Q2 2020 CPS Technologies Corp Earnings Call
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At this time all participants turning only.
After the speakers presentation, there will be a question and answer session.
The question during the session, you'll need to press star and the number one on your telephone keypad.
Require operator assistance at any time, Please press star Zero I would now like to hand, the conference over to your speaker today Mr. Griffith. Please go ahead Sir.
Thank you operator, and good afternoon, everyone I'm joined today by grants Bennett, our president and CEO.
Before we begin the business portion of the call I would like to point out to all of you that statements in this conference call better not strictly historical are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and should be considered that's subject to the many uncertainties that exist in C. P. S is operations.
And environment. These uncertainties include the impact of cope at 19 economic conditions market demands and competitive factors.
Such factors could cause actual results could differ materially from those in any forward looking statements.
Now I'll turn the call over to grant to offer his perspectives on the second quarter's results. Thank you Chuck and welcome to the call every one.
We're pleased to report revenues for the second quarter of 5.8 million with an operating profit of 331000.
Revenues and operating income were down from Q1 of this year, which was our highest revenue quarter in our history.
But both revenues and operating income we're very similar to Q4 of last year, which was our last pre pandemic corridor.
The predominant factor in lower Q2 revenue compared to Q1 is that a large customer increased inventory in Q1 pulling in shipments originally scheduled for Q2 into Q1.
To build a larger safety inventory given concerns about cobot 19 impacting the supply and logistics chain in Q2, they reduced deliveries to begin to bring inventories back down to a more appropriate level.
Let me parents statically comment I use the term supply and logistic chain to highlight that one somewhat unanticipated impact to covert 19 is the impact the shutdown of passenger air travel has on airfreight International Airfreight costs are up very sharply because they're very few passenger.
Your first planes flying between the U.S. in Europe in many freight forwarders, primarily use excess capacity on passenger planes rather than dedicated freighters for airfreight.
We as moving from the revenue to the a income side, we're very pleased with the very significant improvement in operating profit.
For the six month period, just ended operating profits were $952000 compared to an operating loss of 486000 for the same period a year ago. This positive swing of over $1.4 million a comes even though right.
Revenues were up only $633000. This improvement reflects the pricing product mix and operational improvements.
As well as the major customer contracts that we've discussed in previous quarters and these improvements. We believe we'll continue to bear fewer bear fruit in future quarters.
As indicated in our press release, we've been open and operating throughout the pandemic.
Today, most of our customers remain open an operational we saw in Q2 and now expect to see in near term future quarters increased volatility in short term demand as individual customers address pandemic related issues such as.
Managing inventories up and down a addressing shortages of other components in some cases, having short term shutdowns and a in some cases, we've found customers have longer approval cycles, given that many employees are working from home.
Cps continues to operate and follow CDC and Osha guidance.
Among other things we're doing its employees temperatures are taken at the beginning of a shift shifts have been staggered to reduce employee overlap workstations have been rearranged to ensure social distancing all employees are using face masks et cetera to our knowledge and there's been no transmission cobot 19 between.
Employees at Cps.
I've commented a over.
The last several quarters and that we have a focus on more deeply penetrating the U.S. defense and aerospace <unk> aerospace markets. Most applications in these markets require high reliability and high performance.
Yeah, Cps were delighted and proud that Oh, we have been able to contribute to the NASA 2020, Mars Perseverance Rover, which is scheduled to launch tomorrow morning, and just about 15 hours to be exact the perseverance rubber contains an l. sick.
Module produced by Cps will be issuing a press release with additional information after it's been approved by appropriate channels at the jet propulsion laboratory.
[noise] I mentioned freight costs earlier with a smile on my face let me just say I'm glad the customer is paying the freight cost to get the rubber to its ultimate destination or not that's suppliers [laughter].
With that let me turn the time to truck for additional details on the second quarter financial performance. Thank you grant.
So revenues for the quarter again totaled $5.8 million. This was a 10% decrease compared to 6.6 point $4 million in Q2 of last year. This decrease was due mainly to just product mix.
Gross margin for the quarter amounted to 21% of sales compared to 18% in the second quarter last year.
The largest factor affecting this percentage was new contracts with our three largest customers, which we've already discussed.
Selling general administrative costs totaled $853000 compared to last year's 917000.
Sales commissions were down because of the decrease in sales volumes and our costs for travel and assembly sales conferences were also down due to the cobot 19, a pandemic.
The company experienced an operating profit for the quarter of $331000, which compared to an operating profit in the second quarter of 2019 of $258000.
Turning to the balance sheet, we ended the quarter with about $117000 of cash and $1.03 million of borrowings against our line of credit.
Net cash of minus 910000 is an improvement in our cash position from the end of the first quarter. When the net cash was minus 1.46 million so about 500000 improvement.
Accounts receivable at June 27, 2020 totaled $5 million compared with 4.1 million at June 29 to 2019.
Our days sales outstanding totaled 78 days at the end of the quarter compared to 58 days at the end of the second quarter. In 2019. This increase is due to the elimination of the prompt pay discount and significant significantly increased sales from two of our largest customers respectively.
[noise] inventories totaled 3.9 million at June 27, 2020, compared to 3.1 million at June 29 2019.
The inventory turnover in the most recent four quarters was 5.5 times compared to 6.2 times for the four quarters ended June 29, 2019, a this decrease in turns is directly related to the decrease in purchase or purchases from our largest customer as grant to previously discussed.
Turning to the liability side, you'll see the $1 million drawn on our 3 million dollar line of credit.
Payables and accruals totaled 2.7 million at June 27, 2020 up slightly from 2.5 million at June 29 2019.
You'll also see the inclusion of a notes payable not in last year's liabilities. This was due to the financing of a new of new Q a quality.
Assurance equipment in the first quarter this year.
And for further discussion I would like to turn the call back over to grant.
Thank you Chuck before opening the call for questions. Let me comment on two questions that several investors have asked recently. The first question is what is our current and anticipated future participation in the electric vehicle in hybrid electric vehicle markets.
As most of you know our largest product line is based plates for power modules power modules consist of insulated gate bipolar transistors, known as IGBT fees, which are very high speed high efficiency switches.
Convert electricity stored in the battery into the right form for use by the motor.
Most automotive Oems purchase power modules from a module producer a small number of Oems produce some of their own modules.
Our base plates today are being used in modules for some specialty easy and HCV applications. For example, in some military trucks and in some race cars.
Cps is very active with most major will most major module makers.
Hi.
Primarily in Europe, but also in Asia, and the United States, we're providing prototypes for a new product development and Cps has been chosen by some module makers as the vendor for some modules for which the development has been completed and the module makers are now.
Marketing the module to automotive Oems.
We can't predict how successful any specific module will be in the marketplace, but we do believe that overtime modules containing cps space flights will be used in some mace mainstream automobiles.
Particularly for higher performance vehicles.
Most of you know that in the past we've supplied hundreds of thousands of automotive based flights to continental automotive a European module maker and those modules in turn.
Our now in automobiles on the road.
Made by Audi Mercedes Renault and Smart car.
Although this specific programs as ended the success of this program demonstrated both to module makers and automotive Oems that al sick is the highest reliability and highest performance based blatant material.
It is however higher cost.
Than the lower reliability and lower performance materials, the auto automotive market in general is very cost driven but there certainly is a performance and reliability driven segment and it is in this segment that we believe modules containing our base place will primarily.
May be used.
There is a great deal of press regarding NVS and HPV is.
And there's a tremendous amount of development activity ongoing both at the Oems and the module makers, but they are still a very tiny part of the market in other words the unit growth the volume growth is still to come.
Second question regards.
The penetration of Silicon carbide die in the power modules and what this means for Cps.
Silicon carbide RGB teas operate at higher temperatures and are more efficient than silicon based IGBT fees. They switched the power with less loss than silicon IGBT is they are however, much more expensive today than.
Silicon based IGBT.
Because they do operate at higher temperatures thermal management is even more important.
And that is where else. It provides real advantages today silicon carbide IGBT modules are beginning to penetrate niche applications, where the increased performance justifies the higher cost.
Revenues to date from this segment have primarily been revenues from prototype purchases of Ausick Faceplates by module manufacturers our customers are now introducing.
The modules that contain our base flights into the marketplace and starting to book orders based on customer provided forecast. We expect revenues from current recurring manufacturing of Silicon carbide based modules to come soon.
Again, initially from niche applications, but certainly overtime as the cost of the die come down we're confident that silicon carbide based ICBPS will penetrate higher volume applications, such as automotive applications.
Let me now open the call to questions from from others.
And ladies and gentlemen, as a reminder, if you'd like to ask the question that is star and the number one on your telephone keypad and to withdraw your question press the pound Keith.
Now hold one moment together culinary roster.
[noise] and we have our first question for me Mr. Lenny Dunn.
Yeah good afternoon.
Hi, Lenny.
This is not a quarterly you can look as is typical even though.
Sure.
You work.
Directly affected by the cool.
Okay.
So the one customer you release took extra.
To first quarter in order to make sure that they were probably supplied in the second.
Would you say now that things are kind of in balance.
With the.
Orders that you're getting compared to where do you normally would good.
Very good question and.
Yes.
Let me let me answer the question this way.
We.
[laughter].
We're very.
Pleased with the underlying order book and.
The delivery schedules are more volatile than they've ever been and they are changing more quickly than they've ever been and as we dig into this.
It's it's simply very clear that it's all the uncertainty relating to coven and so we don't.
Believe.
We of course can't predict.
When a vaccine will be available.
Or.
We were or or at were a therapy.
But.
Our Chris summary.
Is that.
Things are going to bounce up and down.
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Literally for kind of for the first time in our histories.
Customers.
They call up and say I don't ship don't ship. This we can't get another component.
For for the next few months or in one or two cases, they may call up and say can you shipped this early but as how it's volatile and so.
And as we look back on this although our customer did not inform us in Q1.
They were building safety stock.
The only after they.
And I only after they reduced their schedule.
It did they tell us that's what's going on.
But short, yes, just more short term changes, but from our perspective, we don't see.
In this is this is short term it's not fundamental.
Okay and the with.
I'm going to supply chains.
Being disrupted from time to time.
And your do either international business.
Are you, having a hell of a one that end.
Okay.
All right so we.
We have had no trouble getting materials, but.
Most of the products, we sell need to be nickel plated.
And we have.
Multiple plating vendors, but generally.
Although we try and have dual sources for each product. There are some products were only one plate or is qualified and we had one plating vendor close for several weeks.
Due to a large number of employees with a with coated and that.
Impacted our delivery schedules short term.
I did mention I highlighted freight more in the spirit of this kind of was really unexpected.
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But.
Our freight costs have gone up, but we anticipate that we'll be.
Relatively short term, there's there's now.
Problem in getting our product to our customers.
Okay, and the automotive and sounds like it's exciting to me.
As it sounds like it can be a very large market for you.
Uh huh.
Even though your small component.
What goes in there.
When would you anticipate is starting to ramp up.
Yeah.
So.
We also believe.
That there'll be a role for us.
We are.
We are hesitant to give.
More specific information I'm not going to give more specific information information that is more specific than our customers are giving us.
And in other words I want to state on Ambiguously for example that we are the qualify vendor.
We've gone through.
The all the development cycles.
Have a ER and automotive IGBT module that looks to us like it.
It will be successful, but the module maker has not yet firmly booked orders with the automotive OEM and until they do that I'm hesitant to too.
To project.
Peak.
[music].
Somebody who doesn't.
No the industry as carefully as you do.
It would appear to be said because this is not a very expensive portion what goes into the car.
[noise] patentability of it would count.
Heavily because.
I'm not going to save the nickel and dime thing.
In order to isn't risk warranty for opens later.
You I certainly would think that's the case and the reality is in most cases.
Automotive industry shaves pennies.
But we clearly believe we clearly believe and.
I want to get too philosophical here, but you you you have to look at the total systems cost.
And.
There are absolutely situations, where.
If you use a our material even though you pay more for the based late you pay less for other components in the total systems cost is lower.
And that it is that observation that gives us a.
Confidence that theres opportunities for us in this marketplace. Okay. They refer you back.
No question.
What timeframe, we do anticipate assuming the.
Works.
Would you anticipate some ramp up.
Well again, I'm not going to get ahead of our customers.
Even the automotive Oems.
Are postponing things.
You know I've had my eye on the the Ford Maki Mustang.
And for it is delayed the introduction of that.
So.
I, what I will what I can say definitively is that.
Modules is that the module maker has completely finished development on and is now marketing.
Specify our base flight.
Okay.
Okay.
I guess, you don't want to commit but is it does sound like.
The next six months.
No just my speculation.
You are saying, we can start seeing some ramp up.
Well all things.
Yes.
I understand I would I would you know within the automotive timelines.
Yes.
They would have had to be taking delivery of product now if its a.
Well I will go into details if.
The timelines can be can be fairly long.
But where we're where we're in that pipeline.
Yeah, there or any other pipelines.
Good.
We're in that we have them before.
Well I mentioned.
I mentioned.
Silicon carbide modules.
And one of the things that gets me excited is that.
You asked module producers that are very active in this area and.
We're now getting some forecast where.
Next year.
Possibly even as soon as fourth quarter, we believe that silicon carbide module.
That we've been we've been qualified as the base played supplier will start to generate material revenue.
Yeah the.
I've always surged to do is going to these conferences.
The reason.
We're not.
Company.
Same time.
Clearly in person conferences at least near term aren't happening.
So, but it's the same time he is the other side of that is the virtual conference.
It's probably easier for you to tenant.
So.
Have you looked into that.
Talking about investor conferences.
Yep Yep, where.
We.
Dissipate.
Person or virtually participating in a conference certainly before the end of the year.
Good because that was the brand before.
The.
I would just Covance thing and then I.
Really trying to stay on top of it is beginning to look like we're gonna have vaccines that are somewhat similar to.
The next scenes.
And I permanent.
You get one and they do you have to get a booster maybe three months later than the following year you may have to get another one.
For the next season, but by that time, because you can now.
2021 for this second time around.
You could very easily who have a combo vaccine that gives you both your flu and your accrued.
Same time.
It does look like.
Yeah. There is light at the end of the total finally.
So.
I'm encouraged by that so we'll see you know yep.
I am too I am too.
Okay. Okay. Thank you if you ask your question.
Thank you.
And we have our next question from Mr., Mike hide.
Oh, Hi, Graham Hi, how are you.
Hi, how are you favor when I don't mean to be route anyone.
But honestly I think there's probably more than me on this conference call and whether it's somebody owns 100 shares or million shares were 10 million shares.
Just seems like we ought to be able to move along and get different people, who want to ask different questions.
Yes. Thanks.
I'm, sorry that has to come from the top down I can't I could help Denver, the operator I could happen.
Anyway quickly on your website you've got three.
Rectification applications in the images right on the front on the website.
Frames.
Satellites and.
ROE electric vehicles out of charger charging station charging Roe and.
Where is that and what are those vehicles, and which helped them have CPR stuff.
Yes.
You're talking about which.
On your web on your website Yep Yep Yep Yep.
Yes, Okay, I don't have that right in front of me, but I think it said I think it's a generic vehicle.
But it did.
To answer your questions, specifically, where our Cps based fights today, they're in the audio six there and the ought to Q five there and there were say to spend S class, there and be smart car all electric vehicle.
That particular program there also by the way in virtually every formula one car Formula One world is very confidential.
But.
They're located.
Our asset base plates are in those automobiles that I've seen some of those photos anyway. My suggestion is change the photo on the website.
Really be updated to whatever you regard as the most interesting high performance applications.
Okay.
Very good thank you.
Alright, okay.
Theres all kinds of Buzz about you know, whether its BMW or other folks including names you've name and it seems like 2022 seems to be the magic year, when everybody is expecting bigger volume.
For example, Fisker says.
20.
Two although 2022 older they're going to be.
Fab tablets I believe in using a VW plants, some VW plant somewhere.
Peter for there.
You stuff.
BMW says 500000 electric.
Euticals by the end of 2022 looking out without forecasting future demand because you don't know until you know.
Does that sound right.
Hi.
I've certainly seen those articles.
Uh huh.
And you've set many haven't to us which we appreciate.
Uh huh.
And he.
Yes, Yes, you know the answer is that those are the plans.
And.
You know I also.
I also see.
Tremendous variability or or differences.
In aggressiveness between automotive Oems Nissan.
Uh huh.
Claimed to be the.
The first entrant and claimed that they would be the dominant player.
And it now looks like they're a very very small.
Player in the Grand scheme of things compared to some of these other auto companies if.
The projections are true.
But it myself.
Correct.
Just going to say it yet, yes, yes, I think you're right that the.
If you want to call it a tipping point or inflection point.
It is still ahead of us not behind us.
You know and Heslip Slattery, how all of your formats go ahead, Yeah Teslas opened the market opened everyone buys.
And now the BMW is of the World are are are they got the existential fear [laughter], an existential motivation the teslas created.
Right. It was my last thing and let's get some other questions.
My my comment would be that with all the buzz about the views and.
Big volume forecast, probably somewhere in the neighborhood of one of the hop two years. So on ahead of us, but boy when the change comes it's going to be really huge and it's going to be customer driven.
And what I see is it isn't just the subsidies.
Theres like nine K euro subsidies for buying an all electric vehicle mail Uh huh.
The subsidies I believe in both Germany and France.
But what's driving that isn't just subsidies, it's consumers, it's customer demand and forgetting Elon musk for do you forget all of this nonsense, what's driven Tesla is incredible buzz an incredible demand from customers and consumers.
Right right and data.
No I won't comment on Ilan Moscow, but.
If you drive a Tesla, it's a phenomenal car.
Yeah.
It is a tremendous tremendous car well, we all the number Tesla four or five years ago at a conference that we attended together, let me get off and a lot.
Let other folks ask what they want to us.
Mike Thanks very much.
And ladies and gentlemen, as a reminder, say question that is star and the number one on your telephone keypad.
And we have our next question for me Mr. worn silver.
Good afternoon gentleman.
Oh appealed to the report.
So couple of questions issue I know the dollar was very weak now I think has dropped a little four or 5%.
Wouldn't that benefit our bottom line because the fallen companies of paying.
For those should be advantageous to us.
That's exactly right Warren in fact, we've been we've been following that pretty closely and not only are they paying less to us, but they're paying less to us relative to our competition I'm in in Japan.
The dollar as we can more against the euro more than the yen has so it's definitely a something that that should should prove to be a important for us.
Second question. So is it ought to go about two weeks ago.
I also have colloquial Chinese bus company.
Xu who uses the clay Palo module came from an order for a thousand bosses and I'm wondering I think over a 12 owners also Ohio.
Well, we are involved on our auto was the we supply somebody at that level because I saw adult fly technologies also was involved the small on his old Navy Tony will help a comment on that.
Hi.
Are you referring to Cree CRT, yes, yes.
Yes, Yes, let me just say crew, yes, Cree is a a important customer for us.
Although we are involved on so Chinese sort of thousand buses I mean should they showed specifics here the using.
Modules.
Hi.
I do.
I don't I'm not a I've.
Oh, we.
We are we are the vendor for several Cree modules I'm I have not been told by Cree.
Whether.
Any of the modules that to the for which we produce the based flight.
I've had been sold to this to this bus company.
Okay.
First question.
So I caught the so called follows me tell Watson.
Both the chunks.
The building they actually it's a chunks and I understand the buses and trucks Hello problem, but to your completion and they will do solve all so high Oh, we get in any indication so not on a heavy.
Mark I know a bus market.
We believe.
That.
Well, let me say, we have our base plates are used in a sum.
They are primarily a military.
Heavy trucks today.
And we've had in short.
We believe that we will be successful in that market for the very reasons you describe higher voltage.
Greater thermal cycling, a greater need and ability to pay for reliability. Okay. Thank you.
Motion.
And the one, Illinois, I think for as long as a percentage of them 25, or 27% and they've got I, usually talk corridor I believe is from Amazon I'm not sure.
And you mentioned that we have a relationship with Floyd, but Ford Mustang Oh, we're involved with that new a startup Louisiana electric on the books.
We we are not okay. We know we know that or at least one of our customers.
Module manufacturers is calling on rebellion. Okay. That's important we're not we're not directly interacting with revealing.
Okay well. Thank you very most then the vishay supposed to see 19 is allowed to everybody and I wish us both products.
Once the nine months 'cause it shares with.
Yeah. First then go on the one year ago and thank you.
Thank you very much on thank you.
Yeah, we have no further questions at this time.
Okay. We appreciate all of you joining the call.
And I appreciate the suggestions made a made during the call.
Let me.
Hi, David or is.
Is.
Constantly in front of everyone and a I'm anxious to communicate that.
That.
Oh, it's important to as important as it is a it's not dominating our business. It is is influencing in the short term some ups and downs, but we remain optimistic regarding our performance in 2020, we remain confident that to many of the offer.
Additional improvements.
Yes.
Resulting in the significantly improved bottom line.
We'll continue our product sales pipeline is strong.
And and ourselves team continues to add to generate new business we.
I know one is traveling [laughter] and if you were to visit currently you need to have your temperature take anywhere I'm, asking but that we hope that to is covered resolves those of you who might be interested in seeing what we do a do come and take a look with that let me sign off and we look forward to chatting with you in.
In three months. Thanks again, thanks, everybody.
My by gentlemen.
Ladies and gentlemen, this does conclude today's conference call.
Thank you for participation you may now disconnect.
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