Buried within the seemingly mundane first-quarter earnings call of CPS Technologies lies a subtle yet potent indicator of a potential seismic shift in the company's trajectory. While analysts and investors alike focus on the near-term headwinds from waning armor revenues, a crucial detail hints at an explosive growth story unfolding beneath the surface: an unprecedented surge in first article production.

First articles, for the uninitiated, are prototypes of new parts a company hasn't previously manufactured. These prototypes are crucial for securing future volume orders, acting as proof of concept and demonstrating manufacturing capability. In Q1 2024, CPS completed and shipped eight new first articles, a staggering fourfold increase from the same period last year.

This is not merely a statistical anomaly. It signals a deliberate strategic pivot by CPS, a company historically reliant on a handful of established product lines, towards aggressive expansion of its customer base and product portfolio. This shift, while incurring upfront costs reflected in Q1's lower margins, lays the foundation for a potentially exponential revenue ramp in the coming years.

Let's consider the implications. If even half of these first articles translate into successful production runs, we're looking at a potential doubling of new product revenue streams in the near future. Combined with the anticipated growth in their existing hermetic packaging and metal matrix composite lines, CPS could very well offset the entire armor revenue shortfall within the next 12-18 months.

But the story doesn't end there. The licensing agreement with Triton Systems for fiber-reinforced aluminum (FRA) composites further amplifies this growth narrative. FRA, a high-strength, lightweight material, opens doors to lucrative new markets like aerospace and drone technology, where demand for durable yet lightweight materials is soaring. While FRA contributions are expected to be minimal in 2024, the potential for substantial revenue generation in 2025 and beyond is undeniable.

"Couple this with the acquisition of a 5-axis CNC machine, a move that enhances CPS's capabilities in hermetic packaging and positions them as a cost-competitive player in this expanding market, and the picture becomes even clearer. CPS is strategically positioning itself for a period of rapid and sustained growth."

The numbers, while preliminary, tell a compelling story. If we conservatively estimate that each successful first article generates $500,000 in annual revenue (a modest figure considering potential volume orders), we're looking at a potential $2 million annual revenue increase from new products alone. Add to this the potential for additional armor contracts and the burgeoning FRA market, and the possibility of a 10x return on investment within the next 3-5 years isn't merely a pipe dream, it's a plausible outcome.

Projected Revenue Growth from First Articles

The following chart illustrates the potential revenue increase from successful first articles.

Of course, the road ahead won't be without its bumps. The quality control issues experienced in 2023 need to be definitively resolved. The success of the first articles in converting to volume orders is not guaranteed. And the timing of new armor contracts, especially given the government's current budget uncertainties, remains uncertain.

However, the undercurrent of change is undeniable. CPS Technologies, once a steady but relatively stagnant player, is showing signs of awakening. The dramatic increase in first article production is the canary in the coal mine, signaling a potential surge in revenue, a shift in market perception, and perhaps, a meteoric rise in shareholder value. While it's too early to celebrate, investors would be wise to keep a close eye on this sleeping giant. It might just be about to roar.

"Fun Fact: Did you know that CPS Technologies' metal matrix composites are used in some of the world's fastest trains, helping to dissipate heat generated by powerful electric motors? These materials, known for their exceptional thermal conductivity, are also found in wind turbines and electric vehicles, contributing to a more sustainable future."