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CPS TECHNOLOGIES CORP/DE/ (CPSH)·Q4 2024 Earnings Summary

Executive Summary

  • Revenue rose 40% sequentially to $5.93M, though down year-over-year due to the completed U.S. Navy HybridTech Armor® contract; gross margin was -4.6% and EPS was $(0.07), with margin pressures from third-shift ramp and training costs .
  • Capacity expansion (added third shift) and the finalized ~$13.3M power module components contract position CPS for stronger 2025 shipments; management highlighted higher backlog and improving operations as catalysts for a return to profitability .
  • Product portfolio expansion advanced: first commercial radiation shielding sale and three new Army Phase I SBIR awards (each $250k, 6 months), bringing externally funded programs to six (five SBIRs) .
  • Near-term investment narrative: margin recovery as nonrecurring ramp costs subside, continued strong demand in MMC and hermetic packaging, and potential additional armor orders over time supporting upside optionality .

What Went Well and What Went Wrong

What Went Well

  • “Revenue rose 40% sequentially from the third quarter, due in large measure to an added third shift and increased production capacity,” demonstrating execution on throughput and shipment cadence .
  • Ongoing power module engagement finalized to ~$13.3M for Oct–Sep delivery; “the increased demand for our core products… including our ongoing $13.3 million power module contract, bolsters our outlook for 2025” and management confirmed the 12‑month period and ramp underway .
  • Portfolio expansion momentum: first commercial order for radiation shielding and three new Army Phase I SBIRs support new markets (vehicles, aircraft, munitions) and validate CPS’ external funding strategy .

What Went Wrong

  • YoY contraction from armor completion: Q4 revenue $5.93M vs $6.75M in Q4 2023; gross margin fell to -4.6% vs 17.0% last year, as lower volumes reduced scale and third‑shift startup/training weighed on efficiency .
  • Profitability headwinds: Q4 operating loss $(1.32)M and net loss $(1.00)M; management cited nearly ~$600k of nonrecurring ramp costs in Q4 and ~$200k unexpected labor costs, plus yield issues impacting scrap and cost absorption .
  • Armor program visibility: while Kinetic Protection remains cautiously optimistic, budget uncertainties mean timing for additional naval ship classes is not assured, keeping near-term revenue mix more reliant on core MMC and hermetic packaging .

Financial Results

Quarterly Comparison (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$5.03 $4.20 $5.93
EPS ($USD)$(0.07) $(0.07) $(0.07)
Gross Margin %(4.6)% (12.0)% (4.6)%
Operating Income ($USD Millions)$(1.31) $(1.50) $(1.32)
Net Income ($USD Millions)$(0.95) $(1.00) $(1.00)

Notes:

  • Management stated Q4 revenue rose 40% sequentially vs Q3, consistent with $4.20M → $5.93M .

Q4 YoY Comparison (Q4 2024 vs Q4 2023)

MetricQ4 2023Q4 2024
Revenue ($USD Millions)$6.75 $5.93
EPS ($USD)$0.01 $(0.07)
Gross Margin %17.0% (4.6)%
Operating Income ($USD Millions)$0.14 $(1.32)
Net Income ($USD Millions)$0.14 $(1.00)

KPIs and Balance Sheet Snapshot (oldest → newest)

KPI ($USD Millions)Q2 2024Q3 2024Q4 2024
Cash and Equivalents$6.31 $4.70 $3.28
Marketable Securities$0.76 $1.00 $1.03
Accounts Receivable (Trade)$4.06 $3.70 $4.86
Inventories$4.12 $4.40 $4.33

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal Financial Guidance (Revenue, EPS, Margins)FY2025None providedNone providedMaintained (no formal guidance)
Operational OutlookFY2025N/AManagement expects revenue growth and margin improvement as ramp costs subside; capacity at three shifts; ongoing $13.3M contract through SepQualitative positive

No explicit quantitative guidance ranges were provided; management commentary emphasized sequential growth, backlog, and margin recovery drivers .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
Capacity and LaborQ2: Tight local labor, ingredient shortage; third shift planned; scrap on gold‑plated hermetic skewed margins Third shift operational; sequential +40% revenue; nonrecurring ramp/training costs compress margins, expected to fade Improving throughput; margin recovery expected
Armor ContractQ2/Q3: Completion a known ~$2M/quarter headwind; cautious optimism for future naval orders YoY down from armor completion; optimism remains but acknowledges DC budget challenges Optionality; timing uncertain
Power Module ComponentsQ3: ~$12M award announced to ramp shipments over 12 months Finalized ~$13.3M for Oct–Sep; active fulfillment since Oct Strengthening core demand
SBIR/R&DQ2: Navy NAVAIR Phase II (~$1.1M/24 months); radiation shielding Phase II proposal; FRA trials Three new Army Phase I SBIRs ($250k each/6 months), first commercial radiation shielding order; NAVAIR composites program ongoing through Q3’25 Accelerating external funding and commercialization
Product Portfolio ExpansionQ2/Q3: FRA manufacturing trials; 5‑axis CNC commissioned for hermetic packaging FRA progressing to aerospace samples later in 2025; first radiation shielding sale; 5‑axis shipments expected early summer Broadening end markets

Management Commentary

  • “With improved top-line performance in the fourth quarter… as well as higher backlog, we are positioning the company for stronger results going forward… As revenue continues to rise and our operations improve, we are well on our way to being profitable once again.” — Brian Mackey, President & CEO .
  • “Specifically… our $13.3 million contract… to provide power module components through September… increased production capacity… has materialized into greater shipping volumes to this and other key customers.” — Brian Mackey .
  • “We reported a gross loss… approximately negative 4.6%… various nonrecurring costs… totaling nearly $600,000… ramp‑up of production volumes… additional labor, training expense and other inefficiencies.” — Charles Griffith, CFO .
  • “First commercial order for radiation shielding… a strong endorsement for our technology… even though we have 18 months of funded development work remaining, we are in parallel now executing on a radiation shielding product order.” — Brian Mackey .

Q&A Highlights

  • Radiation shielding markets: near‑term interest beyond trucking (facility retrofits, aerospace/satellite radiation risk), with order under $100k potentially leading to larger follow‑ons; certification and application path will take time .
  • SBIR munitions pathway: Phase I proof‑of‑concept now underway leading to potential ~$1.0–$1.1M Phase II over ~24 months and sole‑source commercialization if successful, illustrating strategic value of SBIRs .
  • Margin headwinds drivers: third‑shift training, initial turnover, ~$200k unexpected labor and yield/scrap issues (especially base plates), expected to diminish as operators gain experience .
  • Armor testing: ongoing development to restore ballistic performance to customer specifications across varying test matrices; opportunity remains but timing uncertain .

Estimates Context

  • Wall Street consensus (S&P Global) for CPSH was unavailable for this period; therefore, comparisons to consensus cannot be provided. If/when coverage is available, we would expect revenue estimate revisions to reflect sequential ramp and contract fulfillment, and margin trajectory to incorporate the removal of nonrecurring ramp costs as highlighted by management .
  • Note: We attempted to retrieve S&P Global consensus; data was not available in our session. Where estimates appear in future drafts, values will be from S&P Global.

Key Takeaways for Investors

  • Sequential recovery is underway: Q4 revenue +40% q/q on three‑shift throughput; continued capacity scaling should aid 2025 shipments and operating leverage .
  • Core demand visibility improved: ~$13.3M power module contract through Sep, with deliveries already in progress; expect sustained volumes across rail, wind, EV/HEV end‑markets .
  • Margin inflection set up: ~$(0.6)M nonrecurring ramp costs plus yield/labor impacts should abate over coming quarters, supporting gross margin normalization vs Q3 lows .
  • Portfolio expansion de‑risks mix: first radiation shielding sale and multiple Army SBIRs open new verticals (munitions, vehicle efficiency), alongside NAVAIR composites work through Q3’25 .
  • Armor remains an option: while YoY comps are pressured, potential follow‑on orders for other naval ship classes could provide upside; timing subject to budget dynamics .
  • Balance sheet adequate for ramp: $3.28M cash and $1.03M marketable securities at year‑end; working capital supports increased production and shipments .
  • Trading lens: near‑term catalysts include evidence of yield improvements and margin recovery, radiation shielding traction, and updates on SBIR Phase II progress; watch for any Navy/Kinetic Protection developments to reintroduce high‑margin armor mix .