Q1 2021 CPS Technologies Corp Earnings Call
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Good afternoon, and thank you for standing by and welcome to the Cps Technologies Corp, first quarter Investor call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
For the bad please be advised for this conference call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today chalk misfit. Thank you. Please go ahead Sir.
Thank you operator, and good afternoon, everyone I'm joined today by Grant Bennett, our president and CEO and Michael Mccormack, our COO 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 that are not strictly historical are forward looking statements within the meaning of the private securities litigation.
<unk> Reform Act of 1095 and should be considered as subject to the many uncertainties that exist in the Cps is operations and environment.
These uncertainties include the impact of COVID-19, economic conditions market demands and competitive factors such factors could cause actual results to differ materially from those in any forward looking statements now ill turn the call over to grant to offer his perspectives on the first quarter results.
Thank you Chuck.
Welcome everyone.
And there appears to have been some difficulties.
With the press release being.
Posted but its now posted with our results on it.
Today, we announced revenue was $4 $9 million and an operating profit of $3 $6000.
For the quarter ended March 27, 2021. This compares with revenues of $6 5 million and an operating profit of $622000.
For the quarter ended March 28 2020.
The financial results in the first quarter from our perspective were encouraging and more accurately I should say there were developments in the first quarter, including the financial results, which were encouraging.
Touch on two topics.
First is COVID-19.
As described in our press release, the first quarter results.
<unk> are confirmation that most likely the worst impacts of COVID-19 are behind us.
In other words.
Our Q1 results are confirmation that the fourth quarter of last year was the deere, where the bottom in terms of the impact of COVID-19 on our customers' demand or shipments increased in Q1 compared to Q4.
Of course as indicated by the increased revenues and very importantly, our book to Bill ratio, which we don't normally publish but the book to Bill ratio in the first quarter was very positive. It was approximately two indicating that for every one dollar of shipments.
We booked $2 of.
Of orders.
That book to Bill ratio of two certainly suggests revenue growth in the quarters ahead.
A second important development for us.
Relates to diversification of our customer base.
Significant growth in the first quarter.
In what has historically been our two smaller product lines, namely Hermetic packaging.
And under armour.
There were some very significant growth primarily in the Hermetic packaging line, but growth in both these areas is resulting in a reduction of customer concentration or to flip the coin over an increase in diversification of our customer base and diversification of our revenue.
Sources.
Increasing diversification should somewhat reduce the volatility of revenues quarter to quarter going forward.
We indicated in the press release that the base plate business was slow in the first quarter and is expected to remain sluggish throughout 2021 as spending on high speed rail and mass transit systems.
Is delayed due to the pandemic.
To be very specific more than 100% of the revenue decline in our first quarter of 2020 compared to excuse me first quarter of 2021 compared to first quarter 2020 is the result of reduced demand from our.
Largest customer historically rich.
Reduced demand for one customer.
Obviously this reduction in demand has the effect of.
Reducing customer concentration, but for a negative reason however, we're very confident of that.
This demand will return and as it does we're also very confident the growth in Hermetic packaging and now beginning in the second quarter the growth in armor and other <unk> applications will also continue.
With the net result that.
<unk> increased customer diversification is here to stay as we go forward.
With that overview, let me have Chuck.
Jump into the numbers sure. Thank you grant.
So revenues totaled $4 9 million in quarter, one of 2021, compared with $6 5 million generated in quarter. One of 2020, that's a decrease of 25%.
A reduced demand from our largest customer as grant just discussed accounted for more than the total more than the total decrease in revenues.
In 2020 in anticipation of potential supply disruptions due to the COVID-19 pandemic this customer accelerated there.
Q2, 2020 purchases into Q1.
Gross.
In the first quarter 2021 totaled 944000 or 19% of sales.
This compares with gross margin in quarter, one 2020.
$1 million 550000 or.
Or 24% of sales while increased manufacturing efficiencies mitigated the reduction in gross margin fixed costs, which did not vary with decreased sales volumes were the predominant reason for this reduction.
Selling general and administrative expenses totaled 908000 in Q1 2021, compared with SG&A expenses of 929000 in Q1 2020.
The hiring of our new Chief operating officer, and increased costs associated with printing and distributing our proxy material.
Were offset by reduced variable compensation amounts due to a lower operating profit.
The company experienced an operating profit of $36000 in Q1 dollars 21, compared with an operating profit of 622000 in Q1 2020 as a result of the reduced gross margin.
Turning to the balance sheet, we ended the quarter with $168000 of cash and 193000 of borrowings against our line of credit.
This net cash of minus 25000 is an improvement of our cash position from the end of Q1 2020, when the net cash was minus one 5 million.
Accounts receivable at March 27, 2021 totaled $3 8 million compared with 6 million at March 28 2020.
Our day sales outstanding totaled 70 days at the end of the year compared with 77 days for the year ended 2020.
Several factors contributed to this reduction and not the least of which was the negotiation of better payment terms with one of our larger customers.
Inventories totaled $3 6 million at March 27, 21 equal to the $3 6 million at March 28 to 20.
The inventory turnover in the most recent for quarters was four one times compared to six times for the for quarters ended March 28, 2020. This decrease in turns is directly related to the decrease in purchases from our largest customers as previously discussed as well as the buildup of raw materials for armor contract.
Turning to the liability side, you'll see the 193000 drawn on our line of credit payables and accruals totaled $2 9 million at March 27, 2021 down from $3 4 million at March 28, 2020, Lastly, I'd like to point out the significant improvement in our in our current ratio over the <unk>.
For the last 12 months, we started the period with a current ratio of one eight with finished the year at two point finished the 12 months at two nine.
And for further discussion, let me turn the call back over to grant.
Thank you Chuck.
Last week, we held our annual meeting of shareholders.
Thank you for voting by returning your proxies.
<unk>.
For most of you. Thank you for your vote.
Okay.
We welcome the many new shareholders, who have joined us over the last year.
And our most recent quarterly investor call.
The first one of this year I tried to outline the fundamentals of our business what I call. The Big picture I summarized three topics essential to understanding our business, namely our core competencies, our product pipeline and our primary markets.
Certainly won't repeat that message in full but let me use that framework.
By commenting on developments in each of these three areas.
Let me do so in reverse order first our primary markets.
High voltage power modules has been and remains a major market for us.
Today, our products are primarily used in high speed railway and subway car applications, but they are also used in wind turbines.
Electric grid electric vehicles and electric vehicle charging stations.
I'd expect most of you would agree with US that these latter markets wind turbines the grid electric vehicles and electric vehicle charging stations are in the early stages of long term growth.
Governments are setting targets and agendas for the next 25, and even 50 years in these areas R&D spending and the introduction of new products into the marketplace are.
<unk> rapidly.
In short as it relates to this market. We believe we are in the right place at the right time and look forward.
Two significant opportunity and significant growth.
Second market for us is the aerospace and defense.
<unk>.
The United States is by far.
For the largest market for anything aerospace and defense related.
Speaking just about defense for a minute the U S spends more on defense and then the next 10 largest countries combined.
Aerospace and defense are markets, which by their very nature.
Value reliability performance and in many specific applications reduced weight.
Our business historically.
It has been about 70% about 70% of revenues have come from export and only about 5% to 10% of our revenues have been related to the U S defense area.
We are putting a much greater emphasis on selling and marketing here in the U S.
And we are seeing the benefits in terms of bookings from our perspective, we're really just scratching the surface.
As it relates to aerospace.
<unk> press releases recently.
Regarding it being on the.
The Mars Rover.
Regarding play.
Playing a very important part and the methane sat satellite.
Which is will be launched in about two years.
And.
And the fact that our products are found in.
And essentially all of the current generation GPS satellites.
Our new Chief operating Officer, Michael Mccormack.
It comes out of the defense electronics industry.
And as also a west point graduate he understands how the defense department functions, how it defines needs and how it procures solutions.
He understands both the electronics and the armor segments.
And we're excited because we have real solutions that generate real value in both of these areas.
Another important market for us is the market for lids and heat Spreaders for high performance application specific integrated circuits graphic chips.
Fiber optic applications and microprocessors.
Fact that a shortage of application specific integrated circuits is shutting down entire car assembly plants is an indication of how digital technology and products continue to penetrate almost every piece of equipment we use.
We are excited about opportunities in these areas for example, a design win from about four years ago for a silicon photonic integrated circuit housing, which is used in optical communications has just gone into volume production. This year.
And it will account for several hundred thousand dollars of revenue.
In this year and will continue to grow for several years thereafter.
The second major topic is our product pipeline.
And by that I referred to those products, which are on the continuum that exists between achieving a design win when a customer has selected our product and the time when net product goes into volume production.
Our product pipeline is stronger than it has ever been.
Current pipeline, meaning those products, where we have the design win but it is not yet in production will generate significant growth.
As those products, where again, we already have achieved the design wins go into production in the future just as this optical application Ive described however.
However, we are taking action to increase the reach of our sales marketing and business development efforts to achieve an increased number of design wins and these actions.
Include the additional hiring in the sales area in the product development area and revamping our digital presence in particular, our website and our social media presence and activity that.
He is underway and youll see the results of that later on in the year.
Thirdly, let me just comment on our core competency, which is our technology for combining metals ceramics to for metal matrix composites. This core competency includes both the intellectual property.
The core technology itself and it includes.
The design manufacturing and quality capabilities to produce products using this technology ship. These products on time and do so at attractive margins.
Our primary metal matrix composite today.
Is aluminum silicon carbide or <unk>, but by no means is that our only metal matrix composite.
We are extending our core competency primarily into adjacent technical spaces, which will allow us to produce new and novel solutions for customers.
We recently issued a press release announcing a key hire.
Our product development team Dr. Steve catcher we're excited.
At the.
For the activities underway to extend our core competencies and to create these new products.
Finally, many of you are aware if.
If you look at our SEC filings that we recently filed a prospectus for something called an at the market stock offering.
1996, Cps has funded our operations for.
<unk>.
Funds generated by our operations and we can continue to do so.
We do see opportunities.
Which due to their size and the speed with which they could development. It could develop would require funding that goes beyond funds generated by operations. So through the ATM mechanism, we're taking action to strengthen our balance sheet too.
To ensure that we can seize these opportunities.
As we move forward.
Let me pause there and let's open the call for questions.
As a reminder to ask a question you will need to press star one on your telephone keypad again, everyone. If you have questions. Please press star one on your telephone keypad to withdraw your question you May press accounts.
Standby, while we compile the Q&A roster.
Your first question comes from the line of Lauren shall Sir.
Your line is now open.
Good afternoon members of the board.
Hi.
Graduations.
Paul.
Sure.
Thank you cole.
So many negatives in there.
I'll just clarify.
Carl for it.
For two upon levels build homes as a senior applications as you know.
Mccormack.
And as our Chief operating officer.
Cash flow.
I mentioned that well, yes, well.
Making the transition.
The vulnerable.
We will no longer.
Essentially we're always doing something in.
As long as something we will call them for longer factually.
And I think is very positive.
Good morning.
I just wanted to mention on March.
And then what kind of lessons Powell.
Thanks Mark.
For hardwood coalition wishing for tomorrow kind of actual power cell phone company.
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Energy.
For a company called the Tennessee Valley Authority.
Plan to add additional.
Vehicle fast Chargers.
For connect the mid Atlantic region, the Gulf Coast Central Pangea area.
Paul.
Power grid.
This concludes supplied by a single.
Rahmbo moving.
Which is part of it will be I don't know if they sold with caution.
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The company's general election.
Cps has very strong growth.
<unk>.
Really the general election.
And also.
Yes exactly.
I can qualify as this credit.
Makes sense.
So you have to use a lot of good guidance.
Youre going from high voltage.
Well, we'll consume cash.
Sure.
And that would be a huge market, but we're also and this is why no ballpark.
For Ts with two of our companies that we deal with over the years and you will spend on those please.
Thank you Warren.
Yes, I certainly can confirm that.
ABB or in now what's referred to as ABB Hitachi power grids.
Is a major customer of ours.
And they are very very active in particular in the EV charging area, providing equipment components modules into that market and that GE is an important customer of ours.
There are several other players.
Who.
Our tier one suppliers.
Into the automotive market itself and tier one suppliers.
Into the companies that make the overall charging systems.
These are companies.
Like.
Infineon or here in the U S Cree.
International Rectifier Microsemi.
And several others.
And we are very excited that we have a strong position.
With these companies around the world and <unk>.
Again, if you were to look at our product pipeline many of the design wins.
That are that are in the pipeline moving towards production.
Our with these companies.
The.
And again, what what is.
Yeah.
Press.
Has preceded.
The sizzle has preceded the stake in many of these areas for many years in other words theres been lots of discussions.
About electric vehicles for example.
But they still only equate.
For a very small percent.
The automotive sales, but that is rapidly changing.
And likewise.
The use of renewable energy.
Provides tremendous opportunities.
For our base plates for high reliability modules for use in the grid.
When I when I say, we're in the right place at the right time.
Really mean that we have.
Some proven solutions that we believe will increasingly be used by.
By a wider number of customers.
Thank you for immersion.
Also very happy that we were.
Pending a comparable base.
So on the perspective, you mentioned some shares.
Awesome.
Small guy Wuxi.
That's true.
The $6 million capital basins for making roughly 20% if we increase the capital base for so exposure to $30 million or 25.
Number one.
Moving to have a global return on invested capital.
It was very positive.
Well listen everyone. Good luck moving forward.
Thank you very much worry thank you Warren.
Thank you.
Good day, everyone. If you have questions. Please press star one on your telephone keypad.
There are no further questions at this time for we have Lenny Dunn. Your line is now open.
Oh.
Hello Lenny.
Yes, hi.
Quick question on the losses.
Offering.
Can you give us a little bit of an update.
Of the at the market stock so so far.
No.
We've.
We're in a blackout period right now until we make this earnings announcements so we haven't.
Nothing has been done at this point in time.
And.
Hi.
Yes.
That.
This will be done.
Very orderly fashion, so you don't.
Share price.
Absolutely.
Absolutely.
And.
Do you have any.
Relatively immediate plans to utilize the money.
Putting it on the balance sheet.
We.
The short answer is yes. The short answer is yes, let me just leave it leave.
I'll leave it at that.
Yes.
These specific about things that you haven't done yet.
But.
I'm not assuming that anything you would do.
Let's do it.
I'm not concerned with that.
Yeah.
You do have.
Some ideas as to where some of the margin.
Yes, yes.
Okay, Okay, well I guess so.
No.
Thank you.
For two times.
To raise funds.
Okay.
Thank you. Thank you. Thank you.
We.
Chuck and I are here in.
In Norton, Massachusetts, and Michael Mccormack, our Chief operating Officer is also on the call, but joining us from Florida, where he is visiting some customers.
Michael I Wonder if I could put you on the spot and.
Just ask you to comment a little bit on on.
Armour in particular.
Yeah, absolutely Greg.
Okay.
So as Greg alluded to we have begun shipments of.
Our first order of hybrid tech armor and that has commenced over the last few weeks, we anticipate that will take us the majority of the fiscal year.
We are.
Very cautiously optimistic that additional orders will follow shortly.
Talking with other potential partners down here in South, Florida about other applications for the armor.
Obviously, the environmental performance and it's extremely lightweight.
But the feeling relatively high kinetic energy threats that makes it extremely attractive to a lot of.
Tier one.
Sure.
Oems for the U S aerospace and defense market and we're quite bullish on that.
Quite a few initiatives.
Ongoing with on the development I think Greg also mentioned.
Warren did we have the luxury of fulfill homes and Steve Gotcha.
Now to augment with.
<unk> product.
Product development team and we continue to work.
Work on inventing new AMR solutions along with.
A longtime time, which I'm sorenson.
And that is going again, advancing well too and I'm extremely optimistic.
Our arm business lines is here to stay and growth.
Very good thank you Michael.
Internally.
We think of our.
Products as falling into three.
Three product families.
Our components are hermetic packages and.
Armour and <unk>.
<unk> components.
Historically been the largest part of our business and the growth opportunities are very significant there as I alluded earlier.
It has been most affected by COVID-19.
As as.
<unk>.
Slowing.
Spending has been delayed or slowed for rail projects.
But our activity in making high reliability, hermetic housings and packages used in aerospace.
Avionics applications.
That business.
Has been very very strong and we.
<unk>.
We're very pleased that.
We believe that growth.
Will it continue.
And we're we're we're particularly interested in that.
From our point of view.
What we refer to as the outset Hermetic package Hermetic package.
That.
That is based on our aluminum silicon carbide, rather than conventional materials.
Yet.
Customers need to thoroughly evaluate.
And understand and demonstrate the reliability of that package before they adopt it but as more customers are adopting that the reference selling.
Becomes more straightforward and we're very excited about the growth potential there. So again I come back to say.
As we look at the future.
We are our product portfolio in total is stronger than it's ever been and.
It is more diversified.
With less customer concentration and therefore, we believe there'll be there'll be less quarter to quarter volatility as we look forward.
Markwest, if any more questions if.
Yes.
Again, everyone. If you have a question. Please press star one on your telephone.
There are no further questions at this time you may continue.
Very good we once again thank you.
I realize if very few were traveling but we reiterate our invitation.
To come visit us if you're in the greater Boston area.
And.
We.
Look forward to our next call.
And we will say, thank you and good night.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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