CPS Technologies Corporation Q2 FY2026 earnings call

Leadership Transition

• Outgoing CFO Chuck Griffith will depart at the end of the month after seven years of service with the company
• Incoming CFO Chris Fraser, who has relevant aerospace manufacturing and small business innovation program experience, will officially assume the role later this month after a transition period

Facility Relocation Update

• The company is planning a move to a new expanded manufacturing facility to support future growth and improve operational efficiency
• Site selection is taking longer than initially expected due to the complexity of requirements including power supply, industrial gas access, and floor space
• The current facility lease runs through February 2028, so the company is prioritizing selecting the best-fit site over rushing a decision, with an announcement expected soon

Program and Business Updates

• The SBIR and STTR programs have been reauthorized by Congress through fiscal 2031, providing long-term regulatory certainty for the company's R&D work
• The Navy SBIR office extended the Phase I program for amphibious combat vehicle weight reduction, adding $100,000 in funding and a 6-month program extension; the company is evaluating the use of its hybrid tech armor to replace heavier steel ballistic protection
• The company secured its first commercial order for tungsten alloy components produced via its proprietary quick-set injection molding process, fulfilling the order within one month of receipt. This leverages existing in-house technology to open new commercial and military opportunities
• The company anticipates new hybrid tech armor contract negotiations for U.S. Navy destroyers will begin soon, with congressional funding already secured; this is viewed as a foot-in-the-door for larger future opportunities in this market
• The company built inventory to $7.1 million in Q1 2026 to support continued shipments and revenue generation during the upcoming facility transition

CPS Technologies reports three core product segments, plus a small SBIR research funding segment: 1. Metal Matrix Composites (MMC): contributes 60-70% of total current revenue. There was temporary softening in product deliveries in Q1 2026 due to order timing, but backlog and order intake remain strong. 2. Hermetic Packaging: contributes 30-40% of total current revenue. This segment is growing steadily, with a recent large $4 million single-SKU contract win that will be fulfilled within 12 months. 3. Hybrid Tech Armor: currently contributes 0% of revenue in Q1 2026, after completing all aircraft carrier orders by April 2024. New small-scale orders for U.S. Navy destroyers are anticipated in H2 2026. 4. SBIR/STTR research funding: contributes approximately 5% of total revenue.

Management reaffirms a positive long-term outlook for CPS Technologies despite the Q1 2026 year-over-year revenue decline. They expect shipments and revenue to increase through the remainder of 2026, with gross margins expected to expand in future quarters driven by revenue growth, favorable product mix shifts, and improved operational efficiency after the completion of the facility relocation. No formal numerical guidance was provided, but management maintains an upbeat outlook for 2026 and beyond, positioning the company for stronger long-term growth after the facility move.

Forward-looking statements are subject to material uncertainties, including ongoing geopolitical conflicts in Ukraine and the Middle East, broader macroeconomic conditions, fluctuating market demand, and competitive industry pressures that could cause actual results to differ materially from projected outcomes. Tungsten prices have seen very large increases, though the company's low-waste manufacturing process mitigates this impact, and it has not yet affected existing order profitability. The facility relocation process is taking longer than initially anticipated, which could delay expected operational efficiency improvements and capacity expansion. The company has inherent revenue lumpiness across its product markets, driven by large individual contract timing.

Q: Analyst Chip Moore asked Brian Mackey to expand on the order lumpiness seen in Q1 2026, specifically the softening in MMC, and whether this softness will persist into coming quarters. / A: Mackey explained that quarterly revenue variance is normal for CPS, and the Q1 softness is purely timing-driven, not reflective of weak demand. He noted the company holds a strong overall order book, and the large Q1 inventory build (larger than all of 2025's inventory growth) was intentional to prepare for the facility transition, with that inventory representing future revenue to be shipped in coming quarters.

Q: Moore asked about the growth potential of the upcoming hybrid tech armor opportunity for U.S. Navy destroyers, and what it means for the company going forward. / A: Mackey confirmed that congressional funding is already secured for a small initial order, with negotiations expected to conclude in the next several months. He framed this as a critical foot-in-the-door opportunity, with no large immediate order expected, but it opens the pathway to much larger future hybrid tech armor contracts for additional Navy vessels.

Q: Moore asked about inflation and raw material cost pressures, and how these are impacting CPS's cost structure. / A: Griffith responded that raw materials make up a small share of total cost for MMC products, which are mostly labor and overhead, so broad inflation and moderate raw material price increases (such as for aluminum) are not a major issue. While tungsten prices have risen sharply, CPS's low-waste manufacturing process reduces material usage compared to traditional machining, mitigating this impact for new orders, which are priced to reflect current market rates.

Q: Private investor Joe Schicker asked for the current revenue breakdown across CPS's three core product segments. / A: Griffith confirmed that hybrid tech armor currently contributes 0% of revenue after completing prior aircraft carrier orders, with MMC accounting for 60-70% and hermetic packaging accounting for 30-40% of revenue, with some quarterly fluctuation. Brian Mackey added that SBIR/STTR research funding contributes an additional ~5% of total revenue.