CPS Technologies Corp. — Q1 2023 Form 10-Q
Business context and reporting period. The company makes custom advanced-material products, including metal-matrix composites, electronic housings and packages, and lightweight armor. This unaudited report covers the fiscal quarter ended April 1, 2023; comparisons are with the quarter ended April 2, 2022 unless otherwise noted.
Financial performance and position
| Metric | Q1 2023 | Prior-year quarter / comparison |
|---|---|---|
| Revenue | $7.10 million | $6.65 million; up 7% |
| Gross profit (margin) | $2.24 million (31.6%) | $1.96 million (29.5%) |
| Operating income (margin) | $694,000 (9.8%) | $547,000 (8.2%) |
| Net income | $459,000; $0.03 per basic and diluted share | $419,000; $0.03 per share |
| Operating cash flow | $(719,000) | $(379,000) |
| Capital expenditures | $177,000 | $95,000 |
Cash was $7.37 million at April 1, down from $8.27 million at December 31, 2022. Current assets were $17.78 million and current liabilities $4.81 million. Total liabilities were $5.13 million, including $87,863 of note payable and $433,000 of lease liabilities. The company had no line-of-credit borrowings and reported $3.0 million of borrowing capacity under its borrowing base; it was in compliance with covenants.
Material changes and management commentary
- Management attributed revenue growth to recovery at a major customer affected by the pandemic and increased U.S. Navy armor shipments.
- Gross margin improved, which management linked to manufacturing-efficiency efforts and higher volume spreading fixed costs over more sales.
- SG&A rose to $1.55 million from $1.42 million, primarily due to increased travel and higher payroll costs following an increase in the 401(k) match.
- Operating cash use reflected working-capital movements, particularly increased receivables and lower deferred revenue. Trade receivables were $4.71 million; total receivables, including other receivables, were $5.41 million. DSO rose to 60 days from 56 days at year-end. Net inventory declined to $4.69 million from $4.88 million.
Outlook, risks and other items
No specific numerical revenue or earnings guidance was provided. Management said it expects to fund operations for the remainder of 2023 from operations and existing cash, and believes cash balances will cover requirements for the foreseeable future, while noting this depends on performance and customer demand.
Risks highlighted include dependence on a limited number of customers—the loss of one could require external financing—and uncertainty over passing inflation-driven material, wage and other cost increases to customers, particularly under annual pricing agreements. Management cited possible indirect supply-chain and energy-cost effects from the war in Ukraine; direct sales to Russia and Ukraine and reliance on materials from that region were described as immaterial. The company reported no material change to its previously disclosed risk factors, no legal proceedings, and no material change in internal control over financial reporting. It reported that disclosure controls were effective.
Important facts for investors to verify
- Whether revenue gains, especially from the major customer and Navy armor shipments, continue and customer concentration changes.
- Whether improved gross margin is sustained as volume, manufacturing efficiency, and input costs evolve.
- Receivables collection, DSO, and deferred-revenue trends, given negative operating cash flow and the quarter’s cash decline.
- Whether the company can continue recovering inflation-related costs through customer pricing without materially affecting demand or margins.
- The availability and terms of the $3.0 million demand line of credit, including its callable nature, alongside cash needs and covenant compliance.