CPS Technologies (CPSH) Q3 Earnings call transcript Oct 31, 2024

In the recent earnings call for CPS Technologies, executives provided insights into the company's third quarter performance and outlined a positive outlook for the future. The call, led by Chief Financial Officer Chuck Griffith and President and CEO Brian Mackey, highlighted a number of key themes and trends that underscore the company's resilience and strategic direction.

Financial Performance and Challenges

The third quarter revenue came in at $4.2 million, a decrease from the previous year's $6.3 million, primarily due to the end of the U.S. Navy Armor contract with Kinetic Protection. This was a known factor, as CPS had previously announced the expected impact on results. However, the company faced additional challenges, including lower manufacturing efficiencies, start-up costs for a third shift, and supply chain issues. These factors combined to result in a gross loss of $1.5 million, a significant decrease from the previous year's gross profit of $1.2 million.

Despite these challenges, CPS remains optimistic about the future. The addition of a third shift and recent contract wins have positioned the company for improved performance in the fourth quarter and beyond. The company is also focused on cost control and new business development initiatives to drive long-term growth.

Contract Wins and Strategic Initiatives

One of the highlights of the call was the discussion of recent contract wins, including a $12 million contract with an existing semiconductor customer and a new development contract with the Navy. These contracts, along with the company's ongoing research and development efforts, are expected to significantly boost revenue in fiscal 2025.

CPS is also expanding its product line to include fiber reinforced aluminum (FRA) composites, which have shown promising results in manufacturing trials. The company expects to begin commercialization of FRA in fiscal 2025 and is in discussions with potential customers in the aerospace and defense industry.

Looking Ahead

Brian Mackey, the President and CEO, expressed optimism about the company's future, despite the challenges faced in the third quarter. He highlighted the successful training of a third shift and recent contract wins as signs of progress. CPS is also actively pursuing new opportunities, including several SBIR awards and contracts with U.S. agencies, including NASA.

The company's focus on expanding manufacturing capabilities and addressing critical customer needs, such as lightweight radiation shielding, positions it well for growth. With a new 5-axis CNC machine up and running, CPS is ready for higher production of hermetic packaging and other products in Q4 and beyond.

Investor Takeaways

The earnings call provided valuable insights into CPS Technologies' financial performance and strategic direction. Despite the challenges faced in the third quarter, the company remains optimistic about the future, with a focus on cost control, new business development, and expanding product lines. The recent contract wins and research and development efforts are expected to drive growth in fiscal 2025.

Investors should watch for updates on the company's progress in implementing its strategic initiatives, particularly the commercialization of FRA composites and the pursuit of new contracts and partnerships. The company's ability to navigate the challenges of the current market and capitalize on growth opportunities will be key factors to watch in the coming quarters.

In conclusion, CPS Technologies' third quarter earnings call painted a picture of a company navigating challenges but looking forward to growth. With a focus on expanding manufacturing capabilities, strategic partnerships, and innovative product development, CPS is well-positioned for the opportunities and challenges of the future.