This continuously reinforcements short ceramic fibers.
Brian Mackey: We expect to begin the commercialization of FRA in fiscal 2025.
Brian Mackey: In addition to the FBI RFA2 on radiation shielding, we've been in discussions with other potential customers regarding our capabilities in this area. These discussions could lead to the generation of additional revenue in 2025 over in above our FBI are funding for this part of the portfolio.
Brian Mackey: Finally, with our new five-acted CNC machine up in running, we're ready for higher production of for many packaging and other products.
Brian Mackey: and Q4 on Beyond. Overall, given our expanded manufacturing capabilities, third shift being up and running and with several significant contract wins under our belt, the company is better positioned for growth and improved results than at any time within the past 12 months.
Brian Mackey: We're moving into the new era of expansion and our optimistic about the quarters to come. We appreciate our investors patience and passion as we've navigated this year and have been a challenging and intelligent tale. Many of which have now largely been addressed.
Brian Mackey: We look forward to the future in the many opportunity that 2025 will bring, which now is the call of for questions. Matthew.
Matthew: Certainly, everyone at this town be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.
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Speaker Change: Thank you, that concludes our Q&A session. I'll hand the Comfort to Back to Brian Mackey for closing your marks. Please go ahead.
Brian Mackey: Thank you for joining us today for your ongoing interest in CBS Technologies. We look forward to speaking with you again at the end of our fourth quarter. The MAD questions in the interim please reach out to our investor and relations advisor. Thank you.