CPS Technologies Corporation (NASDAQ:CPSH) Q4 2023 Earnings Conference Call March 7, 2024 9:00 AM ET Company Participants Charles Griffith - CFO Chris Witty - IR Brian Mackey - CEO & President Conference Call Participants James McIlree - Dawson James Michael Weitz - Private Investor Greg Weaver - Invicta Capital Operator Good day, and welcome to the CPS Technologies Fourth Quarter and Year-End 2023 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, C ...

[Executive Summary & Fourth Quarter 2023 Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Fourth%20Quarter%202023%20Highlights) [Overall Financial Performance](index=1&type=section&id=Overall%20Financial%20Performance) CPS Technologies Corporation reported mixed financial results for Q4 2023, with revenue growth but a decline in operating profit and net income compared to the prior year, while achieving its highest annual revenue in history for fiscal year 2023 | Metric | Q4 2023 ($) | Q4 2022 ($) | | :---------------- | :---------- | :---------- | | Revenue | $6.7M | $6.1M | | Operating Profit | $0.1M | $0.3M | | Net Income | $0.2M | $0.3M | | Diluted EPS | $0.01 | $0.02 | - Annual revenue for 2023 reached **$27.6 million**, marking the highest in the Company's history[9](index=9&type=chunk) [Key Financial Metrics (Q4 & Full Year)](index=3&type=section&id=Key%20Financial%20Metrics%20(Q4%20%26%20Full%20Year)) A detailed breakdown of key financial metrics for the fourth quarter and full fiscal year 2023, showing revenue growth but a decrease in gross margin, income from operations, and net income compared to the prior year | Metric | Three Months Ended Dec 30, 2023 ($) | Three Months Ended Dec 31, 2022 ($) | Year Ended Dec 30, 2023 ($) | Year Ended Dec 31, 2022 ($) | | :-------------------------------------- | :---------------------------------- | :---------------------------------- | :-------------------------- | :-------------------------- | | Product sales | $6,747,199 | $6,115,352 | $27,550,646 | $26,586,926 | | Total revenues | $6,747,199 | $6,115,352 | $27,550,646 | $26,586,926 | | Cost of product sales | $5,598,616 | $4,489,640 | $20,725,237 | $19,285,846 | | Gross Margin | $1,148,583 | $1,625,712 | $6,825,409 | $7,301,080 | | Selling, general, and administrative expense | $1,004,948 | $1,316,530 | $5,126,046 | $5,066,660 | | Income from operations | $143,635 | $309,182 | $1,699,363 | $2,234,420 | | Net income | $139,510 | $268,991 | $1,370,296 | $2,131,400 | | Net income per basic common share | $0.01 | $0.02 | $0.09 | $0.15 | [Gross Margin Analysis](index=1&type=section&id=Gross%20Margin%20Analysis) The gross margin for the fourth quarter of 2023 significantly decreased compared to the prior-year period, primarily attributed to quality issues with a major customer | Metric | Q4 2023 (%) | Q4 2022 (%) | | :---------- | :---------- | :---------- | | Gross Margin | 17.0% | 26.6% | - The **lower gross margin** year-over-year was largely due to quality issues with one of the Company's major customers[9](index=9&type=chunk) [CEO Commentary and Business Outlook](index=1&type=section&id=CEO%20Commentary%20and%20Business%20Outlook) CEO Brian Mackey highlighted record annual revenue for 2023 and expressed cautious optimism regarding mitigated quality issues, noting strong opportunities in diverse end markets despite short-term headwinds, while emphasizing continued investment for future growth - The Company finished the year with the highest annual revenue in its history, reaching **$27.6 million**[9](index=9&type=chunk) - Management is cautiously optimistic that previously disclosed quality issues have been **largely mitigated** and should not materially impact 2024 results[9](index=9&type=chunk) - The U.S. Navy contract for HybridTech Armor® panels is expected to be **completed during the second quarter of 2024**, while the company pursues other fast-growing industrial and technological applications[9](index=9&type=chunk) [Company Information](index=2&type=section&id=Company%20Information) [About CPS Technologies Corporation](index=2&type=section&id=About%20CPS%20Technologies%20Corporation) CPS is a technology and manufacturing leader providing high-performance materials solutions for critical applications across various industries, including clean energy, defense, and telecommunications, with a focus on innovation - CPS is a **technology and manufacturing leader** in producing high-performance materials solutions[11](index=11&type=chunk) - Products address **critical needs** in applications such as electric trains, wind turbines, hybrid/electric vehicles, Navy ships, smart grids, 5G infrastructure, aerospace, and satellite applications[11](index=11&type=chunk) - The company is **committed to innovation** and supporting customers in building solutions for the **transition to clean energy**[11](index=11&type=chunk) [Contact Information](index=2&type=section&id=Contact%20Information) Contact details for CPS Technologies Corporation, including physical address, website, and investor relations contact - Address: **111 South Worcester Street, Norton, MA 02766**[6](index=6&type=chunk) - Website: **www.cpstechnologysolutions.com**[6](index=6&type=chunk) - Investor Relations Contact: **Chris Witty** at **646-438-9385** or cwitty@darrowir.com[6](index=6&type=chunk) [Detailed Financial Statements (Unaudited)](index=3&type=section&id=Detailed%20Financial%20Statements%20(Unaudited)) [Statements of Operations](index=3&type=section&id=Statements%20of%20Operations) The unaudited Statements of Operations provide a comprehensive view of the company's financial performance for the three months and full fiscal years ended December 30, 2023, and December 31, 2022, detailing revenue, cost of sales, gross margin, operating expenses, and net income | Metric | Three Months Ended Dec 30, 2023 ($) | Three Months Ended Dec 31, 2022 ($) | Year Ended Dec 30, 2023 ($) | Year Ended Dec 31, 2022 ($) | | :-------------------------------------- | :---------------------------------- | :---------------------------------- | :-------------------------- | :-------------------------- | | Product sales | $6,747,199 | $6,115,352 | $27,550,646 | $26,586,926 | | Total revenues | $6,747,199 | $6,115,352 | $27,550,646 | $26,586,926 | | Cost of product sales | $5,598,616 | $4,489,640 | $20,725,237 | $19,285,846 | | Gross Margin | $1,148,583 | $1,625,712 | $6,825,409 | $7,301,080 | | Selling, general, and administrative expense | $1,004,948 | $1,316,530 | $5,126,046 | $5,066,660 | | Income from operations | $143,635 | $309,182 | $1,699,363 | $2,234,420 | | Interest/Other income (expense) | $80,823 | $9,866 | $253,018 | $635,248 | | Net income before income tax | $224,458 | $319,048 | $1,952,381 | $2,887,668 | | Income tax provision (benefit) | $84,948 | $50,057 | $582,085 | $756,268 | | Net income | $139,510 | $268,991 | $1,370,296 | $2,131,400 | | Wtd. Avg. basic common shares outstanding - diluted | 14,617,473 | 14,649,719 | 14,628,811 | 14,675,646 | | Net income per basic common share | $0.01 | $0.02 | $0.09 | $0.15 | [Balance Sheets](index=4&type=section&id=Balance%20Sheets) The unaudited Balance Sheets present the company's financial position as of December 30, 2023, and December 31, 2022, detailing assets, liabilities, and stockholders' equity | ASSETS | December 30, 2023 ($) | December 31, 2022 ($) | | :-------------------------------------- | :-------------------- | :-------------------- | | Cash and cash equivalents | $8,813,626 | $8,266,753 | | Accounts receivable-trade, net | $4,389,155 | $3,777,975 | | Accounts Receivable - other | $83,191 | $685,668 | | Inventories, net | $4,581,930 | $4,875,901 | | Prepaid expenses and other current assets | $276,349 | $211,242 | | Total current assets | $18,144,251 | $17,817,539 | | Net property and equipment | $1,556,139 | $1,326,968 | | Right-of-use lease asset | $332,000 | $466,000 | | Deferred taxes, net | $1,569,726 | $2,069,436 | | Total Assets | $21,602,116 | $21,679,943 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Current liabilities: | | | | Note payable, current portion | $46,797 | $43,711 | | Accounts payable | $2,535,086 | $1,836,865 | | Accrued expenses | $1,075,137 | $820,856 | | Deferred revenue | $251,755 | $2,521,128 | | Lease liability, current portion | $160,000 | $157,000 | | Total current liabilities | $4,068,775 | $5,379,560 | | Note payable less current portion | $8,090 | $54,847 | | Deferred revenue – long term | $31,277 | $231,020 | | Long term lease liability | $172,000 | $309,000 | | Total liabilities | $4,280,142 | $5,974,427 | | Total stockholders' equity | $17,321,974 | $15,705,516 | | Total liabilities and stockholders' equity | $21,602,116 | $21,679,943 | [Conference Call Information](index=1&type=section&id=Conference%20Call%20Information) [Conference Call Details](index=1&type=section&id=Conference%20Call%20Details) Details for the upcoming conference call to discuss the fourth quarter 2023 earnings, scheduled for March 7, 2024 - The fourth quarter 2023 earnings call is scheduled for **March 7, 2024, at 9:00 am**[4](index=4&type=chunk) - Participants can dial **1-844-943-2942** using passcode **531915**[4](index=4&type=chunk) - It is recommended to call in **10 minutes before** the scheduled start time[4](index=4&type=chunk) [Safe Harbor Statement](index=2&type=section&id=Safe%20Harbor%20Statement) [Forward-Looking Statements and Risks](index=2&type=section&id=Forward-Looking%20Statements%20and%20Risks) This section serves as a disclaimer, indicating that statements regarding future financial results and prospective applications are forward-looking and subject to various risks and uncertainties, advising investors not to solely rely on these statements, and disclaiming any obligation to update them - Statements about 2024 financial results and prospective applications are **forward-looking** and involve **risks and uncertainties**[12](index=12&type=chunk) - Investors should **not rely on forward-looking statements** as actual results may differ materially due to various factors[12](index=12&type=chunk) - Additional risk factors are detailed in the company's **SEC filings**, including its **Annual Report on Form 10-K**, and the company disclaims any obligation to update these statements[12](index=12&type=chunk)

NORTON, Mass., March 06, 2024 (GLOBE NEWSWIRE) -- CPS Technologies Corporation (NASDAQ:CPSH) ("CPS" or the "Company") today announced financial results for the fiscal fourth quarter ended December 30, 2023. Fourth Quarter Highlights Revenue of $6.7 million for the fourth quarter of 2023 versus $6.1 million in the prior-year period, primarily due to growth in shipmentsGross margin of 17.0 percent versus 26.6 percent in the fourth quarter of 2022, reflecting certain quality issues with a major customerOperati ...

NORTON, Mass., March 04, 2024 (GLOBE NEWSWIRE) -- CPS Technologies Corporation (NASDAQ:CPSH) ("CPS" or the "Company") today announced it has received an award from the Massachusetts Manufacturing Accelerate Program ("MMAP") in response to a proposal submitted by the Company in the fourth quarter of 2023. The award, valued at $200,000, will support the purchase of a 5-axis CNC machine and expand the Company's manufacturing capabilities to better serve its clients. This new capability will build on the Compan ...

NORTON, Mass., March 01, 2024 (GLOBE NEWSWIRE) -- CPS Technologies Corp. (NASDAQ:CPSH) today released instructions for its fourth quarter 2023 investor conference call which will be held on Thursday March 7, 2024 at 9:00 A.M. (Eastern). Brian Mackey, President and CEO and Chuck Griffith, Chief Financial Officer will discuss the Company's financial results for the quarter ended December 30, 2023. Those interested in participating in the conference call should dial: 1-844-943-2942 Participant Passcode: 531915 ...

NORTON, Mass., March 01, 2024 (GLOBE NEWSWIRE) -- CPS Technologies Corp. (Nasdaq:CPSH) today released instructions for its fourth quarter 2023 investor conference call which will be held on Thursday March 7, 2024 at 9:00 A.M. (Eastern). Brian Mackey, President and CEO and Chuck Griffith, Chief Financial Officer will discuss the Company’s financial results for the quarter ended December 30, 2023. Those interested in participating in the conference call should dial: 1-844-943-2942 Participant Passcode: 531915 ...

CPS Technologies Corporation (NASDAQ:CPSH) Q3 2023 Results Conference Call November 2, 2023 9:00 AM ET Company Participants Chuck Griffith - CFO Brian Mackey - President and CEO Chris Witty - IR Conference Call Participants Greg Weaver - Invicta Capital Operator Good day, everyone, and welcome to the CPS Technologies Third Quarter 2023 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Chuck Griffith, Chief Financial Officer of CPS Technologies. Chuck Griffith ...

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This part presents the company's unaudited financial statements, management's analysis, market risk disclosures, and control procedures [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201%20FINANCIAL%20STATEMENTS%20(Unaudited)) The unaudited financial statements show stable assets and lower liabilities alongside a significant year-over-year decline in quarterly net income [Balance Sheets](index=3&type=section&id=Balance%20Sheets) Total assets and stockholders' equity increased while total liabilities decreased by the end of Q3 2023 **Balance Sheet Summary** | Balance Sheet Items | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $18,967,783 | $17,817,539 | | **Total Assets** | $22,511,259 | $21,679,943 | | **Total Current Liabilities** | $5,109,963 | $5,379,560 | | **Total Liabilities** | $5,357,895 | $5,974,427 | | **Total Stockholders' Equity** | $17,153,364 | $15,705,516 | [Statements of Operations](index=5&type=section&id=Statements%20of%20Operations) Q3 2023 revenues and net income declined year-over-year, though nine-month revenues saw a slight increase **Quarterly and Nine-Month Operating Results** | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $6,285,041 | $6,748,117 | $20,803,447 | $20,471,574 | | **Gross Profit** | $1,235,864 | $1,883,241 | $5,676,826 | $5,675,368 | | **Operating Income** | $130,637 | $708,660 | $1,555,727 | $1,925,237 | | **Net Income** | $171,081 | $987,865 | $1,230,785 | $1,862,409 | | **Diluted EPS** | $0.01 | $0.07 | $0.08 | $0.13 | [Statements of Stockholders' Equity](index=6&type=section&id=Statements%20of%20Stockholders'%20Equity) Stockholders' equity grew to $17.2 million by Q3 2023, driven by net income and share-based compensation - **Total stockholders' equity increased by approximately $1.45 million** during the first nine months of 2023, reaching **$17,153,364**[7](index=7&type=chunk) [Statements of Cash Flows](index=7&type=section&id=Statements%20of%20Cash%20Flows) Net cash from operations increased year-over-year, contributing to a higher end-of-period cash balance **Cash Flow Summary (Nine Months Ended)** | Cash Flow Activity | September 30, 2023 | October 1, 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $1,070,533 | $872,153 | | **Net cash used in investing activities** | ($567,349) | ($392,286) | | **Net cash provided by financing activities** | $8,918 | $68,324 | | **Net increase in cash** | $512,103 | $548,191 | | **Cash at end of period** | $8,778,856 | $5,598,503 | [Notes to Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) Key disclosures cover the company's MMC business, a new undrawn credit line, and stable inventory levels - The company's primary business is providing advanced material solutions, mainly **metal-matrix composites (MMCs)**, to various industries[57](index=57&type=chunk) - The company has a **real estate lease for its Norton facility expiring in 2026**, with total future undiscounted payments of $398,000[13](index=13&type=chunk)[14](index=14&type=chunk) - In May 2023, the company secured a **new $3.0 million revolving line of credit**, and as of September 30, 2023, there were **no borrowings** under this line[95](index=95&type=chunk)[38](index=38&type=chunk) **Inventory Composition** | Inventory Type | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Raw materials | $2,781,188 | $2,645,442 | | Work in process | $1,512,835 | $1,863,512 | | Finished goods | $729,359 | $525,872 | | **Inventories, net** | **$4,827,957** | **$4,875,901** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=13&type=section&id=ITEM%202%20MANAGEMENTS%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management attributes a Q3 revenue decline to shipment deferrals, impacting margins, while liquidity remains strong [Overview](index=13&type=section&id=Overview) The company provides custom metal-matrix composite solutions for high-performance industrial applications - The company's products are **custom-made components, not catalog items**, used in systems for high-speed electric trains, radar, and internet switches[109](index=109&type=chunk)[71](index=71&type=chunk) - CPS believes the **underlying demand for its MMC, housing, and armor solutions is growing** as industries seek higher performance and reliability[100](index=100&type=chunk) [Results of Operations](index=14&type=section&id=Results%20of%20Operations) Q3 revenue and gross margin fell due to shipment deferrals, while nine-month SG&A expenses increased 10% - **Q3 2023 revenue decreased 7% to $6.3 million** compared to Q3 2022, mainly because customers moved expected Q3 shipments into Q4[110](index=110&type=chunk) - Q3 2023 **gross profit fell to 20% of sales from 28%** in Q3 2022, reflecting lower revenue and higher outsourced testing costs[25](index=25&type=chunk) - For the first nine months of 2023, **SG&A expenses increased by 10%** compared to the prior year, driven by increased travel, 401k match, and severance costs[102](index=102&type=chunk) - **Net income for Q3 2023 was $171k versus $988k** in Q3 2022, with the difference largely due to an Employee Retention Tax Credit (ERTC) in 2022[35](index=35&type=chunk) [Liquidity and Capital Resources](index=15&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity position strengthened with increased cash reserves and a new undrawn credit line - **Cash and cash equivalents increased to $8.8 million** at the end of Q3 2023, up from $8.3 million at year-end 2022[27](index=27&type=chunk) - A **new $3.0 million revolving line of credit** was established in May 2023, with **no borrowings** as of September 30, 2023[38](index=38&type=chunk) - **Days Sales Outstanding (DSO) increased to 72 days** at the end of Q3 2023 from 52 days at the end of 2022[37](index=37&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=17&type=section&id=ITEM%203%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company reports no significant exposure to market risks and has not used derivative instruments - The Company is **not significantly exposed** to interest rate or foreign currency risks and has **not used derivative financial instruments**[105](index=105&type=chunk) [Item 4. Controls and Procedures](index=17&type=section&id=ITEM%204%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - The CEO and CFO concluded that the company's **disclosure controls and procedures are effective** to ensure timely and accurate reporting[76](index=76&type=chunk) - **No change in internal control over financial reporting** occurred during the most recent fiscal quarter that has materially affected, or is likely to affect, internal controls[115](index=115&type=chunk) [PART II OTHER INFORMATION](index=18&type=section&id=PART%20II%20OTHER%20INFORMATION) This part confirms no new legal proceedings or risk factors and lists exhibits filed with the report [Item 1. Legal Proceedings](index=18&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no current legal proceedings - The company reported no material legal proceedings[106](index=106&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors disclosed in the 2020 Form 10-K have been reported - There have been **no material changes to the risk factors** as discussed in the 2020 Form 10-K[40](index=40&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=18&type=section&id=Other%20Items%20(Items%202,%203,%204,%205,%206)) This section covers other required disclosures, including exhibits filed and confirms no other material events - **Item 2**: No unregistered sales of equity securities[77](index=77&type=chunk) - **Item 3**: No defaults upon senior securities[116](index=116&type=chunk) - **Item 4**: Mine safety disclosures are not applicable[31](index=31&type=chunk) - **Item 6**: Lists filed exhibits, including CEO/CFO certifications and Inline XBRL documents[117](index=117&type=chunk)

Financial Data and Key Metrics Changes - Gross profit for Q2 2023 totaled $2.2 million, representing 30% of sales, compared to $1.8 million or 26% of sales in the previous year, indicating improved factory efficiencies and higher sales [4] - Revenue for Q2 2023 was $7.4 million, a 4% increase from $7.1 million in Q2 2022, marking the best quarter in company history [31] - Operating income increased to $731,000 in Q2 2023 from $669,000 in the prior year, reflecting a 9% growth driven by higher gross profit [10] Business Line Data and Key Metrics Changes - The company reported a balanced mix of business across its product lines, approximately one-third each for armor hermetic packages and AISiC, with a small percentage for R&D projects [21] - A major contract win valued at $1.4 million for hybrid tech armor panels was announced, aimed at enhancing ballistic protection for U.S. Navy ships [33] Market Data and Key Metrics Changes - The company continues to see an active bid environment across all end markets, including opportunities within the Department of Defense [12] - Demand for AISiC remains strong and is trending upward, indicating a positive outlook for the company's market position [13] Company Strategy and Development Direction - The company is focused on leveraging innovative technology and unique applications to accelerate topline growth [8] - There is an ongoing effort to expand reach across military platforms and negotiate long-term agreements with Tier 1 aerospace OEMs [35] - The company is exploring opportunities in the electric vehicle market, particularly in relation to AISiC baseplates, although this segment is still developing [46][58] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the best performance in 2023, despite potential revenue fluctuations in Q3 due to contract and shipping timing [12] - The outlook for 2023 remains strong, with expectations for a robust end to the fiscal year driven by active business development efforts [14] Other Important Information - The company has increased its 401(k) matching formula in 2023, contributing to higher payroll costs [10] - The company ended Q2 2023 with $8.7 million in cash, up from $8.3 million at the end of 2022, primarily due to higher net profit [32] Q&A Session Summary Question: Will SG&A expenses decrease in the next quarter? - Yes, SG&A expenses are expected to decrease as some unique costs from Q2, such as severance payments, are not anticipated to recur [20] Question: Can you provide details on the current mix of business? - The business mix is approximately one-third for each of the main product lines, with a small percentage allocated to R&D projects [21] Question: Any updates on the delayed armor contract with a Southeast Asia customer? - The contract remains active, with expectations for a production qualification shoot tentatively scheduled for mid-September [55] Question: Can you comment on the defense business and electric vehicle involvement? - The defense business is currently more active than the electric vehicle side, with multiple development projects ongoing in aerospace and defense [57]

Chris? Chris Witty Thanks, Chuck, and good afternoon, everyone. Before we begin the business portion of the 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' operations and environment. These uncertainties include, but are not limited to, the war in Ukraine, economic co ...