Q4 2024 CPS Technologies Corp Earnings Call
Operator: Good day and welcome to CPS Technology's fourth quarter and year-end 2024 earnings call. At this time, all participants have been placed on a listen-only mode.
Good day and welcome to U C. P. S technologies fourth quarter and year end 2024 earnings call. At this time, all participants have been placed on 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.
Operator: The floor will be open for questions and comments following the presentation.
Chuck Griffith: 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, Paul. Good morning, everyone. Today, I'm joined by Brian Mackey, our President and CEO. We look forward to discussing our fourth quarter results with you.
Speaker Change: Chuck the floor is yours.
Paul: Thanks, Paul.
Speaker Change: Good morning, everyone today, I'm joined by Brian Mackey, President and CEO.
Speaker Change: Forward to discussing our fourth quarter results with you, but first Chris witty our Investor Relations adviser will provide a brief safe Harbor Safe Harbor statement Chris.
Chris Witty: But first, Chris Witty, our Investor Relations Advisor, will provide a brief safe harbor statement. Chris? Thanks, Chuck, and good morning, everyone.
Chris Witty: 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 calls 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 is operations.
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 ongoing conflicts in Ukraine and Israel, other geopolitical events, economic conditions, market demands, and competitive forces. Such factors could cause actual results to differ materially from those in any forward-looking statement.
Speaker Change: Barbara.
Speaker Change: These uncertainties include but are not limited to the ongoing conflicts in Ukraine, and Israel other geopolitical events economic conditions market demands and competitive forces 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.
Chris Witty: Additional information can be found in our filings with the SEC.
Brian Mackey: Now I will turn the call over to Brian to offer his perspective on the fourth quarter, after which Chuck will review the financial results in greater detail. Brian? Thank you, Chris.
Speaker Change: Now I will turn the call over to Brian to offer his perspective on the fourth quarter after which Chuck will review the financial results in greater detail Brian.
Speaker Change: Yeah.
Speaker Change: Thank you Chris fourth.
Brian Mackey: Fourth quarter revenue for CPS was $5.9 million with an operating loss of approximately $1.3 million. Health declined year over year primarily due to the fulfillment of our U.S. Navy armor contract with kinetic protection, as previously discussed, but in the fourth quarter, our top line rose significantly relative to third quarter of 2024 due to increased customer shipments as our expanded production capacity came online. For strong customer demand, this trend of increasing growth is expected to continue through fiscal 2025, with improving margins and other growth aspects of our business also taking hold.
Speaker Change: Fourth quarter revenue for Cps was $5 $9 million.
Speaker Change: With an operating loss of approximately $1 $3 million.
Speaker Change: Sales declines year over year, primarily due to that.
Speaker Change: Feldman of our USD armor contract with kinetic protection as previously discussed within the fourth quarter, our topline grows significantly relative to third quarter of 2024 June.
Speaker Change: Due to increased customer shipments as our expanded production capacity came online.
With strong customer demand this trend of increasing growth is expected to continue through fiscal 2025 with improving margins and other growth aspects of our business is also taking hold.
Chuck Griffith: I'll now turn the call over to Chuck to provide further details about our financial results, after which I will provide some additional perspective. Chuck? Thanks, Brian.
Speaker Change: I'll now turn the call over to Chuck to provide further details about our financial results after which I will provide some additional perspective.
Chuck: Thanks, Brian.
Chuck Griffith: First of all, I'd like to thank everyone for their flexibility as we rescheduled this call from last from last week to this week. Effective for our 2024 audit, we have new auditors on board, PKF O'Connor-Davies. We made the change to be sure to allow them to become sufficiently familiar with our company. We're impressed with their capabilities and are glad to have them in place as our auditors.
Chuck: First of all I'd like to thank everyone for their flexibility as we rescheduled this call from last from last week to this week.
Chuck: Thank you for our 2020 for art, we have new auditors onboard Teekay Apple Conor Davis, we made the change to be sure to allow them to become sufficiently familiar with our company. We're impressed with their capabilities and are glad to have them in place as our auditors as.
Chuck Griffith: As was just mentioned, the company's revenue totaled $5.9 million in the fourth quarter, compared with $6.7 million last year. In the year-over-year comparison, most of the change was due to the fulfillment of our armor contract with Kinetic Protection earlier this year. We're pleased that most of the recent quarter provided revenue that equaled our best quarter from earlier in 2024, which was Q1, even though there were significant armor shipments in Q1 and none in Q4. The recent growth in sales of our other product lines filled this sizable gap. While revenue growth is accelerating due to other program wins, Kinetic Protection remains cautiously optimistic about landing additional armor orders for other naval ship classes in the coming year.
Chuck: As was just mentioned the company's revenue totaled $5 $9 million in the fourth quarter compared with $6 7 million last year.
Chuck: And the year over year comparison, most of the change was due to the fulfillment of our AMR contract with kinetic protection earlier this year.
Chuck: We're pleased that most of the recent quarter provided revenue that equaled our best quarter from earlier in 2024, which was Q1, even though there were significant armor shipments in Q1 and none in Q4. The recent growth in sales of our other product lines still bit sizable gap.
Chuck: While revenue growth is accelerating due to other program with kinetic protection remains cautiously optimistic about landing additional arm orders for alternate naval ship classes in the coming year.
Chuck Griffith: We believe our armor offering has support in Congress and at key levels within the U.S. Navy. In the meantime, we're benefiting from continued strong demand for power module components and related solutions from both new and existing customers. Our product development efforts are also progressing according to plan.
Chuck: We believe our offering has supporting Congress and a key levels within the U S. Navy.
Chuck: In the meantime, we are benefiting from continued strong demand for power module components and related solutions from both new and existing customers. Our product development efforts are also progressing. According to plan. For example, we've reached we've received several SBA IR awards, which are expected to expand our product portfolio in response to customer.
Chuck Griffith: For example, we've received several SBIR awards, which are expected to expand our product portfolio in response to customer demand.
Brian Mackey: Demand, Brian will discuss this more in a moment.
Chuck Griffith: Brian will discuss this more in a moment. We reported a gross loss in the fourth quarter of $0.3 million, or approximately negative 4.6% of sales, compared with a gross profit of $1.1 million, or 17% of sales last year. This decrease was due to lower overall revenue and reduced manufacturing efficiencies, along with costs associated with hiring and training the third shift, as we've discussed in the past. Specifically, various non-recurring costs were incurred in the quarter, totaling nearly $600,000. These expenses were incurred as part of the ramp-up of production volumes, including excess material costs, additional labor, training expense, and other inefficiencies.
Brian Mackey: We reported a gross loss in the fourth quarter of zero point $3 million of approximately negative four 6% of sales compared with a gross profit of $1 1 million or 17% of sales last year.
Brian Mackey: Decrease was due to lower overall revenue and reduced manufacturing efficiencies along with costs associated with hiring and training the third shift as we've discussed in the past.
Brian Mackey: Specifically various nonrecurring costs were incurred in the quarter totaling nearly $600000.
Brian Mackey: These expenses were incurred as part of the ramp up of production volumes, including excess material costs additional labor training expense and other inefficiencies. We expect such one time expenses are behind us and we anticipate gross margin will improve as volumes climb in fiscal 2025.
Chuck Griffith: We expect that such one-time expenses are behind us, and we anticipate gross margin will improve as volumes climb in fiscal 2025. General and Administrative expenses totaled $1.0 million in the fourth quarter, basically the same as last year in the fourth quarter, as we remain focused on controlling costs even while investing in new business development initiatives aimed to accelerate long-term growth.
Brian Mackey: Selling general and administrative expenses totaled $1.01 billion in the fourth quarter basically the same as last year and the.
Brian Mackey: <unk> fourth quarter.
Brian Mackey: As we remain focused on controlling costs, even while investing in new business development initiatives aimed to accelerate long term growth.
Chuck Griffith: We also had some one-time costs this quarter related to retaining the new auditing firm. The company posted an operating loss of $1.3 million in the fourth quarter compared with operating income of approximately $0.1 million last year. And we reported a net loss of $1 million or $0.07 per share versus net income of $0.2 million or $0.01 per diluted share in Q4 of fiscal 2023.
Brian Mackey: We also had some onetime costs this quarter related to retaining the new auditing firm.
Brian Mackey: The company posted an operating loss of $1 $3 million in the fourth quarter compared with operating income of approximately zero to $1 million last year.
Brian Mackey: And we reported a net loss of $1 million or <unk> <unk> per share versus net income of zero point $2 million or <unk> <unk> per diluted share in Q4 of fiscal 2023.
Chuck Griffith: Turning to the balance sheet, we ended the year with $3.3 million of cash and $1 million in marketable securities as compared to $8.8 million in cash and no marketable securities at the start of 2024. Trade accounts receivable as of December 28, 2024 totaled $4.9 million versus $4.4 million as of December 31, 2023. Inventories totaled $4.3 million at the end of the fourth quarter compared with $4.6 million at the start of the fiscal year. Turning to the liability side, payables and accruals totaled $4.0 million at the end of the fourth quarter versus $3.6 million as of December 30, 2023.
Brian Mackey: Turning to the balance sheet, we ended the year with $3 $3 million of cash and $1 billion in marketable securities as compared to $8 8 million in cash and no marketable securities at the start of 2020 for trade.
Brian Mackey: Trade accounts receivable as of December 28, 2024 totaled $4 9 million versus $4 4 million as of December 31, 2023 inventories totaled $4 3 million at the end of the fourth quarter compared with $4 6 million at the start of the fiscal year.
Brian Mackey: Turning to the liability side payables and accruals totaled $4 1 billion at the end of the fourth quarter versus $3 6 million as of December 30, <unk> 2023.
Chuck Griffith: As I mentioned earlier, TKF O'Connor-Davis is now in place as our new audit firm effective for the 2024 audit. We've used Wolf and company for many years and would like to publicly thank them for their service on our behalf. We felt that a full review of our audit services was appropriate at this time last year, and based on their robust capabilities, pricing, and strong track record, TKF O'Connor-Davis was the firm we selected following that review.
Brian Mackey: As I mentioned earlier T. KF O'connor JV is now in place as our new audit firm effective for the 2024 audit we'd used Wolf in company Wolf and company for many years and I'd like to publicly thank them for their service on our behalf.
Brian Mackey: We felt that a full review of our of our audit services was appropriate at this time last year and based on their robust capabilities pricing and strong track record PK Fr 100 Davis was the firm we selected following that review now.
Brian Mackey: Now Brian will provide a more in-depth discussion of the period. Okay, thank you. And good morning, everyone, again. As Chuck just described, fourth quarter was difficult financially. Well, we also believe the company demonstrated concretely the promising path that we are on. As expected, it was a transitional period, and we're on track for improved financial performance going forward. We're very pleased that our third shift of production is fully operational. With ramped up weekly output, we saw our Q4 top line grow 40% sequentially from Q3. In addition, our margins are set to expand, given that we had sizable, non-recurring expenses in fourth quarter, as Chuck discussed.
Brian Mackey: Now Brian will provide a more in depth discussion of the period.
Brian Mackey: Okay. Thank you and good morning, everyone again as Chuck just described the fourth quarter was difficult financially.
Brian Mackey: We also believe the company demonstrated concretely promising fast that we are on.
As expected it was a transitional period and we're on track for improved financial performance going forward.
Brian Mackey: Very pleased that our third shift of production is fully operational with ramped up weekly output. We saw our Q4 top line grow 40% sequentially from Q3.
Brian Mackey: In addition, our margins are set to expand given that we have sizable nonrecurring expenses in the fourth quarter as Chuck discussed.
Brian Mackey: At the same time, we continue to rack up several wins that, with ongoing strong customer demand, align with our vision for fiscal 2025 and beyond. Our core businesses of metal matrix composites and hermetic packaging are on solid footing. We are actively fulfilling the $13.3 million contract that we recently finalized with a longstanding semiconductor manufacturer to provide power module components through September of this year. We've been fulfilling this contract since October and our increased production capacity for various metal matrix composite products has materialized into greater shipping volumes to this and other key customers. As a reminder, our components are utilized primarily in high speed rail, wind turbines, and electric vehicle applications.
Brian Mackey: At the same time, we continued to rack up several wins that with ongoing strong customer demand aligned with our vision for fiscal 2025 and beyond.
Brian Mackey: Our core businesses of metal matrix composites in Hermetic packaging are on solid footing.
Brian Mackey: We are actively fulfilling the $13 $3 million contract that we recently finalized with a long standing semiconductor manufacturer to provide power module components through September of this year we.
Brian Mackey: We have been fulfilling this contract since October and our increased production capacity for various metal matrix composite products has materialized into greater shipping volumes to this and other key customers.
Brian Mackey: As a reminder, our components are utilized primarily in high speed rail wind turbines and electric vehicle applications. We anticipate continued strong demand.
Brian Mackey: We anticipate continued strong demand. The course we've charted for CPS continues to build on these core product lines while also expanding our offerings. We are targeting new applications in key markets that have demanding technical requirements which we believe our technologies and capabilities are uniquely suited to address. In the past, I've talked about how we added internal 5-axis machining capability and leveraged $200,000 funding from the Commonwealth of Massachusetts to do so. We are now actively fulfilling orders that rely on this newly added proficiency. Early this summer, we expect to achieve the milestone of our first such customer shipment.
Brian Mackey: And of course, we've chartered for Cps continues to build on these core product lines, while also expanding our offerings.
Brian Mackey: We are targeting new applications in key markets that have demanding technical requirements, which we believe our technologies and capabilities are uniquely suited to address.
Brian Mackey: In the past I've talked about how we added internal five axis machining capability and leveraged $200000 funding from the Commonwealth of Massachusetts to do so.
Brian Mackey: We are now actively fulfilling orders that rely on this newly added proficiency.
Brian Mackey: Early this summer we expect to achieve the milestone of our first such customer ship.
Brian Mackey: Our new 5-axis machining resource for hermetic packaging is a prime example of how we are expanding the sales opportunities that we can effectively pursue for our existing product line. More broadly, we intend to add new product lines to our portfolio over time with new products that leverage our proprietary know-how, including the design, manufacture, and testing of aluminum infiltrated products to deliver unique material properties. Notably, 2025 has started off with our first commercial order for radiation shielding, which is CPS's first new commercial product in many years. The accelerated timelines market of our radiation shielding is quite unusual and provides a strong endorsement for our technology and the approach of our technical team.
Brian Mackey: Our new five axis machining resource for Hermetic packaging is a prime example of how we are expanding the sales opportunities that we can affectively pursue for our existing product lines.
Brian Mackey: More broadly we intend to add new product lines to our portfolio over time with new products that leverage our proprietary knowhow, including the design manufacturing and testing of aluminum infiltrated products to deliver unique material properties.
Brian Mackey: Notably 2025 has started off with our first commercial order for radiation shielding, which is Cps its first new commercial product in many years the.
Brian Mackey: <unk> accelerated timelines market of our radiation shielding is quite unusual and provides a strong endorsement for our technology and the approach of our technical team.
Brian Mackey: Normally SBIR programs seek to achieve proof of concept during a short phase one program followed, ideally, by developing a workable product prototype during a longer phase two. When federal funding ends, a small business like ours faces the challenge of achieving commercialization. But in our case, our Phase 2 effort funded by the DOE started only six months ago. Even though we have 18 months of funded development work remaining, we are, in parallel, now executing on a radiation shielding product order. While this order includes the potential for follow-on orders, we are most encouraged by the market's endorsement of our value proposition.
Brian Mackey: Normally svar programs seek to achieve proof of concepts during a short phase one program followed ideally by developing workable product prototype during a longer phase III.
Speaker Change: When federal funding and the small business like ours faces the challenge of achieving commercialization.
Brian Mackey: But in our case, our phase II effort funded by the Doe started only six months ago.
Brian Mackey: Even though we have 18 months of funded development work remaining we are in parallel now executing on our radiation shielding product order.
Brian Mackey: While this order includes the potential for follow on orders. We are most encouraged by the market's endorsement of our value proposition.
Brian Mackey: This market includes several potential applications that are of interest, with each potentially benefiting from the lightweight and customizable solution we've developed. Similarly, on our Fiber Reinforced Aluminum, or FRA, under our license agreement with Triton, we are also working toward commercialization. We have established FRA manufacturing capabilities in our facility and replicated the material performance results, including with third party testing that were originally achieved by Triton. This enables us to progress our discussions with potential customers based on FRA's relatively lightweight and higher strength at elevated operating temperatures. Aerospace applications are one area of focus for us. We expect to have product samples in the hands of potential customers later this year.
Brian Mackey: This market includes several potential applications that are of interest with each potentially benefit benefiting from a lightweight and customizable solution we have developed.
Brian Mackey: Similarly on our fiber reinforced aluminum or foray under our license agreement with Triton. We are also working towards commercialization we.
Brian Mackey: We have established FRE manufacturing capabilities in our facility and replicated the material performance results, including with third party testing that were originally achieved by this.
Brian Mackey: This enables us to progress our discussions with potential customers based on FRE is relatively lightweight and higher strength at elevated operating temperatures.
Brian Mackey: Aerospace applications are one area of focus for us.
Brian Mackey: We expect to have product samples in the hands of potential customers later this year.
Brian Mackey: Internal efforts like these are augmented by the great success that we have had winning new externally funded development contracts, which build on our pursuit of SBIR funding, which we initiated in 2021. Aside from the two active Phase II contracts which began in 2024, we've been awarded three Phase I contracts since the beginning of 2025. This is simply spectacular and speaks volumes to our innovative technologies as well as our researchers advancing these new applications in response to the defined needs of our customers, particularly the Department of Defense. All three awards are with the U.S. Army and are worth $250,000 each over a six-month period.
Brian Mackey: Internal efforts like these are augmented by the great success that we've had winning new externally funded development contracts, which build on our pursuit of sbe IR funding, which we initiated in 2021.
Brian Mackey: From the two active phase two contracts, which began in 24, we've been awarded three phase one contracts since the beginning of 2025.
Brian Mackey: This is simply spectacular and speaks volumes to our innovative technologies as well as our researchers advancing these new applications in response to the defined needs of our customers, particularly the department of defense.
Brian Mackey: All three awards are with the U S Army and are worth $250000 each over a six month period.
Brian Mackey: Of these, two support next-generation artillery requirements, with one targeting the development of lightweight, ultra-low-temperature-centered ceramic materials that provide electromagnetic protection for artillery shells, while the other is focused on additively manufacturing highly dense refractory tungsten alloys meant to replicate the performance attributes of depleted uranium. The third new SBIR is CPS's first funded effort to further develop FRA, or Fiber Reinforced Aluminum, just one year after we became the exclusive global licensor. The U.S. Army is committed to reducing the weight of military vehicles, and as I mentioned earlier, FRA is an ideal candidate given its lightweight and high strength at elevated operating temperatures.
These to support next generation artillery requirements with one targeting the development of lightweight ultra low temperature centric ceramic materials that provide electromagnetic protection for artillery shells, while the other is folks focus on additive manufacturing highly dense refractory tungsten alloys meant to replicate the.
Brian Mackey: Some of the attributes of depleted uranium.
Brian Mackey: The third new Svar Cps's first funded effort to further develop foray fiber reinforce aluminum just one year. After we became the exclusive global license or.
Brian Mackey: The U S Army is committed to reducing the weight of military vehicles and as I mentioned earlier.
Brian Mackey: Ideal candidate given us lightweight and high strength at elevated operating temperatures.
Brian Mackey: This is part of the Army's Hybrid Electric Powertrain, Power, and Propulsion Systems Initiative, which aims to enhance fuel efficiency and extend the operational range of military vehicles. It's a great new way to showcase our technology, and all three SBIRs offer the promise of further development and funding in the quarters and years to come. In addition, we have other recent submissions, including SBIRs, that are awaiting government response. We continue to identify specific customer challenges where we believe we can bring value with novel solutions based on our core competencies and material science. We're also continuing our work on a development effort funded by the U.S.
Brian Mackey: This is part of the Army is hybrid electric powertrain power and propulsion systems initiative, which aims to enhance fuel efficiency and extend the operational range of military vehicles. It is a great new way to showcase our technology and all through <unk> offers offer the promise of further development and funding in the quarters and years to come.
In addition, we have other recent submissions, including <unk> that are awaiting government response, we continue to identify specific customer challenges, where we believe we can bring value with novel solutions based on our core competencies in material science.
We're also continuing our work on the development effort funded by the U S Naval Air Systems command or NAV Air.
Brian Mackey: Naval Air Systems Command, or NAVAIR. With this funding, CPS is developing composites for rocket motor cases and other related uses. With work that runs through Q3 of 2025, this program highlights additional applications where, once again, CPS's unique capabilities bring value in the face of demanding operating environments.
Brian Mackey: With this funding Cps is developing composites, where rocket motor cases, and other related uses.
Brian Mackey: With work everyone runs through Q3 of 2025 this program highlights additional applications, where once again.
Brian Mackey: Tps's unique capabilities bring value in the face of demanding operating environments.
Brian Mackey: As we enter 2025, we are pleased with the beginnings of a turnaround from our Q3 results. Production is now stable and growing with three operating shifts, and we expect continued high shipment volumes for the quarters to come. We expect that as our new production operators gain experience, they will continue to improve over the next few quarters and allow us to generate improving bottom line results. In addition, as certain one-time expenses are behind us, and with new research contracts to be fulfilled, we anticipate improving gross margins and bottom-line results as the year plays out and efficiencies improve.
Brian Mackey: As we enter 2025, we are pleased with the beginnings of a turnaround from our Q3 results production is now stable and growing with free operating shifts. So we expect continued high shipment volumes for the quarters to come we expect that as our new production operators gain experience. They will continue to improve over the next few quarters and allow us to generate.
Brian Mackey: Improving bottom line results.
Brian Mackey: In addition, as certain one time expenses are behind us and with new research contracts to be fulfilled we anticipate improving gross margins and bottom line results as the year plays out efficiencies improve.
Brian Mackey: We're experiencing continued strong demand for our metal matrix composite solutions, as well as our hermetic packaging applications. At the same time, as I mentioned, we are actively seeking new customers in the aerospace industry that can benefit from FRA. We expect further development of this market this year. We are still optimistic, given the product's excellent track record, that kinetic protection could win armor orders for additional classes of Navy vessels in fiscal 2025, even given current budget challenges in Washington. Our ballistic solutions address a large market across various types of ships as well as other military applications, and we believe they have gained significant support both within the Navy as well as on Capitol Hill.
We're experiencing continued strong demand for our metal matrix composite solutions as well as our hermetic packaging applications.
Speaker Change: At the same time as I mentioned, we are actively seeking new customers in the aerospace industry that can benefit from FRE. We expect further development of this market this year.
Speaker Change: We are still optimistic given the products excellent track record that genetic protection could win armor orders for additional classes of Navy vessels in fiscal 2025, even given current budget challenges in Washington.
Speaker Change: Our ballistic solutions address a large market across various types of chips as well as other military applications and we believe they have gained significant support both within the Navy as well as on Capitol Hill.
Brian Mackey: In closing, we're upbeat about the opportunities ahead of us in the outlook for CPS in 2025 and beyond. With continued strong market demand, expanded manufacturing capabilities, and promising advances that will further expand our product portfolio, we're well positioned for growth and improved performance in fiscal 2025 and beyond. Once again, let me thank our investors for their passion and their patience as we navigated through several challenges last year. We're focused on new business, improving our operational execution, and expanding our addressable market. In total, this should lead to greater overall performance and better financial returns, leaving us a stronger, more capable, and nimble company that is a reliable and critical partner to our customers in each vertical market that we serve.
Speaker Change: In closing we are upbeat about the opportunities ahead of us and the outlook for Cts in 2025 and beyond with.
Speaker Change: With continued strong market demand expanded manufacturing capabilities and promising advances that will further expand our product portfolio, we are well positioned for growth and improved performance in fiscal 2025 and beyond.
Speaker Change: Once again, let me thank our investors for their passion and their patients as we navigated through several challenges last year, we're focused on winning new business, improving our operational execution and expanding our addressable markets. In total this should lead to greater overall performance and better financial returns, leaving us a stronger more capable and nimble company that is.
Speaker Change: A reliable and critical partner to our customers in each vertical markets that we serve.
Operator: We can now open up the call for questions. Thank you.
Speaker Change: We can now open up the call for questions.
Speaker Change: Paul.
Speaker Change: Thank you at this time, we will be conducting a question and answer session.
Operator: At this time, we will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star 1 on your phone at this time if you wish to ask a question. Please hold while we pull for questions. And once again, that is star one on your phone at this time. If you wish to ask a question, we did have a few questions in queue at this time.
Speaker Change: You have any questions or comments. Please press star one on your phone at this time.
Speaker Change: We asked about posing your question. Please pickup your handset listening on speaker phone to provide optimum sound quality.
Speaker Change: Once again, please press star one on your phone at this time, if you wish to ask a question. Please hold while we poll for questions.
Ron Richards: And once again that is star one on your phone at this time, if you wish to ask a question you did ask a few questions in queue. At this time. The first question is coming from Ron Richards, Ron as a prime.
Ron Richards: The first question is coming from Ron Richards. Ron is a private. Hey guys, congrats on that order for the radiation shielding.
Speaker Change: And Baxter.
Hey, guys. Congrats on the order for the radiation shielding I was wondering if you knew how big the market is for radiation shielding.
Brian Mackey: I was wondering if you knew how big the market is for radiation shielding for the trucking business. Yeah, hi, Ron. Good morning. Thanks for your question. It's a development because the funding from the DOE was, as you mentioned, was related to trucking, primarily focused on secondary containment for microreactors. Obviously, the less weight that's put onto the truck as barrier material, the more capacity the truck can have for its cargo. But some of that is, I think, realistically speaking, is further out on the timeline. So we're funded to develop the product with that application in mind, but what we have found is as we've talked to people in the industry with what we have, we're getting early interest for other applications.
So it's working.
Speaker Change: Business.
Speaker Change: Yes, Hi, Ron Good morning, Thanks for your question.
Speaker Change: I think development because the funding from the Doe was as you mentioned was related to trucking.
Primarily focused on secondary containment for.
Speaker Change: Micro reactors, obviously, the less weight, that's put onto the truck as barrier materials and more capacity to truck in half where its cargo.
Speaker Change: But some of that is.
Speaker Change: Realistically speaking is further out on the timeline. So we're funded to develop the product with that application in mind, but what we have found is as we've talked to people in the industry with what we have we're getting early interest for other applications.
Brian Mackey: For example, facility managers are saying, you know, I could build a concrete wall that's heavy, but then I've got to have a thicker concrete pad underneath it, which is a problem and it's costly, and I also have smaller needs locally, you know, inside a room, inside a work area, maybe an elevated space up above where there's piping or other hazards. So, in the more near term, we're seeing opportunities that are, frankly, unrelated to the trucking aspect, and there's even some applications that are... You know, a lot of our hermetic packaging solutions are going into aircraft or satellites, and there's radiation risk for all these components that are in space, so we're also having some discussions there.
Speaker Change: For example facility managers are saying.
Speaker Change: The concrete wall.
Speaker Change: That's heavy but then I got to have a thicker.
Speaker Change: Concrete pad underneath it.
Speaker Change: As a problem and it's costly and I also have smaller needs locally inside of room inside of work area, maybe an elevated space up above where theres theres piping or other hazards. So in the more near term, we're seeing opportunities that are frankly unrelated.
To the trucking aspect.
Speaker Change: And there's even some.
Speaker Change: Implications that are.
A lot of our Hermetic packaging solutions are going into <unk>.
Speaker Change: Aircraft or satellites and theirs radiation risk for all of these components that are in space. So we're also having some discussions there. So there's a number of markets that are are actively being discussed here at CBS.
Ron Richards: So there's a number of markets that are actively being discussed here at CPS. OK, everyone, all right.
Speaker Change: Okay.
Brian Mackey: Do you have any idea what kind of revenues you might look at in the next year or two for those applications? It's hard to put numbers on it because, number one, the markets are diverse and sizable, but we have to be certified as a potential supplier. We have to have customers doing their own qualification path and those sort of things. So, getting introduced into certain products will take some time. It's hard to quantify, but we also see in this order that the customer saw what they needed and were, frankly, quick to act because they know what they need.
Do you have any idea what kind of revenues might look at the next year or two for those applications.
Speaker Change: It's hard to put numbers on it.
Speaker Change: Because number one.
Markets are diverse and sizable but we have to be certified as a potential supplier we have to have customers doing.
Speaker Change: Their own qualification path in those sort of things so getting introduced into certain products will take some time, it's hard to quantify but we also see in this order that customer saw what they needed.
Speaker Change: Frankly.
Speaker Change: Quick to act.
Speaker Change: Because they know what they need so that's probably something of an outlier.
Ron Richards: So, that's probably something of an outlier in an application that you can imagine is fairly conservative as far as what you're going to do for containment, but we think these opportunities will continue to come forward. Okay, thank you. Thank you.
Speaker Change: Implication that you can imagine it's fairly.
Speaker Change: Conservative as far as what you're going to do for containment, but we think these opportunities will continue to come forward.
Okay. Thank you.
Speaker Change: Thank you. The next question will be from Francis Goldman Francis as a private investor.
Francis Goldwyn: The next question will be from Francis Goldwyn. Francis is a private investor. Francis, your line is live. Hopefully you can hear me. I wanted to ask about the munitions rounds. Once you develop this, if it's accepted by the Army, does that mean that you will be manufacturing those? There's Warhead.
Speaker Change: Your line is open.
Francis Goldman: Hopefully you can hear me.
Yes.
Francis Goldman: I wanted to ask about the.
Francis Goldman: The munitions rounds.
Once you develop this.
Francis Goldman: Accepted by the by the Army does.
Francis Goldman: Does that mean, you will be manufacturing does.
Francis Goldman: Those warheads.
Brian Mackey: Well, what it means is in this case the two munitions SBIRs we've been funded for are a little different than the third one related to FRA. In these two related to the munitions, The technical team at the Army wrote up a very specific topic, and they said we have a very specific challenge that we need someone to solve. If we knew how to solve it, we wouldn't be writing this up, but we're writing up a question and we're looking for someone with the right answer. So CPS proposed an answer based on our technical capabilities, and what would come about after that is if we can satisfy, again, phase one being concept, you claimed you could do it, can you prove it in the lab?
Francis Goldman: Well what it means.
Speaker Change: In this case the two munitions SBA yards, we've been funded four are a little different than the third one related to FRE in these two related to the munitions.
Speaker Change: Technical team at the Army wrote up a very specific topics.
Speaker Change: They said, we have a very specific challenge that we need someone to solve if we knew how to solve it we wouldn't be writing this up but we're writing up a question that we're looking for someone with the right answer. So Cps proposed an answer based on our technical capabilities.
Speaker Change: And what would come about after that is if we can satisfy again phase one big concepts. You claimed you could do it can you prove it in the lab and the potentially if were funded by phase II, Okay, let's make a prototype that the army can actually test one.
Brian Mackey: And potentially if we're funded by phase two, okay, let's make a prototype that the Army can actually test one, and then if they can validate that it satisfies their needs, the question would become do we become a commercial provider of product to the Army? So it's not necessarily a given, but the fact that they're spending R&D money to find a solution tells you that they have a very real need. And the real power of the SBIR funding is that it comes with the potential to be the sole source provider down the road. In the past, there's some contract officers that say, well, I need multiple bids.
And then if they can validate that it satisfies their needs. The question will become do we become a commercial provider.
Our products through the army so it's not necessarily a given but the fact that they are spending R&D money to find the solution tells you that they have.
Speaker Change: A very real need and the real power of the <unk> funding is that it comes with that.
Speaker Change: The potential to be the sole source provider down the road.
Speaker Change: In the past Theres, some contract officers that say well I need multiple bids you need to share your technology with another manufacturer and the appropriate answer to that is we do satisfy your competitive requirement as a federal agency because we competed on the SB IR way back at the beginning of phase. One. So you can be a sole source provider it's a powerful.
Brian Mackey: You need to share your technology with another manufacturer, and the appropriate answer to that is we do satisfy your competitive requirement as a federal agency because we competed on the SBIR way back at the beginning of phase one. So you can be a sole source provider.
Brian Mackey: It's a powerful tool for an SBIR program, and we will be working on these munitions problems over the next six months, and then hopefully that transitions into a phase two, and that would then be an offering to the Army that they would need to decide to engage for a particular application or program. And what do you think the timeline for that process would be, you know, nothing, you know, just an approximate timeline. Is it months? Is it years? Well. This SBIR is a six-month phase one, again, and that would be pursuing proof of concept. That program has now, those two programs have now started very recently.
Speaker Change: <unk> tool for an <unk> program and we will be working on these munitions problems over the next six months and then hopefully that transitions into a phase two and that would then be an offering to the army that they would need to decide to engage for a particular application or program.
Speaker Change: And what do you think the timeline for that process would be.
Speaker Change: Nothing.
Speaker Change: Approximate timeline is it months is it years.
Speaker Change: Well.
Speaker Change: This <unk> is a six month phase one again and that would that would be pursuing proof of concept that program has now those two programs have now started very recently so we have from now on to into Q3.
Brian Mackey: So we have from now into Q3. What we'd be doing at that point is proposing Phase 2 to the Army based on the progress that we demonstrated in Phase 1. If they engage the Phase 2, that could be something like $1 million or $1.1 million over 24 months, where we would then be trying to deliver a prototype to them in that period, at which point that federal program could again be extended or could conclude. So, it's that sort of typical timeframe before you really get to a demonstrable solution.
Speaker Change: What we'd be doing at that point is proposing.
Speaker Change: <unk> two to the army based on the progress that we demonstrated in phase one if they engage the phase two that could be something like.
Speaker Change: $1 million or $1 $1 million over 24 months.
Speaker Change: Where we would then be trying to deliver a prototypes.
Speaker Change: To them in that period at which point that federal program could again be extended or could conclude so is that sort of typical timeframe before you really get to.
Speaker Change: A demonstrable solution and again, that's where the radiation shielding definitely moved quicker than typical it can happen, but that six months plus about two years is is the standard Spi our framework.
Brian Mackey: Again, that's where the radiation shielding definitely moved quicker than typical. It can happen, but that six months plus about two years is the standard SBIR frame. And on the radiation shielding, coming back to the prior question. I understand that you don't have specific... Customers, but have you sat down with a sort of a. back of an envelope and said, what's the size of the addressable market here? Potentially high, medium, low. That's it, that's the... Our work on that is early, and I'm not prepared to share numbers on that because we are considering different applications and markets that we're becoming aware of as these customers raise their hands and express interest, and that leads to another conversation, and that leads to another conversation.
Speaker Change: And on the radiation shielding coming back to the.
Speaker Change: Prior question.
Speaker Change: I understand that you don't have specific.
Customers.
Have you sat down with the sort of.
Speaker Change: Back of an envelope and said, what's the size of the addressable market here potentially high medium low.
Speaker Change: That's that's.
Speaker Change: Our work on that as early I'm not prepared to share numbers on that because we are considering different applications in markets that are there.
Speaker Change: That we're becoming aware of as these customers raise their hands and express interest and that leads to another conversation and that leads to another conversation. So.
Brian Mackey: So these different applications are not fully quantified by us. OK.
Speaker Change: These different applications are not fully quantified by us.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: Okay.
Greg Weaver: can maybe you could talk a little bit about about what about your, I guess I would say you're in the fixed element, your fixed cost element, your cost of goods. I, the loss of the The end of the armor program, as it was, was the cause of a reduction in revenues. But the cost of goods didn't change materially. Why is that? So, uh... The cost of the margins on the are traditional products. The metal matrix composites and the hermetic packages are not as good as they were on armor. And the other part, the bigger part of that, I think, though, was the fact that we spent most of the second half, well, pretty much the entire second half of 2024 ramping up for these increased production demands.
Ken: Ken maybe you could talk a little bit about it.
Speaker Change: What about Europe.
I guess I would say.
Speaker Change: Fixed element you fixed cost element in your cost of goods.
Speaker Change: Aye.
Speaker Change: The loss of the.
Speaker Change: Armour.
And of the Army program.
Speaker Change: As it was.
Speaker Change: The result was the cause of the reduction in revenues.
But the cost of goods didn't change materially why is that.
Speaker Change: So.
Speaker Change: Okay.
Speaker Change: The cost of.
Speaker Change: The margins on.
Speaker Change: <unk>.
Our traditional products to metal matrix composites and the Hermetic packages are not as good as they were on armor.
And.
Speaker Change: And the other part of the bigger part of that I think though was the fact that we spent most of the second half will pretty much the entire second half of 2020 for ramping up for these increased production demands.
Chuck Griffith: And there are a lot of We have a lot of expenses involved in that, that presumably will go away. So we had to hire people for the third shift. Those folks have to be trained up so that they would work on first shifts for two or three weeks before they actually went to the third shift. In fact, we had people coming in in July, at the beginning of July, to be trained initially, and we didn't actually move to the third shift until the last week of August. So we had a number of these expenses that were, I'll say, non-productive or at best minimally productive expenses.
Speaker Change: Demands.
Speaker Change: And.
Speaker Change: There are a lot of.
Speaker Change: Expenses involved in that.
Speaker Change: That presumably will go away.
Speaker Change: So we had to hire people for the third shift.
Speaker Change: Those folks have to be trained up so.
Speaker Change: Good work on first chips for two or three weeks before they actually went to third shift.
Speaker Change: We have people coming in in July.
Speaker Change: At the beginning of July to be trained.
Speaker Change: Initially and we didn't actually move to the third shift until the last week of August so.
Speaker Change: So we had a number of these expenses that were.
Speaker Change: I'll say nonproductive board.
Speaker Change: Minimally productive expenses.
Chuck Griffith: And then once we got the third shift going, we still had to deal with a lot of initial turnover. Folks, hey, yeah, I can work third shift. And then when the reality of it hits and two weeks later they leave, and then you've got to start that process all over again. So that was a major impact on the fourth quarter. We had approximately $200,000 of additional labor costs than we anticipated having just in that fourth quarter. And it doesn't just impact the labor itself, but also the quality and the yield that we get out of the product we're making.
Speaker Change: And then once we got the third ship going we still have to deal with.
Speaker Change: A lot of additional turnover.
Speaker Change: Yes, I can work third shifts and then when the reality hits.
Speaker Change: Two weeks later they leave.
Speaker Change: And then you've got to start that process all over again. So we did it that was a major impact on the fourth quarter.
Speaker Change: We had approximately $200000 of.
Additional labor costs than we anticipated, having just in that fourth quarter and it doesn't just impact.
Speaker Change: The labor itself, but also the quality and the yields that we get out of the product we're making.
Chuck Griffith: These base plates are, while they're a fairly simple concept... They're not easy to make at all. And in fact, for our customers, just a little nick or a little scratch makes the part no good. So during that, during the production process, there are times when, you know, you have to, you know, kind of handle these things with kid gloves, so to speak. And, you know, if somebody's new and they're not sure exactly how to do something and they scratch the base plate, it's gone. So we had, you know, some significantly lower yields. We expect that as the Q1 has progressed and as we get into, you know, further into 2025, that a lot of these problems are going to diminish and then go away.
Speaker Change: These these base plates are.
Speaker Change: While there are fairly simple concept.
Speaker Change: They're not easy to make it all and in fact for our customers just a little Nick or a little scratch makes the part no. Good so.
Speaker Change: During that during the production process.
There are times when you have to kind of handle these things with Kid gloves. So.
Speaker Change: So to speak.
Speaker Change: <unk>.
Speaker Change: If somebody is new and they're not sure exactly how to do something and they scratch the scratched the base plate.
Speaker Change: It's gone so we had some significantly lower yields we expect that as.
Speaker Change: Q1 has progressed and as we get into further into 2025 that a lot of these problems are going to.
Speaker Change: Diminish and then go away.
Chuck Griffith: So I think that, you know, that's, you know, that's really what we're looking forward to as we, as we move along. I'll also make a comment, I think that, you know, there's, making all stick base plates is a two, two headed coin or two sides of the same coin. On the one hand, it's difficult to make, which means that, you know, when we're bringing in new people to learn to make this product, the timeframe of getting them up to speed can be long. But on the other hand, it's difficult to make, which means it's really hard for competitors to get into this market.
Speaker Change: So I think that.
Speaker Change: Thats.
Speaker Change: That's really what we're looking forward to as we as we move along.
I'll also make a comment I think that.
Speaker Change: They are making.
Speaker Change: Making ASIC based places of two two headed coin are two sides of the same coin.
On one hand, it's difficult to make which means that.
When we're bringing in new people to learn to make this product.
Speaker Change: The timeframe of getting them up to speed can be can be long.
But on the other hand, it's difficult to make which means it's really hard for FERC competitors to get into this market.
Chuck Griffith: You know, you're not going to get a couple of pieces of equipment and put it in your garage and start making all stick base plates. It's really a difficult product to make. I think having the name CPS Technologies, it is a technological product. So, you know, there's that aspect of it as well, which can be good for us. So anyway, does that answer your question?
Speaker Change: Youre not going to get a couple of pieces of equipment and put it in your garage and start making ASIC based place, it's really a difficult product to make I think.
Speaker Change: Having the named Cps technologies. It is it is a technological product so.
Speaker Change: Yes, there is that aspect of it as well, which which can be good for us. So anyway does that answer your question.
Operator: Thank you, and just as a reminder, it is star one if you wish to ask a question today.
Speaker Change: Thank you and just as a reminder, it is star one if you wish to ask a question today and the next question is coming from Greg Weaver.
Greg Weaver: The next question is coming from Greg Weaver. Greg is a private investor.
Speaker Change: Greg is a private investor Craig Your line is live.
Greg Weaver: Greg, your line is live. Hi, how are you doing? Nice to see all the SBIRs. I mean, it's great to get paid to develop your own tech. I might've asked this before, but remind me again, is this a revenue item or a cost? Both. When we submit the budget to make the product, we do get a piece for profit and overhead absorption included in that. And I'll also say, I think, because we're working on these SBIRs, we've got folks here, scientists here, that are here because of these projects. So. You know, so to a degree, it's sort of a cost offset, but it's also, you know, sort of a, you know, it does provide some additional flow through to the bottom.
Speaker Change: Hi, Craig.
Nice to see how the Spi ours I mean, it's great to get paid to develop your own tech I might ask this before but remind me again.
Is this a revenue item or a cost offset.
Speaker Change: Both.
Speaker Change: We when we submit the budget to to make the product.
Speaker Change: We are.
We do we do get a piece for profit and overhead absorption included in that.
Speaker Change: And I'll also say I think.
Speaker Change: Because we're working on <unk>, we've got folks here scientists here that R. R.
Speaker Change: Are here because of these projects so.
Speaker Change: So.
Speaker Change: Degree it is.
Speaker Change: Sort of a cost offset but it's also sort of a.
Speaker Change: It does provide some additional flow through to the bottom line.
Greg Weaver: So the funding shows up on the revenue line item, though. And then you're submitting it. All right.
Speaker Change: So the funding shows up on the revenue line item, though yes, okay, yes, alright, thanks for that.
Chuck Griffith: Thank you. So, so reading your PR, so I'm to believe then the bookings in the quarter then were greater than $5.9 million, because you mentioned about your backlog being up. That would be fair to say, yes. Definitely. Okay. I can't remember. Do you disclose the backlog at year-end or quarterly in the queue? I can't remember.
Speaker Change: So so reading your PR. So I'm to believe then the bookings in the quarter than were greater than $5 9 million because you mentioned about your backlog being up.
Speaker Change: That would be fair to say, yes.
Speaker Change: Yes definitely.
Speaker Change: Okay I can't remember do you do disclose the backlog at year end.
Speaker Change: Quarterly in the queue I can remember.
Brian Mackey: We don't. And Brian, maybe I missed it, you said something, I heard you say it when you were talking about the big contract with your European power guy for the plates. You said something about September of this year and did you reference, did the pricing change at all there? Yeah, so what happened there, Greg, was that's a customer who buys typically on a one-year commitment, and that's from October 1 to September 30. And we had an earlier agreement with them which kept product flowing but was not fully resolved on quantity and pricing, and that kept us going in Q4 of 2024.
Speaker Change: We don't we don't okay.
Speaker Change: And Brian maybe I missed it you said something I heard you say when you were talking about the big contract with your.
Speaker Change: European power Guy for the plates.
Speaker Change: Yes.
Speaker Change: You said something about September of this year and did you referenced did you.
Speaker Change: The pricing changed at all there.
Greg Weaver: Yes, so what happened there Greg was that's a customer who buys typically on a one year.
Commitment and Thats from October one to September 30, and we had an earlier agreement with them which kept.
Greg Weaver: Kept product flowing but was not fully.
Greg Weaver: Resolves on quantity and pricing and that kept us going into Q4 of 2024 and then subsequently we finalized.
Brian Mackey: And then, subsequently, we finalized pricing and quantities which resolved at that $13.3 million. So, that was resolved I don't know, a couple of months ago, but well into that 12-month period, but that agreement is for that 12-month period, so we're actively fulfilling that through the end of September under that $13.3 million contract. Do you get any, I'll assume that hopefully the price went up some, do you get any credits for the stuff you already shipped in? Yeah, that was retro. The pricing was retroactive. to 10-1. 10-1, so we saw that already in Q4. Right, yeah.
Greg Weaver: Pricing in quantities.
<unk> resolved that that $13 $3 million, so that was resolved.
Greg Weaver: I don't know a couple of months ago, but well into that 12 month period, but that agreement is for that 12 month period. So we're actively fulfilling that through.
Greg Weaver: The end of September under that $13 $3 million contract.
Speaker Change: Do you get any.
Greg Weaver: Hopefully the price went up some beginning of credits for the stuff you already shipped in.
Speaker Change: Yes that was retrofitted pricing was retroactive.
Greg Weaver: The 10.
Greg Weaver: <unk>.
Greg Weaver: 10, one so we saw that already in Q4.
Correct, yes.
Chuck Griffith: Right, yeah, so your gross margins did go up, but obviously they're still negative, so... Well, you went through it already, Chuck, with the prior question to a degree, but I mean, help me understand here, because at one minute you say, hey, I offset the armor loss, but then in the next breath, you're like, well, I'm underutilized, and I'm lacking volume. That's why my gross margins are the way they are. So I guess help me rectify that. I mean, it sounds like scrap and rework is the issue. That is a major factor, you know, without getting into specific numbers, you know, our yields went down.
Greg Weaver: So your gross margins did go up, but obviously theres still negative so.
Greg Weaver: Okay.
Speaker Change: You went through it already Chuck towards the prior questioner to a degree but.
Speaker Change: Help me understand here, because one minute you say, hey, I offset to our loss, but then in the next breath, you're like well.
Speaker Change: Underutilized and I'm lacking volume Thats why my.
Speaker Change: Gross margins are the way they are so I guess help me rectify that I mean, it sounds like scrap and rework is the issue here.
That is that is a major major factor.
Speaker Change: Without getting into specific numbers are yields went down.
Chuck Griffith: fairly significantly from the first six months of 2024 to the last six months of 2024. As we added these, these, these folks, and There, you know, we've also. Yeah, so basically that's the main piece. We also have a number of items that go through as expenses and as we ramped up and we built up purchases so that we could handle the additional manufacturing capacity or needs, we bought more of some of these supplies, not inventory items, but supplies to make sure that we didn't run out so that we didn't have to shut down operations for two days while we waited for something to come in.
Speaker Change: Fairly significantly from the first six months of 2024 to <unk>.
Speaker Change: Last six months of 2024.
Speaker Change: As we added these.
These folks.
Speaker Change: And.
Speaker Change: We've also.
Yes, so based yet basically thats the main the main piece.
Speaker Change: We also have a number of items.
Speaker Change: <unk> gone through as expenses.
Speaker Change: And.
Speaker Change: As we ramped up and we built up purchases to <unk>.
Speaker Change: I think we could handle the additional manufacturing capacity.
Speaker Change: <unk>.
Speaker Change: We bought more of some of these.
Speaker Change: Wise not inventory items, but supplies.
Speaker Change: To make sure that we didn't run out so that we didn't have shut down operations for two days, while we wait for something to come in so there were a number of there was kind of a growth in that in those expense categories.
Chuck Griffith: So, there was kind of a growth in those expense categories as we ramped up more than we would expect on an ongoing Day-to-day or week-to-week basis, so there was some of that involved there, too.
Speaker Change: As we ramped up more more than we would expect on an ongoing.
Speaker Change: Day to day or week to week basis. So there was there was some of that involved there too there were a number of factors.
Greg Weaver: There were a number of factors, you know, that we expect that impacted Q4, but we expect to either go away completely or certainly diminish as time goes by over, you know, during 2025. Well, we're 80% of the way through Q1 here. I guess, how's the, how's the, how's manufacturing these days? Much better. Okay. Because before I was pressing you, you said, well, if I could do six mil and rev, I could hopefully get 15 to 20% positive gross margins, right? I mean, is that realistic or... I think, well, we're still shooting for that 15 to 20 margin, for sure.
Speaker Change: But we expect that.
Speaker Change: The impacted Q4, but we expect to either go away completely or certainty diminish as time goes by or during 2025.
Speaker Change: Well over 80% of the way through Q1 here I guess how is the how.
Speaker Change: <unk> has manufacturing these days.
Speaker Change: Much better.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Because before that was pressing you said well if I could do six millin Rev. I, hopefully you get 15% to 20% positive gross margins right I mean is that realistic.
Speaker Change: I think.
Speaker Change: I think we're still shooting for that 15% to 20 margin for sure.
Brian Mackey: And I think that's where we expect to be once, you know, once we're fully You know, once we have a good team here and that kind of thing, you know, yeah, I. I think that's very realistic, and I don't think, I know that's what we're shooting actually even to go higher than that, but. Yeah, I would add, I mean Chuck described some of the harsh realities of Q4 in a couple different buckets. I mean one is, you know, employee number one, training number two, so employee number one is not as efficient even though they're experienced.
Speaker Change: That's what we expect to be once.
Speaker Change: Once we're fully.
Speaker Change: Sure.
Speaker Change: Once we have a good team here in that kind of thing.
Speaker Change: Yes.
Speaker Change: I think I think that's fair I think that's very realistic and I think.
Speaker Change: I don't think I know thats, what were shooting actually even to go higher than that but.
Speaker Change: Yes.
Speaker Change: Adam you Chuck described some of the harsh realities of Q4 and a couple of different buckets. I mean, one is employee number one training number two employee number was not as efficient even though their experience.
Brian Mackey: And then you've got the poor efficiency of the new employee once they're in the job, and then you have a yield slash defect. impact, and those three different challenges improved on different paces over time. And I think we're going to see that play forward in Q1, Q2, etc. Obviously, the distraction of the first employee goes away once that other person's in the job and the other... take more time for a new person to be as capable as somebody who's been here five or 10 years.
Speaker Change: And then you've got the port efficiency of the new employee once they are in the in the job and then you have.
Speaker Change: Yields slash defect.
Impact in those three different challenges improve on different paces over time.
Speaker Change: And I think we're going to see that play forward Q1, Q2 et cetera.
Speaker Change: Obviously, the distraction of the first employee goes away once that other persons in the job and the other things take more time for a new person to be as capable as somebody who has been here five or 10 years.
Greg Weaver: Gotcha. Okay.
Speaker Change: Gotcha Okay.
Chuck Griffith: See you today, Brian. Good luck, everyone. I was just going to add a little bit to that. We know, I mean, for a fact, that if you take one of our, you know, employees that have been here for five years or 10 years or whatever, that person is significantly more productive than, you know, somebody that's been here for, you know, three or four months. There's, it's a definite noticeable difference. We have that data and we know it to be true.
Speaker Change: Okay.
Speaker Change: Good luck.
Speaker Change: Hmm.
Speaker Change: I was just going to add a little bit to that.
Speaker Change: No I mean for a fact that if you take one of our <unk>.
Speaker Change: <unk> that had been here for five years or 10 years or whatever that person is significantly more productive than somebody who has been here for three or four months.
Speaker Change: There is definite definite.
Speaker Change: Definitely noticeable difference, we have that data and we know to be true.
Sure.
Greg Weaver: All right, sure. Well, good luck, I guess, getting the kinks out, and we'll tune in here for Q1 shortly. Thank you. Thanks very good.
Good luck I guess, given the Kinks out in.
Speaker Change: Tune in here for Q1 shortly thank you.
Speaker Change: Thanks very good.
Ron Richards: Thank you, and we did have time for one quick follow-up from Ron Richards.
Speaker Change: Thank you and we did have time for one quick follow up from Ron Richard It's Ron Your line is nice.
Brian Mackey: Ron, your line is live. Hi, you know, I've been a shareholder for years and on previous conference calls, I've asked about the Southeast Asian armor contract. You had scheduled a shoot and the shoot didn't go as well as planned and I was wondering if that armor would have been reworked for that project and how's that going? Yeah, there's, there's existing development work going on to Restore That Potential. That's an active program that's worked on by our technical team in parallel to all the other things that we have going on, but that remains an opportunity for the future as we work to get back towards the ballistic performance and certainty of a shoot and that kind of thing.
Speaker Change: Yeah.
Speaker Change: Hi.
Speaker Change: I've been a shareholder for years.
Speaker Change: Previous conference calls about the southeast Asia.
Speaker Change: Contract.
Speaker Change: The.
Speaker Change: Schedule of the chute in the shoe thing goes what was planned and I was wondering if that armor.
Speaker Change: We've worked for that project and how is that going.
Speaker Change: Yes, there is.
Speaker Change: There is existing development work going on too.
Speaker Change: Restore that potential that's an active program that's worked on by our technical team in parallel to all the other things that we have going on but that remains an opportunity for the future as we work to.
Speaker Change: Get back towards the bullish stick performance and certainty of a shoot in that kind of thing so yes that was.
Brian Mackey: So, yeah, that was a challenge from a while ago that we're still working to resolve, and it's part of what our team is working on as we understand the fundamentals of that particular design for that particular specification. Each armor customer has its own qualification tests, you know, the velocity of what projectile at what angle to the panel and that sort of thing. So, all those factors are what our team is looking at to get back to that test cycle. There's no prediction on the kind of timeline when that might have another test. That would be further out, there's nothing on the schedule right now.
A challenge from a while ago that we're still working to resolve and it's part of what our team is working on as we.
Speaker Change: Understand the fundamentals of that particular design for that particular specification to each arm customer has its own qualification tests.
Speaker Change: The velocity of what projectile at what angle to the panel and that sort of thing. So all of those factors are what our team is looking at too.
Speaker Change: Get back to that test cycle.
Speaker Change: No no prediction of the kind of timeline when that might have another tough.
Speaker Change: That would be further out theres nothing on the schedule right now.
Speaker Change: Okay Alright.
Ron Richards: We do have some testing going on, but it's preliminary to actual shooting. It's CPS testing, and I was taking the question as sort of a customer orchestrated test. We are doing CPS testing, but a customer test would be further out. I see, okay. All right guys, thanks. Thanks Ron. Thank you.
Speaker Change: We do have some testing going on but it's preliminary to actual shoot.
Speaker Change: I think the question I was taking the question is sort of a customer orchestrated test we are doing Cps testing right.
Speaker Change: Our customer test would be further out yes, yes.
Speaker Change: I see okay.
Speaker Change: Alright, guys.
Thanks.
Speaker Change: Thanks, Ron.
Speaker Change: Okay.
Speaker Change: Thank you there are no other questions at this time I would now like to hand, the call back to Brian Mackey for closing remarks.
Operator: There were no other questions at this time.
Brian Mackey: I would now like to hand the call back to Brian Mackey for closing remarks. Okay. Thanks, everyone, for joining our call. As Greg mentioned, it won't be that long for our Q1 call, but thank you for joining us today.
Speaker Change: Okay. Thanks, everyone for joining our call.
Speaker Change: Ron mentioned, alright, Greg mentioned won't be that long to our Q1 call, but thank you for joining us today and if you have any separate questions. Please follow up with Chris with your Investor investment Relations advisor. Thank you.
Brian Mackey: And if you have any separate questions, please follow up with Chris Witty, our Investment Relations Advisor. Thank you.
Speaker Change: Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Operator: This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation. Thank you, everyone.
Speaker Change: Thank you everyone.