10-K: CPS Technologies Corp. Reports 24% Revenue Decrease in 2024 Due to Armor Contract Completion

CPS Technologies Corp. experienced a 24% decrease in revenue in 2024, primarily due to the completion of an armor contract, despite increased revenue from AlSiC baseplates.

Summary

• CPS Technologies Corp. reported a 24% decrease in total revenue, from $27.6 million in 2023 to $21.1 million in 2024.
• The decrease is primarily attributed to the completion of an armor contract in April 2024, which was partially offset by increased revenue from AlSiC baseplates.
• The company's gross profit decreased to $(0.1) million, or (1)% of sales, compared to $6.8 million, or 25% of sales, in the previous year.
• Selling, general, and administrative (SG&A) expenses decreased to $4.3 million from $5.1 million in 2023.
• CPS Technologies Corp. reported an operating loss of $4.4 million in 2024, compared to an operating income of $1.7 million in 2023.
• The company recorded a net loss of $3.1 million in 2024, compared to a net income of $1.4 million in 2023.
• Cash and cash equivalents decreased from $8.8 million in 2023 to $3.3 million in 2024.
• The company has a backlog of $26 million as of December 28, 2024, which is mostly scheduled to ship in 2025.
• The company's top three customers accounted for 57% of revenue in 2024.
• Approximately 70% of the company's revenues were derived from commercial applications and 30% from defense-related applications in 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are some positives, such as decreased SG&A expenses and a healthy backlog, the significant decrease in revenue and profitability, along with the operating and net losses, weigh heavily on the overall sentiment.

Positives

• Selling, general, and administrative (SG&A) expenses decreased to $4.3 million from $5.1 million in 2023.
• The company has a backlog of $26 million as of December 28, 2024, which is mostly scheduled to ship in 2025.
• Inventory turnover increased to 4.8 times in 2024 from 4.3 times in 2023.
• The company secured funding for its first two Phase II SBIRs in 2024.
• The company has a line of credit of $3.0 million with Rockland Trust Company, with $0 borrowed as of December 28, 2024.

Negatives

• Total revenue decreased by 24% to $21.1 million in 2024.
• Gross profit decreased to $(0.1) million, or (1)% of sales.
• The company reported an operating loss of $4.4 million in 2024.
• The company recorded a net loss of $3.1 million in 2024.
• Cash and cash equivalents decreased from $8.8 million in 2023 to $3.3 million in 2024.

Risks

• The company has a highly concentrated customer base, with three customers accounting for 58% of revenue in 2024.
• The lengthy and variable sales cycle makes it difficult to predict financial results.
• Fluctuations in foreign exchange rates can negatively impact the company's ability to compete against foreign-based competitors.
• Dependence on outside vendors to perform particular steps in the manufacturing process could negatively impact the company.
• The company's success is highly dependent on managerial contributions of key individuals, and the company may be unable to retain these individuals or recruit others.
• Business or economic disruptions or global health concerns could seriously harm the company's business.
• Changes in trade policy could seriously impact the company's business.
• Acquisitions can result in an increase in operating costs and divert management's attention.
• The conditions of the markets in which the company operates are volatile.
• The company faces significant competition and is relatively small in size compared to some of its competitors.
• Manufacturing interruptions or delays could affect the company's ability to meet customer demand and lead to higher costs.
• Continued growth could result in the need to move or expand facilities, which could be costly.
• The company has made investments in its proprietary technologies, and if third parties violate these rights, it could result in costly litigation.
• The price of the company's common shares is volatile and could decline significantly.
• Cyber-attacks could result in substantial costs, liabilities, reputational harm, and disruption to operations.

Future Outlook

CPS management believes their business model of providing advanced material solutions to a portfolio of high growth end markets in various stages of the technology adoption lifecycle provides CPS with the opportunity for sustained growth and a diversified customer base. The Company expects it will continue to be able to fund its operations during 2025 from existing cash balances and profits.

Management Comments

• CPS management believes our business model of providing advanced material solutions to a portfolio of high growth end markets in various stages of the technology adoption lifecycle provides CPS with the opportunity for sustained growth and a diversified customer base.
• We believe we have validated this model as we are now supplying customers at all stages of the technology adoption lifecycle.

Industry Context

CPS operates in the advanced materials solutions market, providing metal matrix composites for various industries including transportation, automotive, energy, computing/internet, telecommunications, aerospace, and defense. The company's products are used in high-speed trains, electric vehicles, wind turbines, and satellite applications. The industry is driven by the need for higher performance, higher reliability, and reduced costs, particularly in applications with a high cost of failure.

Comparison to Industry Standards

• CPS's primary direct competitor in MMCs is Denka, a large chemical company based in Japan.
• The company also faces competition from manufacturers in China seeking to penetrate its markets, though they have generally not been able to provide the delivery, performance, quality, and reliability required by the market.
• In the hermetic packages market, CPS competes with companies such as Egide, Ametek, and Qnnect (formerly Hermetic Solutions Group).
• The company does not currently have orders to produce its HybridTech Armor panels as the aircraft carrier order has been completed, and it competes with alternatives to its HybridTech Armor which involve tradeoffs regarding cost, weight, anti-ballistic properties, etc.

Legal Proceedings

• We are not a party to any litigation which could have a material adverse effect on us or on our business.

Stakeholder Impact

• The company's financial performance impacts shareholders through stock value and potential dividends.
• Employees are affected by the company's ability to provide competitive wages and benefits.
• Customers rely on the company to provide high-quality products and services.
• Suppliers are impacted by the company's ability to pay for raw materials and components.
• Creditors are affected by the company's ability to meet its financial obligations.

Next Steps

• The company intends to continue to apply for domestic and foreign patent protection in appropriate cases.
• The company expects it will continue to be able to fund its operations during 2025 from existing cash balances and profits.
• The company continues to work with Kinetic Protection, the Navy's prime contractor, to get new orders for other classes of Navy ships.
• The company is working towards full compliance with NIST 800-171 as well as CMMC compliance to mitigate cybersecurity risks.

Key Dates