Executive Summary / Key Takeaways

• CPS Technologies Corporation is undergoing a significant transformation, marked by three consecutive quarters of record revenue and a return to profitability, driven by robust demand for its advanced metal-matrix composites (MMC) and hermetic packaging solutions.
• The company's core investment thesis centers on its proprietary material science, which provides a competitive edge in high-performance applications across defense, energy, and electronics, enabling superior thermal management and durability.
• Strategic investments, including a recent $9.54 million equity raise to fund a larger manufacturing facility and an expanding portfolio of federally funded R&D contracts, are positioning CPSH for sustained growth and new market penetration in areas like radiation shielding and fiber-reinforced aluminum.
• While operational inefficiencies from a recent production ramp-up and external factors like inflation and tariffs present challenges, management anticipates continued margin expansion and strong financial performance in fiscal 2025 and 2026.
• Investors should monitor the successful execution of the manufacturing facility relocation, the commercialization trajectory of new technologies, and the company's ability to leverage its niche technological leadership against larger, more diversified competitors.

The Dawn of a New Era: CPSH's Core Business and Industry Position

CPS Technologies Corporation stands at the forefront of advanced material solutions, specializing in metal-matrix composites (MMC) and hermetic packaging. The company's unique blend of metal and ceramic materials delivers high-performance components critical to diverse industries, including electronics, power generation, automotive, and defense. Unlike mass-produced items, CPSH's products are custom-designed, serving as essential components in complex systems that demand superior reliability and performance in extreme environments.

The broader industry landscape is currently experiencing significant tailwinds, particularly from the burgeoning demand for efficient materials driven by the artificial intelligence (AI) boom, the expansion of the electric grid, and the global push for renewable energy sources like wind farms. These trends necessitate advanced thermal management and durable components, areas where CPSH's proprietary technologies offer distinct advantages. The company operates as a specialized player within this landscape, competing with larger entities such as Materion Corporation , Rogers Corporation , and Kyocera Corporation , by focusing on niche, high-value applications where its material science can deliver unparalleled performance.

A Legacy Forged in Materials Science: History and Strategic Evolution

CPS Technologies' journey began in 1984 as Ceramics Process Systems Corporation, establishing a foundation in advanced material solutions. Its reincorporation in Delaware in 1987 and subsequent initial public offering underscored an early commitment to growth and innovation. The company's rebranding to CPS Technologies Corporation in 2007 solidified its identity as a leader in specialized materials. This history of innovation has directly shaped its current strategy, emphasizing proprietary MMC technology and lightweight armor solutions.

The recent past has been a period of significant strategic adjustment and operational transformation for CPSH. The completion of a U.S. Navy armor contract with Kinetic Protection in early 2024 created a revenue gap, which the company proactively addressed. To meet rising demand for its core MMC and hermetic packaging products, CPSH initiated a crucial expansion in mid-2024 by adding a third production shift. This ramp-up, while strategically vital, initially led to operational inefficiencies, including approximately $600,000 in non-recurring costs in Q4 2024 and reduced product yields. Despite these challenges, the fourth quarter of 2024 saw a robust 40% sequential revenue growth from Q3, signaling the effectiveness of its capacity expansion. This momentum carried into Q1 2025, where the company achieved a record quarterly revenue of $7.5 million, successfully replacing the revenue previously generated by the armor contract and returning to an operating profit.

Technological Edge: The Foundation of CPSH's Moat

CPSH's competitive advantage is deeply rooted in its differentiated material science and manufacturing processes. The company's core technology, metal-matrix composites (MMC), combines the best properties of metals and ceramics to create materials with superior performance characteristics. A key proprietary process is the QuickSet injection molding, which enables the precise production of highly detailed tungsten features, offering a cost-effective alternative to traditional, labor-intensive machining methods for complex geometries.

These technologies translate into tangible benefits for customers and a robust competitive moat for CPSH. For instance, MMC baseplates are instrumental in power electronics used in high-speed electric trains, wind turbines, and electric vehicles, where they effectively manage frequent temperature cycling and offer extended lifetimes, particularly critical in remote or offshore installations. The company's new internal 5-axis machining capability for hermetic packaging is expected to unlock an available market exceeding $50 million, with potential gross margins in the low to mid-30% range at high volumes.

CPSH is also actively developing and commercializing new technologies through significant R&D initiatives, often supported by federal funding. The HybridTech Radiation Shielding solution, for example, is being developed under a Phase 2 Department of Energy (DOE) award of $1.1 million over 24 months for modular shielding for microreactors. A separate Phase 1 DOE contract for $125,000 aims to develop a sustainable impact limiter for nuclear fuel transport. This technology targets an estimated $4 billion market, offering lightweight barriers to neutron and gamma radiation for applications like modular walls, cladding, glove boxes, and truck shells, providing a compelling alternative to heavy concrete or lead.

Another promising development is Fiber Reinforced Aluminum (FRA), or AlMax, which saw its first commercial order fulfilled in Q3 2025. An initial U.S. Army SBIR contract of $250,000 over six months is supporting its development for hybrid electric military ground vehicles. FRA's lightweight nature and higher strength at elevated operating temperatures make it appealing for aerospace applications, with several relevant markets, such as aerospace bearings and liners and titanium structure replacement, each valued at over $1 billion. The company expects to provide material samples to potential customers later in 2025, with commercialization anticipated in fiscal 2025.

In the defense sector, CPSH is executing three Phase 2 SBIR programs simultaneously, including a Phase 2 Army STTR contract of $1.15 million over 24 months for a 40-millimeter controlled fragmentation warhead using its QuickSet injection molding process. Additional Phase 1 Army SBIRs are focused on electromagnetic protection for artillery shells and additively manufactured tungsten to replicate depleted uranium properties. These initiatives, coupled with non-SBIR funding from NAVAIR for rocket motor cases, highlight CPSH's ability to address demanding defense requirements and potentially secure sole-source provider status for critical components. These technological advancements collectively contribute to CPSH's competitive moat, enabling higher average selling prices, lower manufacturing costs, and improved margins, thereby strengthening its market positioning and long-term growth strategy.

Financial Performance: A Turnaround Story in Progress

CPS Technologies has demonstrated a compelling financial turnaround, marked by robust revenue growth and a return to profitability. For the third quarter of 2025, the company reported record revenue of $8.80 million, representing a significant 107% increase compared to $4.25 million in Q3 2024. This also marked approximately 9% sequential growth from Q2 2025. The nine months ended September 27, 2025, saw total revenue climb 61% to $24.39 million from $15.19 million in the prior year period. This growth was fueled by strong customer demand, increased shipments due to higher capacity utilization, and the successful integration of a third production shift.

Profitability has also seen a dramatic improvement. Gross profit in Q3 2025 reached $1.50 million, or 17.1% of sales, a substantial reversal from a gross loss of $0.5 million, or -12% of sales, in Q3 2024. For the first nine months of 2025, gross profit was $4.07 million (17% of sales), a significant jump from $0.15 million (1% of sales) in the comparable 2024 period. This improvement is largely attributed to the leverage of fixed costs over higher revenues and enhanced manufacturing efficiencies, overcoming the abnormally low production yields experienced in 2024. The company reported an operating profit of $276,000 in Q3 2025, a stark contrast to the $1.5 million operating loss in Q3 2024. Net income followed suit, reaching $208,000 ($0.01 per share) in Q3 2025, compared to a net loss of $1.04 million ($0.07 per share) in the prior year.

Liquidity has also strengthened. As of September 27, 2025, CPSH held $3.23 million in cash and cash equivalents and $1.05 million in marketable debt securities. The company has recovered from a low cash position of $1.93 million in Q1 2025, with management expecting continued cash growth from operations. Days Sales Outstanding (DSO) improved from 75 days at the end of 2024 to 55 days at the end of Q3 2025, reflecting more efficient receivables management. Furthermore, on October 8, 2025, CPSH successfully closed an equity raise, generating $9.54 million in net proceeds, significantly bolstering its balance sheet for future strategic initiatives. The company also maintains a $3 million revolving line of credit with no outstanding borrowings as of September 27, 2025.

Competitive Positioning: Niche Leadership in a Specialized Arena

CPS Technologies operates as a specialized player within the advanced materials market, carving out a niche through its unique technological capabilities rather than competing on volume alone. Its direct competitors, such as Materion Corporation (MTRN), Rogers Corporation (ROG), and Kyocera Corporation (KYOCY), are generally larger and more diversified. CPSH's core strength lies in its ability to deliver custom-engineered solutions that provide superior material performance, particularly in thermal management and durability for demanding applications. This technological edge allows CPSH to counter Materion's broader materials portfolio and commodity dependencies by offering notably better durability, potentially enhancing pricing power in specialized segments. Similarly, it exploits Kyocera's volume-focused approach by targeting high-value niches, which could lead to stronger cash flow generation.

However, CPSH's smaller scale presents certain competitive disadvantages. It may face higher customer acquisition costs and potential supply chain dependencies, which could impact its cost structure. Compared to its larger rivals, CPSH's financial performance, particularly in operating margins and cash flow, appears less consistent, reflecting the challenges of a specialized business model. The company's customer base also exhibits higher concentration, leading to greater financial exposure if a major customer is lost. Nevertheless, significant barriers to entry, including high R&D requirements, specialized manufacturing expertise, and stringent regulatory approvals (especially for defense applications), help protect CPSH's market position by deterring new entrants. The company's strategic response involves focused business development efforts and leveraging government-funded Small Business Innovation Research (SBIR) programs, which offer the potential for sole-source provider status for developed solutions.

Strategic Initiatives and Outlook: Building for the Future

CPS Technologies is strategically positioning itself for sustained growth and enhanced profitability. A cornerstone of this strategy is the planned relocation to a new, larger manufacturing facility, which will nearly double its usable floor space. The $9.54 million in net proceeds from the recent equity raise is earmarked to fund this move, including fit-up expenses and capital expenditures for new equipment. This expansion, anticipated for completion in calendar year 2026, is critical to accommodate increased customer demand, facilitate the growth of new product lines like AlMax and radiation shielding, and expand product development efforts.

The company's outlook is bolstered by significant new contracts and a robust R&D pipeline. A new $15.5 million contract for advanced power module components from a long-standing multinational semiconductor manufacturer, with deliveries commencing October 1, 2025, over a 12-month period, represents a 16.5% year-over-year increase in value. This contract is expected to significantly boost revenue in fiscal 2025 and beyond, supporting high-speed rail, energy, and grid infrastructure. CPSH is also actively pursuing the commercialization of its new technologies, with the first commercial order for ALMAX fulfilled in Q3 2025 and accelerated efforts for radiation shielding solutions.

Management projects fiscal year 2025 to be a "standout year" for revenue, with fiscal year 2026 also anticipated to remain strong. While Q4 2025 revenue is not expected to set another record due to seasonal factors, management believes that the new $15.5 million power module contract and ongoing operational efficiencies will drive continued margin improvement in the coming quarters. The company's commitment to innovation is evident in its six federally funded research contracts in 2025, including three simultaneous Phase 2 SBIR programs, which are expanding its product portfolio and addressing critical customer requirements.

Risks and Challenges: Navigating the Path Ahead

Despite a positive outlook, CPS Technologies faces several pertinent risks and challenges. Inflationary pressures and tariffs have impacted costs, and while the company has largely been able to pass these increases to customers, there can be a lag, and continued ability to do so is not guaranteed, especially with one-year pricing agreements with larger customers. Fluctuations in foreign exchange rates, particularly the strength of the U.S. dollar against the Japanese yen, can also affect pricing competitiveness against its major Japanese competitor.

Geopolitical events and economic conditions, including the current government shutdown, introduce uncertainty. While the impact on active federally funded research projects has been muted, delays in new proposals or research topics could arise. The company's customer concentration remains a risk, as the loss of any major customer could necessitate additional external financing. Furthermore, the operational efficiencies gained from the third shift ramp-up in late 2024, while improving, still require continued focus to optimize yields and productivity of newer staff. The recent cancellation of a commercial radiation shielding contract, though unrelated to CPSH's technology, highlights the inherent program-specific risks in new product commercialization.

Conclusion

CPS Technologies Corporation is in the midst of a compelling transformation, leveraging its deep expertise in advanced material science to drive significant revenue growth and a return to profitability. The company's proprietary metal-matrix composites and innovative manufacturing processes provide a distinct technological advantage in high-performance applications across critical sectors like defense, energy, and electronics. Strategic investments in expanded manufacturing capacity, fueled by a recent equity raise, and a robust pipeline of federally funded R&D initiatives are poised to unlock new market opportunities in radiation shielding and fiber-reinforced aluminum.

While operational challenges associated with rapid expansion and external economic headwinds persist, management's clear guidance for continued strong performance in fiscal 2025 and 2026, coupled with anticipated margin expansion, underscores a confident outlook. CPSH's ability to execute its facility relocation seamlessly, commercialize its new technologies effectively, and strategically navigate its competitive landscape will be paramount. For discerning investors, CPS Technologies represents a compelling opportunity to participate in the growth of a specialized materials company that is strategically positioned to capitalize on increasing demand for high-performance solutions, driven by its technological leadership and proactive expansion initiatives.