Operator: Good day, everyone, and welcome to the CPS Technologies Third Quarter 2023 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Chuck Griffith, Chief Financial Officer of CPS Technologies.
Chuck Griffith: Thank you, operator, and good morning, everyone. Today, I’m joined by Brian Mackey, our President and CEO, and we look forward to discussing our quarterly results with you. But first, Chris Witty, our Investor Relations adviser, will provide a brief Safe Harbor statement. Chris?
Chris Witty: Thanks, Chuck, and good morning, everyone. Before we begin the business portion of today’s call, I would like to point out that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and should be considered as subject to the many uncertainties that exist in CPS’s operations and environment. These terms should include, but are not limited to, the wars in Ukraine and Israel, other geopolitical events, economic conditions, market demands and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statements. Additional information can be found in our filings with the SEC. Now, I will turn the call over to Brian to offer his perspective on the third quarter results. Afterwards, Chuck will review the financial results in greater detail. Brian?
A student operating a computer numeric control machining program, surrounded by computer technology.
Brian Mackey: Thanks, Chris. Today, we’re pleased to announce third quarter revenue of $6.3 million and an operating profit of approximately $131,000 for the period ending September 30, 2023. As discussed on our previous earnings call, the quarter was negatively impacted by shipment timing, with certain deliveries being pushed into the last 3 months of 2023. Our original expectations for 2023 as a year are unchanged. The company remains on track for 2023 to be its best year ever in terms of revenue as well as underlying results. Chuck will review this further in a moment. During the third quarter, we announced 2 noteworthy wins for the company. First, we received an award valued at approximately $7.7 million from a major long-standing customer for power module components and solutions.
This contract represents a 50% increase for that customer over the prior 4 quarters, with the systems to be employed primarily in high-speed rail, wind turbines and other green energy applications. This client is a multinational semiconductor manufacturer based overseas which has come to rely on our unique capabilities for its cutting-edge requirements, and we’re pleased to once again provide modules for the many important markets they serve. Also, we recently announced that the company had received a Phase 1 SBIR award valued at approximately $200,000 from the United States Department of Energy, our first such grant from the DOE. This study, entitled Modular Radiation Shielding for Transportation and Use of Microreactors, will be led by Matthew Karnick, a talented material scientist at our company, opening further potential customer penetration avenues for CPS.
Notably, this is our fifth SBIR/STTR award in the past 2 years. It’s the first of these 5 from the Department of Energy and the third different member of our team to win an SBIR award within the last couple of years. Our renewed focus on R&D continues to provide external funds to help bolster our intellectual property portfolio, validate our long-term strategic vision and support our goal of accelerating the growth trajectory of our top line. Aside from these wins, the company is actively pursuing opportunities across all 10 markets, from military armor to transportation products, electronics and industrial applications. The overall outlook for the company remains bright. HybridTech Armor panels from Kinetic Protection, the U.S. Navy’s prime contractor, continue to provide best-in-class protection for the country’s aircraft carriers.
The panels are an integrated component of advanced ballistic shields and protection system upgrades by the Navy, and we’re pursuing opportunities across the rest of the fleet. We had previously discussed that we will be testing other iterations of our armor as it related to a potential ground vehicle armor opportunity. Unfortunately, that testing did not go as well as anticipated. We’re working to address the issues uncovered during those tests, but this will further delay any new order for our armor with this potential customer. The continued growth of hermetic packaging for use in aerospace, defense and power electronics also positions CPS for further growth going forward, as well increasing demand for our Metal Matrix Composites industrial solutions.
We believe our unique technology and innovative approach to solving complex design problems, along with our expanding array of customers in the government and commercial space, place us at the beginning of our next phase of growth. Whether it’s electric vehicles, trains, aerospace and defense or electronic applications, CPS can provide the best approach to advancing our clients’ new product development initiatives. Our strong balance sheet can and will provide us with the financial flexibility to continue to invest in increasing our product development capabilities and pursuing opportunities that will accelerate top line growth and improve operating results. In the near term, we anticipate a very strong finish to the current fiscal year and remain on track for it being our best performance ever.
I continue to be upbeat about the company’s ability to convert bids into backlog and backlog into revenue as we leverage our innovative solutions across a growing set of markets and new industry applications. I’ll now temporarily turn the call over to Chuck to provide more details about our financial results, after which I’ll provide some additional comments. Chuck?
Chuck Griffith: Thanks, Brian. As was mentioned earlier, the company’s revenue totaled $6.3 million in the third quarter compared to $6.7 million last year, with a slight decline year-over-year due to shipment timing and the delay of certain deliveries into the fourth quarter. Given our solid overall backlog, we anticipate posting a very strong finish to fiscal 2023. At this time, we fully expect to significantly exceed the 2022 revenue total of $26.6 million. Gross profit in the third quarter totaled $1.2 million or approximately 20% of sales compared with $1.9 million or roughly 28% of sales last year. The decrease in both profit and gross margin year-over-year reflects the lower level of sales as well as some inventory write-offs due to higher scrap than usual during the quarter.
We anticipate fourth quarter gross margins to be more in line with the second quarter. Selling, general and administrative expenses totaled $1.1 million in the third quarter versus $1.2 million in the prior year period. This SG&A amount represents a notable decrease from our SG&A numbers in the first half of this year. The company generated operating income of $131,000 in the third quarter compared with approximately $709,000 last year, and posted net earnings of $0.01 per diluted share versus $0.07 per diluted share in fiscal 2022. Turning to the balance sheet. We ended the quarter with $8.8 million of cash, up from $8.3 million at the end of 2022, reflecting working capital changes and the impact of the decline in deferred revenue. Trade accounts receivable as of September 30, 2023, totaled $5 million versus $3.8 million as of December 31, 2022.
Our other receivable account balance was $17,000 compared to $686,000 at the end of last year, primarily reflecting the receipt of the employee retention tax credit in April. Inventories totaled $4.8 million as of September 30 compared to $4.9 million at the start of the fiscal year. Turning to the liability side, payables and accruals totaled $3.2 million at the end of the third quarter versus $2.7 million at the end -- as of December 31, 2022. Deferred revenue decreased from $2.8 million at the end of 2022 to $1.7 million as of September 30, 2023. As a reminder, deferred revenue predominantly represents prepayments for large orders to help appraise the impact on cash of large inventory purchases for those orders. A number of these were shipped in 2023, resulting in the recognition of revenue, and thus, a decrease in deferred revenue.
So thank you. And now, Brian will discuss his first 90 days in CPS and what he sees for the future. Brian?
Brian Mackey: Thanks, Chuck. As everyone may recall, I joined CPS at the beginning of August, about 3 months ago. As I expected when I accepted the opportunity to come to CPS, my background is highly relevant to what we’re doing here. I’ve spent many years in leadership positions of technically-oriented companies, including a focus on material science to achieve growth, with the goal of providing advanced solutions to our customers’ greatest challenges. I’m excited by a number of things that we have in place today at CPS and by the opportunities that we have before us. We have a long history of close relationships with a number of large, stable customers both domestically and abroad, particularly in metal matrix composites and hermetic packaging.
We’ll continue to support our customers’ growth objectives by providing high-quality products that meet their needs. We have a highly capable and motivated team here at CPS as well. 2023 looks to be a record year, and we’re motivated to build on our own momentum. I’d like to take a moment to focus on just 1 aspect of our growth strategy, which is externally-funded product development. As we’ve mentioned, we’ve seen a number of recent successes in this area to help build our product portfolio for the future. As a quick review, we pursued a Phase 1 SBIR regarding thermal management for the Navy. They then asked us to continue with an option phase and asked us to submit a Phase 2 proposal, which is currently under evaluation. We completed a Phase 1 STTR regarding the use of tungsten materials for the Army.
Again, we will be submitting a Phase 2 proposal to build on what we accomplished in Phase 1. We also completed a Phase 1 SBIR regarding Army helicopter flooring for the United States Army. While the Army has elected not to designate any funds for a potential Phase 2 study, our flooring passed its testing in Phase 1 with flying colors. We know that this is of interest to helicopter OEMs, and we’re pursuing this opportunity. As previously discussed this morning, we’re currently working with new funding from the DOE on another Phase 1 SBIR. You can expect to see us continue development efforts to build our product portfolio for the future. These externally-funded efforts, in conjunction with our internally-funded work, are a key part of our plan to add relevant growth path within the advanced materials space.
These opportunities leverage our know-how related to our current products and also take advantage of the technical expertise within our talented team. I’m excited about the future here at CPS. Operator, if you could please open up the line for Q&A.
