Allow a couple seconds here for the room to populate. My name's John Franzreb. I'm an analyst here at Sidoti & Company. Our next presentation of the day is CPS Technologies, ticker CPSH. For those who are not familiar with the company, CPS is a manufacturer of high-performance materials for the transportation, automotive, energy, and aerospace and defense markets. We have the fortune to have with us today CEO Brian Mackey and CFO Chuck Griffith. They will do a presentation. Following that presentation, there will be time for questions and answers. If you have a question, please put it in the Q&A box and I'll present it to management. With that said, gentlemen, thanks for being with us this morning. The floor is yours.
Great. Thank you, John, and welcome everyone to the presentation for CPS Technologies. I'm Brian Mackey, joined by Chuck Griffith, our CFO, and we're going to jump right in. Chuck?
Sure. So just some forward-looking statements. Statements made in this presentation that are not historical facts or which apply prospectively, including those relating to 2024 financial results, are forward-looking statements that involve risks and uncertainties. These forward-looking statements are identified by the use of terms and phrases such as will, intends, believes, expects, plans, anticipates, and similar expressions. Investors should not rely on forward-looking statements because they are subject to a variety of risks and uncertainties and other factors that could cause actual results to differ materially from the company's expectation. Additional information concerning risk factors is contained from time to time in the company's SEC filings, including its annual report on Form 10-K and other periodic reports filed with the SEC. Forward-looking statements contained in this presentation speak only as of the date of this release.
Subsequent events or circumstances occurring after such date may render these statements incomplete or out of date. The company expressly disclaims any obligation to update the information contained in this presentation.
Okay. Thank you, Chuck. I'm going to give you a quick background about CPS: our history, our products, our markets, our customers, etc. Again, I'm Brian Mackey, President and CEO. Joined the company about nine months ago. Previously, I was at a different company that also produced and provided specialty materials, in particular for the Department of Defense. Also did a variety of funded R&D, which is very similar to what we do here at CPS. Chuck?
Sure. So I've been with the company for a little over five years now. Prior to that, I was the CFO at a clinical trial testing company, and prior to that was vice president of finance at Vertex Distribution, a manufacturer and distributor of corrosion-resistant fasteners. I've got my MBA.
So even though our company is about 40 years old, we do sort of have the new management sign hanging out front. That's our facility here in Norton, Massachusetts. We're located up in New England, roughly midway between Boston and Providence. Always welcome to have visitors get a good feel for our business if you're able to visit our facility. Quick synopsis of CPS: we do provide material solutions, typically for applications with a high cost of failure, and we'll describe that in a little more detail. Domestically located, microcap. The investor community tends to be interested in the fact that we are a balanced company in a couple of ways, both domestically and international sales, roughly split between U.S. and abroad, as well as our markets, aerospace and defense being roughly half of our business and non-defense being the other half. Quick summary: roughly $25 million market cap.
We were very pleased that last year out of our 40-year history was the best revenue year in the company's history, north of $27 million. You see some other stats there. I want to highlight the fact that we are domestically located, which is a key item for defense customers and our headcount. Even though we're a small business, we're over 100 people, and that does satisfy customer concerns about the longevity of us as a going concern for the robustness of their supply chain. Essentially, we're not a startup. We're going to be here for a long time. We are ITAR compliant and ISO certified, which don't necessarily generate business by themselves but do enable us to compete as necessary elements of what we offer.
I'm going to talk about five focus areas for our company, and we'll go into those in a little bit of detail so you can understand what we do. We do serve diverse markets, which does help during something like COVID. The transportation industry, for example, is a key element of our business. Obviously, during the pandemic, everyone stopped riding electric trains and stopped building electric trains, but our business was able to continue without too much of a glitch due to the balance of our business with other markets. You'll hear about a number of proprietary technologies in these different avenues that we pursue, and we'll go into that in some detail. We do provide solutions for a number of large, robust blue-chip customers.
You see the list there of some of the companies' names that we're able to share, but you get the feel for the fact that we have long-term relationships with a lot of these customers, and we expect that to continue for the long term. Our vision is to provide material science solutions that address mission-critical applications. So again, high cost of failure for some of these applications that we'll delve into. We provide material properties that deliver product performance in two core areas: infiltration of preforms, as well as ceramic or glass-to-metal seals, and we'll talk about those. The infiltration of preforms is used for a variety of applications that I won't dive in here, but a variety of material properties that enable the product performance.
And we'll talk through and give you some examples of that, as well as the ceramic or glass-to-metal seals for our hermetic p ackaging for microelectronics. A lot of intrinsic value for these customers in the materials that we're able to provide. And let's walk through some examples. Metal matrix composites is the first of five areas I want to touch on. At the very far right image, you see the silver base plate, which is the product we provide, and the black component is customer electronics for an electric train. So as that electric train is in use, it's cycling the electronics between AC and DC current, generating a tremendous amount of heat.
For those electronics to continue to work properly, that heat needs to be dissipated, and the base plate that we provide has high thermal conductivity, which takes that heat away from the electronics and allows it to continue to operate. As you can tell, that product on the far right, that's a custom-made piece that is designed to align with those customer electronics. So each of our pieces are custom designed and custom built for a given customer, and we've been doing this for a very long time. You will often throughout this presentation hear about lightweight, high strength, and stiffness. This again is a product that is infiltrated with aluminum to provide the properties that the customer wants.
As one example, we're currently fulfilling a $7.7 million order for power module components for one of our long-term customers, and that order is a 50% increase over the prior year. Hermetic packaging is area number two out of five. You see some of our products in the upper right. Those are roughly the size of a business card, plus or minus in size. So those will house the microelectronics that are used by a customer. They're hermetically sealed to prevent dust, debris, and other contamination from fouling those electronics. And again, you see these applications, whether it's avionics or satellites, with a high cost of failure. Obviously, once those microelectronics are installed and in use, they're not going to be serviced. They're not going to be repaired. They need to work properly every time.
They do so because of the seals that we're able to provide in these products. We ship those to the microelectronics manufacturers for them to complete their assembly. One unique offering that we have is this page and the prior page. We actually combine those two capabilities to make hermetic package products that incorporate metal matrix composites for some unique product attributes. One of the things we've done recently is, in response to customer requirements over a number of years, we're adding 5-axis machining capability using some money that was available from the state of Massachusetts, and we'll be installing that this quarter to broaden our product line for some of these longstanding customers. Area number three of five: HybridTech Armor. Again, this is a product that is infiltrated with aluminum to deliver unique product attributes.
In this case, instead of thermal conductivity, the result is high ballistic performance. So you have the ceramic tile in this cartoon with aluminum and fiber around it that are compressing that tile to provide a difference in ballistic performance. So that ceramic tile is part of an armor strike face and an armor panel that is stopping a ballistic threat from a high-speed projectile. So you see some of that in the image on the right. That white piece is a piece of ceramic tile, and around it are some of these other elements that we manufacture. And this is currently being provided to the United States Navy by CPS to be installed on all U.S. Navy aircraft carriers.
So if you think about a Navy sailor on the edge of that ship with a machine gun, that sailor needs to be protected with an armor panel, and that's exactly what we're providing. A little bit more detailed image here. But again, high ballistic protection from heavy kinetic threats. You're talking about high-speed projectiles, large ballistic threats, but also with a lightweight that is of value to the Navy and other potential customers because you're using ceramic tile and aluminum instead of what you would need to have, which might be many inches of steel, would be an alternate option to provide similar ballistic protection. We're now having our first set installed on the USS Abraham Lincoln, the first Navy aircraft carrier. The Navy will continue to install these panels over time. It's been a nice order for us.
The downside of that is it's currently coming to completion this quarter. We're working with the prime contractor, who we are a sub to, to pursue other opportunities for other Navy vessels and other applications. But at the moment, we are in the process of completing that active order by shipping all the panels needed for the Navy aircraft carriers. Topic number 4: Fiber-Reinforced Aluminum. Again, this is aluminum infiltration, but the preform is fibrous. So in this bottom right image, it looks like pieces of aluminum. Those actually have fiber within them that are comprised within that aluminum. And that could be for something like a bearing liner or other component. In this application, that's a helicopter motor housing. Could be used in a drone or other applications where high strength is valuable, as is lightweight. Clearly, any aerial application that's going to be of interest.
Some of the charts at the bottom left, you see improved wear resistance. This material just doesn't wear and go away over time, even compared to cast iron or steel. The right-hand chart, you see that Fiber-Reinforced Aluminum, even at elevated temperatures, has higher strength than these various aluminum alloys it's compared to. So key material properties that are of interest to these customers. We signed a global exclusive licensing agreement for this material just 2 months ago from Triton Systems, the owner of the patent and related technology for FRA. So we are now ramping up our production capability. And this quarter, we expect to be making our first FRA within our facility here in Norton with limited CapEx because this builds upon the capabilities we already have to satisfy these customers with FRA composites. And finally, number 5: advanced research.
We do a variety of internal R&D as well as funded R&D to satisfy customer requirements. CPS was not involved with SBIRs for about the last 30 years, but recently got back into it as a means of developing solutions as defined by these customers, the DOD and the DOE in particular. And since we got back into SBIRs, we have 5 funded awards, which we're very proud of, that are using our material capabilities to satisfy customer requirements. So you see, for example, tungsten warhead with controlled fragmentation. That uses our metal injection molding know-how to make that warhead you see in the first picture. Radiation shielding comprised of, again, aluminum, but also with boron carbide and tungsten. I'll talk about that more in a second. The third image is a microscopic—that's actually an image, not a drawing—of nitinol wires comprised within an aluminum matrix for thermal energy storage.
So some of the things we have going on. Again, as I mentioned, Fiber-Reinforced Aluminum is ramping up. 5-axis machining is being installed. But more recently, we're very excited about the fact that this Phase I SBIR, the bottom item on that list, had very promising results. And we were asked to present these results at the Idaho National Laboratory just last month. So we are providing radiation shielding for nuclear reactors. So what we were able to do in that middle picture at the top of the page was provide radiation shielding that demonstrated performance for gamma protection, similar to concrete or lead, but with a reduction in mass of more than 55%. So that was originally targeted at transportation applications.
If you think about a truck with a microreactor on the back of it being transported across the country, this would be secondary shielding of essentially the truck outer shell to provide radiation shielding. But given the dramatic reduction in weight, we're also seeing interest from applications that are stationary. If someone's building a structure or a building or a test facility, the ability to reduce their construction costs with less concrete and other shielding materials is of interest. So we're pursuing that aggressively. Quick note about SBIR data rights. If you're not familiar, I won't go into all the detail here. But the takeaway is, sometimes an overlooked value of SBIR data is the fact that by completing the SBIR and being selected for award, you satisfy the government's requirement for competition.
You can be sole-sourced after that if you deliver the materials that are needed by the customers as defined in the SBIR topic. Those data rights and that ability to be sole-sourced without further competition would also theoretically pass along in the event of an acquisition, even by a prime defense contractor or other OEM, that does not satisfy the requirements of a small business. Beyond the small amount of money for SBIRs, we're more excited about the potential for long-term value for our shareholders that may come about through some of the products that we're working on with SBIR funding. In summary, that's the five product areas or areas of focus that we have, the first four being product lines, the fifth being continuing to populate our product portfolio to respond to customers.
We see it in two ways: maintaining what we have and maintaining our competitive advantage, but also developing for both the near-term future and the long-term future. These five areas require different strategies for each. So that's what we have for the five of them: both the maintenance of what we have today, as well as developing things to satisfy customer requirements going forward, most particularly with our product development and R&D efforts, whether they're funded or internal, a variety of things that we're excited about. I'll pass it now to Chuck talk a little bit about our financials. Okay. Thank you, Brian. So what you're seeing here is the income statement. We just filed our 10-Q yesterday and announced these results last week. As you can see, the sales are down from last year.
That was mainly because we've had this quality issue with one of our products, and we had to divert a lot of production to that testing. It reduced the products available for sale and obviously also increased the cost of product sales. We are cautiously optimistic that we've resolved these issues. We continue to do a little bit more testing in the second quarter, but again, we think that we may have this completely resolved. On the good front, our SG&A expenses are solidly under control. We knew that this quarter would not be particularly good, and so we did, I think, a pretty good job of trying to get our other expenses under control so that we would minimize the losses that we incurred. On the balance sheet, we have an excellently strong cash position. We have minimal debt, just $43,000.
Our current ratio is really good at 4.8. That's an improvement compared to last or the end of 2024, last quarter, of 4.5. The industry average of our industry is about 2.3. So we think we're in really, really good shape there. And what that allows us to do is it gives us the resources for taking advantage of opportunities that we see down the road. Brian mentioned that on the FRA, we don't expect a whole lot of capital equipment investment in order to move forward with that. But at the same time, if it did require it, we'd be in a position to be able to do it. And in terms of the cash, we did go down slightly compared to December. Obviously, these are just snapshots. But I'll just point out that our PP&E increased by more than the cash went down.
So we have been investing in areas that we think are going to help our future growth.
John, at this point, I think we can open it up for questions for the Q&A.
Okay. If you have a question, please enter in the question and answer box, and I'll present it to management. I think I'll start things off here. Gentlemen, you talked about four product lines. Which product line do you think has the most revenue potential, and what kind of timeline would you put to that?
Yeah. I think of the 4 product lines, they each have sort of their own story and their own trajectory. We've been in metal matrix composites and hermetic packaging for the longest. We see both of those as growth opportunities, probably on a more modest trajectory. For example, with hermetic packaging as an example, that 5-axis machining, we know what that's going to open up for us. That's one example of something that's going to be able to grow some percentage over the trajectory that we're already on. And MMCs, some of these customers, as we indicated with the $7.7 million order, they might buy once a year. They may augment that as the year plays out, but we can kind of have a good long view of that. Armor, on the other hand, is definitely a lumpier item.
We're excited by the opportunities that we have there, but the fulfillment of the order for aircraft carriers is coming to a close. So we're talking to the Navy actively about things like the destroyer vessels and their need for ballistic shielding. And that's an active conversation. We just don't have anything that we can say we have in hand at the moment. FRA is something we're just starting to literally make the first piece of, and we will be working to replicate the results demonstrated by Triton when they generate the patents and the intellectual property. So that has a potentially more significant growth trajectory, but that will play out over time. You can imagine if you're building a drone, you're going to want a few pieces to test. You're going to do material testing.
You're going to do more advanced testing with a system later before you get into volume. So that's a different item altogether. But each of those has a story, and we're working on all of those to continue to grow the business going forward. Chuck, anything you want to add to that, or?
No, I think you've covered that.
I think that was good. I think.
Brian, just to follow up.
HPB, I think, is the one that has the most immediate.
Yeah, that's right.
Hermetic Packaging has the most immediate potential for quicker growth.
Right. Just to follow up on something you said, if you get the armor on a destroyer, would that be a retrofit, or would that be only on new builds?
It's both. The Navy builds 2 new destroyers per year, but they have 80+ vessels at sea right now of the destroyer class. What they would do is they would cycle those through when they come back into port. We're also working on an offering that would be a package through Kinetic Protection, which is our partner. They're the contractor with a subcontractor, where it will be a kit provided to the Navy if they're interested in that. That could be shipped around the world, and it doesn't need to be a vessel that comes back to the U.S. There's a variety of ways we're pursuing that to meet the needs of the Navy. The fundamental answer to your question is retrofit as well as new builds going forward.
Okay. The questions start on a build here, so let's see if we get to a couple of them. Start with, what's your capacity for additional growth? How do you think about the intensity of expenses and capital needed to pursue your growth objectives?
Yeah, that probably, again, comes back to each of our product lines. Hermetic packaging, I mean, we run two shifts here. Our second shift is roughly 30%-50% consumed. So we have growth opportunities there without any capital expenditures. MMCs is similar. It's a matter of making better use of the second shift that we have to support growth. The drop-off in armor production, which may come back at any time, enables us in the short term to remove those resources to produce Fiber-Reinforced Aluminum. And the nice thing about FRA is that fundamentally, the equipment needed to make prototype pieces is really the equipment that we already have, either that we already have received from Triton, the licensor, or our own infiltration equipment that we already have in our facility here in Massachusetts. There would be a CapEx requirement to move FRA to large volumes.
It'd be a good problem to have, but as that plays out and we see market demand, that might be a CapEx requirement later on.
Fair enough. Combine a couple of questions here. In regards to business targets, either on revenue growth or profitability, can you maybe surprise us of what kind of timeline you're thinking about as far as getting to a profitable bottom line?
Yeah. Glad you asked the question because it's important to talk about 2024, which we will have a down year this year with the drop-off in armor. At present, as FRA gets off the ground, MMC and HP, or hermetic packaging and metal matrix composites, they continue. They are growing this year relative to last. But with armor effectively going to zero, it was a full quarter in Q1. It was a partial quarter in Q2, and then it will go to zero. So this year, we expect to have a down year for top line with that drop-off. And Chuck, I don't know if you want to elaborate on that a little bit or add to it.
Yeah. I think we're working towards being profitable over the last three quarters. Obviously, we weren't in the first quarter, but it'll be marginal at best, I think. But that's basically what we're looking to do.
Yeah. I think 2024 is kind of a reset year. And then with these growth opportunities playing forward, with or without armor and these other things, we'll continue to grow into 2025.
And let me also add that in terms of growing the company, there are other expenses that are not capital expenses that we're incurring. And we know that if the goal was to be profitable, and that was the number one goal, there are certain expenses that we could cut out and be profitable, but we don't want to because they are going to help in the growth of the company. And one quick example is we have three more engineers today than we did in the first quarter of 2023. And those folks are a valuable addition to our ability to develop new products and things of that nature. And we're more than happy to incur that expense with the idea that could give us significant growth in the future.
Yeah. We see those salaries as non-CapEx investment. And one of the examples of the way that has played out is in Q1 of this year, one of the key elements for hermetic packaging is how many new first articles we provided to customers. That's essentially a sample product, first five or 10 pieces, which they'll test and then ideally come back for volume. So in first quarter of 2023, we provided two first articles to customers for them to test. And in first quarter of this year, we provided eight first articles, again, planning seeds for the future. And that's sort of the payoff from those additional engineers that Chuck mentioned.
Regarding the product lines, is the contribution margin similar across the product lines, or is one more beneficial to P&L than the other?
There is a difference. I think the biggest issue, I think, is really the revenue and the covering of fixed costs because we have certain fixed costs that it doesn't matter if we make $1 million or $10 million in a quarter, that fixed cost isn't going to change. And I think that's really the biggest chunk of the margins. As I said, we do have a little we'd probably do a little better in armor and then MMC and then HPB, but it's not it's really more a function of how much total volume we're getting out of these different groups, I think.
Okay. A couple of questions here on the quality control issue that you touched on. Can you go into it in greater detail? Is the issue fully resolved, and were there any changes in the quality control?
Yeah. Let me jump in on that. That's a good question. I'm glad you brought that up. There's a couple of products that we provide to one customer that are all processed in the same fashion. The defect that we identified is limited to the way those products are processed. They don't have the ability to sort of cross boundaries into other products that we make. We saw a significant defect rate last year. We took a number of actions to identify root cause and implement changes accordingly. The customer is now reporting a dramatic reduction in those defects. We're highly confident that we're getting to the bottom of things.
I like to say that my phrase is, "We're not quite ready to spike the football, but we're very confident that we're to the bottom of it and we're implementing these things and continuing to stay on top of that to ensure it doesn't come back, to eliminate that last little bit of percentage likelihood that it might." We're seeing very positive results. It has taken a number of resources away from production when you have manufacturing engineers working on things and literally making products in new ways that are then not able to be sold because they're not made in an approved manufacturing process. That's cost that we're incurring to make sure that we've solved this problem. That'll continue to run its course. We don't expect it to come back. We think we've gotten to the bottom of that.
That remains to be proven by the actions that we continue to take. But it did have a cost, and it both last year and this year, both with returns from that customer and the internal cost of the root cause analysis that I just mentioned.
Okay. Thank you for that. Question about the Triton agreement. How long does the licensing agreement last for the FRA with Triton?
There's no end to that license as long as we continue to perform. Triton was highly motivated, and we were as well. That came together fairly quickly. There had been discussions with Triton in the past, but there were concerns about intellectual property and things like that because this is a place that we operate. As I discussed, the infiltration with aluminum of various products. But we were able to sidestep those concerns in this discussion. But that product line suits our customers very well because it addresses their needs, and it's product that we're able to produce. So that agreement is written very much leaning toward us maintaining that license and that relationship. And we expect to be doing that for many, many years to come.
Question on backlog. How much do you currently have, and how much of that is armor?
We do not have armor backlog at this point. But as Brian talked about, we're certainly actively talking to our customer who is working with the Navy to try to change that. There are some other areas as well of armor besides the Navy contract that we're also working on. We expect that there will be a small amount of armor regardless of the Navy going through for the rest of the year. We just haven't received orders for it yet, but we fully expect that we will. And then in terms of the rest, basically, we're taking orders now for the most part. We're taking orders now for Q3. So we're still bringing orders in for Q3. Obviously, as Brian mentioned earlier, we have some customers that are going to give us an order for the entire year, but the main one is through September at this point.
So even their next order will be for the year starting October 1st and going through September of 2025. So I think we're in fairly good shape with our backlog right now.
All right. Gentlemen, we are out of time. Brian and Chuck, any closing remarks?
No, thanks, everyone, for joining. We've got some one-on-ones available. If anyone has follow-up questions that we can address, we'd be happy to do it in that format. Thank you.
All right. Thank you, everyone, and have a great day.
Thanks.