CPS Technologies Corp. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; the comparable fiscal year ended December 25, 2021. FY2022 comprised 53 weeks versus 52 weeks in FY2021. The company designs and manufactures custom metal matrix composite components, hermetic packages, and armor for electronics, transportation, energy, aerospace, and defense markets.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $26.6 million | $22.4 million |
| Gross profit / margin | $7.3 million / 27% | $4.8 million / 21% |
| SG&A | $5.1 million | $4.3 million |
| Operating income | $2.2 million | $0.5 million |
| Income before taxes | $2.9 million | $0.5 million |
| Net income | $2.1 million | $3.2 million |
| Diluted EPS | $0.15 | $0.22 |
| Operating cash flow | $3.6 million | $2.0 million |
| Cash and cash equivalents at year-end | $8.3 million | $5.1 million |
- Revenue increased 19%, primarily from armor sales (which began in May 2021) and recovery in business from a major customer affected by COVID-19 in 2021. Improved gross margin and operating income mainly reflected higher sales spreading fixed costs over more volume.
- Net income declined despite stronger operating results. FY2021 included a $2.8 million tax benefit from reversal of a deferred-tax valuation allowance; FY2022 recorded a $0.8 million income-tax provision. FY2022 also reported $0.7 million of other income; the filing does not clearly identify its full composition. The company filed for an Employee Retention Tax Credit of approximately $641,000, recorded as an other receivable at year-end.
- Fourth-quarter revenue was $6.1 million, down 2% year over year, due mainly to shipments delayed by plating vendors. Gross profit rose to $1.6 million from $1.4 million; operating income was $0.3 million in both periods, and net income was $0.3 million versus $0.2 million.
- Operating cash flow was $3.6 million. Capital spending was $0.4 million, and cash increased by $3.2 million. Accounts receivable fell to $3.8 million from $4.9 million; inventory rose to $4.9 million from $3.9 million, partly reflecting large orders scheduled to ship in early 2023.
- Total liabilities were $6.0 million. Notes payable totaled about $99,000; the company had no borrowings on its $3.0 million revolving credit line, with borrowing-base availability of $2.9 million. The line is secured by company assets and includes a demand note that may be called by the lender. The company reported no off-balance-sheet arrangements.
Material developments, outlook, and risks
- Backlog was $22 million at December 31, 2022, mostly scheduled for shipment in 2023. Orders may be cancellable in some circumstances. Most sales are custom products, and customers generally provide non-binding forecasts rather than long-term volume commitments.
- Management expected to fund 2023 operations from existing cash and profits. This is not quantified earnings guidance. Management cautioned that loss of a major customer or vendor could require external financing.
- Management cited growth opportunities in electric and hybrid vehicles, wide-band-gap semiconductor applications, hermetic packages, and armor, and resumed participation in SBIR/STTR research programs in 2022. These opportunities depend on customer qualification, design wins, and future orders; the filing provides no specific revenue or earnings forecast.
- Customer concentration is significant: the three largest customers generated 53% of FY2022 revenue, versus 51% in FY2021. Their individual shares in 2022 were 21%, 17%, and 15%. Customer order changes, delays, cancellations, or pricing pressure could materially affect results.
- Other disclosed risks include lengthy and variable sales cycles, volatile demand, competition and pricing pressure, supply-chain or manufacturing interruptions, inflation and wage costs, difficulty hiring and retaining skilled employees, dependence on proprietary technology, cyber risks, and possible facility constraints if growth continues.
- The Norton, Massachusetts facility lease runs through February 2026; management said growth could require relocation, expansion, or a second facility. No material adverse litigation was reported. The independent auditor issued an unqualified opinion and reported no critical audit matters; management assessed disclosure controls and internal control over financial reporting as effective, without auditor attestation of internal controls.
Key facts for investors to verify
- Whether the $22 million backlog converts to shipments and revenue as scheduled, and whether any orders are canceled or delayed.
- The status and collection timing of the approximately $641,000 Employee Retention Tax Credit receivable and the composition of FY2022 other income.
- Customer concentration, order trends, and the company’s ability to replace business if a major customer reduces or ends purchases.
- Whether higher inventory, production capacity, and the Norton facility can support expected demand without additional financing.
- The terms and availability of the revolving credit facility, including the lender’s demand right and covenant waivers.