Brian Mackey: I mean part of the trick, which makes it thorny technically is that the defect doesn’t show itself until it’s been shipped and process downstream. So connecting cause and effect has been challenging. But what we’re now receiving from the customer are reports with a dramatically reduced defect rate based on product that we ship to them let’s say, December time frame that they processed in January.
James McIlree: Okay. All right. And your backlog a year ago?
Charles Griffith: Yes. I want to say it was probably about $27 million at the top off my head, but a big chunk of that was armor. And I think — I think in terms of the backlog, one thing to keep in mind is that with the exception of armor, typically, the orders that we’re going to be receiving orders today that are going to ship in late Q2, early Q3. So there’s still a lot of additional business to get out of that backlog before we…
Brian Mackey: Yes. And on the armor side, we don’t enter the year with significant backlog, but I mean there are very real opportunities that we’re actively pursuing. We don’t control Navy decision-making and things like that, but that remains an active area going forward.
Operator: And the next question is coming from Michael Weitz, Michael is a Private Investor.
Michael Weitz: Just a question on the interest income. And I know it’s down significantly from ’22 to ’23 and your cash balances were up significantly, and I just want to have a answer about your cash management strategy?
Charles Griffith: Yes. Let me address that. So that’s actually other income. And last year, that other income included $600,000 of — for the ERTC, the tax credit, the employer tax credit…
Brian Mackey: Employee retention.
Charles Griffith: Yes. So actually, interest income was up this year significantly. I want to say it was probably $10,000 for 2022, and this year was closer to $240, $250 in that range. So actually, the interest income is up significantly compared to the prior year. And in terms of cash management, I think that one thing that we’ve done is — which I think is good from a risk standpoint is our bank has a sweep product, whereby every night, $250,000 of cash goes to different FDIC-insured banks around the country. So that basically, we’re protected from that standpoint if there’s another Silicon Valley Bank or something like that. We don’t have too many concerns about that kind of thing because it’s basically automatically spread out every night. So we don’t have issues from that standpoint. Other questions about cash or anything else?
Michael Weitz: Yes. What type of rates are you getting on that sweep?
Charles Griffith: We’re in the — I want to say we’re in the high 3s, close to 4 .
Michael Weitz: Any thought of laddering treasury bills gaining over 5%, which is a very liquid market. If you ever needed the cash, you can always sell them, but the latter not 3 months, 6 months, 9 months?
Charles Griffith: Yes. So we have discussed it sort of how do I say that? What is the word I want? We’ve discussed it but not really to the point where we would want to pull the trigger on something like that. I — it’s a good idea. And yes, but it’s not something that, as I said, we pull the trigger on. But it’s definitely something that we’ve — that’s on the radar, let’s say that.
Michael Weitz: Yes, $8.8 million. That’s a nice cash flow you’re sitting on. And the stock, if you take that away from the market cap, the stock seems very undervalued. Any thought to using some of your future free cash flow? I know you want to — I know in the past, you want to have a large cash for, but use some of your future free cash flow to buy back stock?
Charles Griffith: We have not discussed that. I don’t believe — yes. Yes, I don’t think we’ve discussed doing something like that at this point. I think — we’re looking at a number of opportunities. I think the FRA, the fiber reinforced aluminum is an opportunity, the $200,000 grant from the State or from MMAP is another opportunity where we’re looking at being able to invest cash in order to in order to better grow the company. And I think that we’re kind of looking to use the cash for that purpose as opposed to buying back stock, for example.
Michael Weitz: All right. Like I say, I’m not saying use all the $8.8 million, but if you had 25% to 30% of future cash been a message to the market that, hey, we believe the stock is undervalued. And if you did even 25% or 30% of future free cash flow, that’s a significant number of shares you’d be buying back.
Charles Griffith: Yes. I’m glad you brought it up and it’s something that we can put on that radar screen.
Michael Weitz: All right. I look at the premarket and the stock price going down to $2.01, so it looks pretty appetizing.
Operator: [Operator Instructions]. And the next question is coming from Greg Weaver.
Greg Weaver: All right, Chuck, going to beat you up a little bit here because this gross margin situation, I mean, the reserve didn’t cover what you needed, obviously, from Q3 for Q4 issue. So you cited $500,000 hit. So I think that’s both periods or ever since the problem started.
Charles Griffith: Yes, that would cover the year, but most of it was probably in the fourth — more than half of it was in the fourth quarter, let’s say, yes.
Greg Weaver: Got you. So the production issue, is that precipitated by changes made by CPSH or the customer or supply inputs? Any sense there?
Brian Mackey: What we believe is there’s a confluence of issues that individually from a few years ago individually did not seem to indicate any concern. But over time, culminating in 2023 resulted in the downstream appearance of this defect because it’s kind of a multifactor cause, it has been a thorny issue to get to the bottom of. And as I mentioned earlier, it doesn’t show itself till later. So tying back a single product with a defect back to its origin, et cetera, has been challenging, but it’s — at the root of it seems to be a number of factors that literally go back a few years, but didn’t show themselves until 2023.
