Is CPSH a HOMERUN Stock For 2021?

CPS Technologies Corp. engages in the provision of advanced material solutions to the transportation, automotive, energy, computing or Internet, telecommunications, aerospace, defense, and oil and gas end markets.

The firm focuses on the design, manufacture, and sale of custom metal matrix composite components. It also assembles housings and packages for hybrid circuit.

Core Competency

CPS Tech’s core competency is their technology for combining metals and ceramics to form metal matrix composites. This competency includes the Intellectual Property, the novel process technology developed at CPS, and very importantly, it includes the design, manufacturing and quality capabilities to produce real products to customer specifications, ship these products on time and do so with attractive margins. In short, the IP is both the intellectual — the IP is the core understanding of the chemistry and the process. It’s also the understanding of the execution, translating that chemistry and processes into real products. The combining metals and ceramics form this category of materials called metal matrix composites, where metal is the continuous matrix and ceramic is the reinforcement. Today, their primary metal matrix composite material is a combination of the metal aluminum, the ceramic silicon-carbide, known by its chemical symbol AlSiC.

Product Pipeline

CPS Tech’s product pipeline, metal matrix composites, has properties that provide compelling performance benefits in certain applications. For example, in the high voltage power module area, using an AlSiC baseplate rather than a copper baseplate can increase the lifetime of the module by ten times, by eliminating the mechanical stresses associated with differential coefficients of thermal expansion.

In space applications, using an AlSiC housing or package can provide a 50% to 75% reduction in weight. In vehicle armor applications, metal matrix composite armor panel can provide much longer life in harsh environments and for a given weight, better ballistic protection.

The applications they serve are generally high-reliability, high-performance applications. The time between when a customer selects AlSiC for their application, they call that decision a Design Win, and the time when the customer has completed the development, testing and manufacturing scale up of their new product is generally a minimum of two years, more typically five years, and seven to eight years is not uncommon.This means that the products that are generating revenue today result from design wins that occurred two, three, four, five or as many as eight years in the past. However, it also means that once a product is in production, it generally stays in production for many years. They recently announced purchase order for HybridTech Armor Panels for crew served weapons stations which illustrates this pipeline is very dynamic. CPS began development work on these kinds of panels in 2012.

CPS Tech’s current pipeline

• Design Wins with Tier 1 automotive supplier for baseplates for silicon-carbide base modules for automotive applications moving through their pipeline.
• Design Wins for power modules for use in power grids moving through our pipeline.
• Design Wins for AlSiC heat spreaders for application-specific integrated circuits and fiber optic applications moving through our pipeline.
• Design Wins for the AlSiC hermetic package, similar to that found on the Mars Rover for space applications that are in our pipeline.
• Design Wins for complex, expensive, and enabling components for other satellite applications in our pipeline.

PRIMARY MARKETS

CPS is electrifying the green economy. One Key Market for CPS is Power Modules. They supply baseplates and the high-voltage power modules, also known as IGBT modules. AlSiC provides a 10 times improvement in module life compared to a copper baseplate above certain voltage levels. Historically, the primary market for these high-voltage modules has been electric trains. That continues to be a large and growing market.

Two major long term trends in very significant related markets are opening up. These trends are Renewable Energy and The Electric Vehicle. Power modules connect renewable energy sources, wind turbines and solar panels to the electric grid. Likewise, power modules connect charging stations for electric cars to the grid. In fact, power modules are the very heart of an EV charging station. SO Obviously electric vehicles are key. But reflect for a minute on the growth in wind turbines, solar farms, and EV charging stations that need to be installed and connected to the grid over the next decade. It represents a very exciting opportunity.

ABB Semiconductors in Switzerland which is an important customer to CPS, last year was acquired by Hitachi of Japan and moved into a new legal entity, Hitachi Power Grids. Their focus is the electrical grid on a worldwide basis. Obviously, many of the baseplates they provide to Hitachi Power Grids and modules in the electric grid.

Power Modules also enable the Electric Vehicle. There are many different designs for power modules in EVs and most today are not using AlSiC. However, AlSiC’s properties are compelling in some designs, particularly those using silicon-carbide-based rather than silicon-based power modules. This is exciting for the design wins they have for silicon-carbide based automotive power modules with the Tier 1 suppliers. with many more to come as time goes on.

Second Market for CPS is the Aerospace and Defense applications. AlSiC provides higher reliability and lighter weight for many aerospace and defense electronic applications.

CPS products are on the Mars rover, they’re in the current generation of GPS satellites, they have parts on the F-35, the F-22. These markets tend to be very conservative and the timelines are long. But once designed in, demand last for many, many years.

The Third Market is Lids and Heat Spreaders for high-performance AlSiC, Graphics Chips and Fiber Optic Applications.

Fourth Market is Armor. They are Focused on Vehicle Armor, not body armor. The HybridTech panels provide advantages in two areas, severe environments, such as at sea, or in high-temperature environments, such as near the exhaust or engine of vehicles. And secondly, they claim that their HybridTech panels are the optimal solution for very high-threat levels, where conventional solutions just don’t work. Although a fairly small market today, it’s growing in the troubled areas in the world where those conflicts exist.

They have an order for one aircraft carrier, but their partner, the prime contractor in this case, has an indefinite delivery, indefinite quantity order for the US Aircraft Fleet. CPS appears confident orders for additional carriers will be released reasonably soon.

After February 2nd press release CPSH stock skyrocketed. https://www.nasdaq.com/press-release/cps-technologies-corporation-receives-purchase-order-for-hybridtech-armorc-panels-for. The CEO has also commented during the Latest earnings call on Feb 24th, 2021 that as other design wins come to fruition they will go public with the news which in my opinion could lead to a substantial surge in stock price.

During the Earnings call CEO also Mentioned that they want to be in every single electric plane of any type as the the industry makes a transition from silicon to silicon-carbide. And they are- On a worldwide basis, seeking out, calling on, and in several cases, working with the Tier 1 suppliers.

In The Latest Earnings report CPS Technologies announced revenues of $20.9 million and an operating profit of $914,000 for the year ended December 26, 2020. This compares with revenues of $21.5 million and an operating loss of $597,000 for the previous year. For the fourth quarter of 2020, revenues were $4.2 million, with an operating loss of $291,000. This compares with the same period a year ago, where revenues were $5.4 million and an operating profit of $367,000.

Although there was Negative news for decline in demand for their existing larger volume products, primarily baseplates going into traction or transportation applications due to COVID-19, there has been lot of positive news- Demand increased for other products, particularly aerospace applications, and customers largely held to development schedules for new products. As a result, new products continued to move through their pipeline. With travel all but eliminated, CPS Technologies redeployed resources to accelerate internal continuous improvement projects to increase margins. They implemented planned price increases. The net result of these factors, both the negative and positive, was for the year a 2.8% decline in revenues by the positive swing of $1.5 million in operating profits, or on a percentage basis, a 253% increase.

COVID continues to be highly disruptive and cause uncertainty in forecasting. However, they believe the fourth quarter most likely represented the bottom in terms of demand.

Grant Bennett during earnings call also mentioned about their order for HybridTech armor panels for crew served weapons stations on aircraft carriers, and that they expect to begin shipping these panels towards the end of the second quarter 2021. The third quarter will be their first full quarter of production of these panels. The long lead time are the ceramic tiles that are a component in the panels.

As far as Their balance sheet goes, CPS Technologies ended the quarter with $195,000 of cash and $0 of borrowing against our line of credit. This gives them a net cash number of $195,000 and is a significant improvement over their cash position at the end of Q3, when net cash was a minus $722,000 and a further improvement from the beginning of the year when net cash was minus $1.1 million.

Ultimately, as we look at this electrification of the world — electric planes, electric car, displacement of hydraulic systems by electric systems, and industrial applications, I believe that CPS Technologies Corporation’ s time has come and I am very excited about it.