Q3 2021 CPS Technologies Corp Earnings Call
Welcome to the conference Center, and operator will be with you momentarily.
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Thank you.
Thank you for calling me out of a conference I D.
Sure let me just get the.
I have a 2516 year old six.
Alright, and the spelling of your first and last name.
Rachel R E C H E L.
Smith S M I T H.
Thank you one moment please.
Yeah.
Okay.
Okay.
Yeah.
And May I have your title please.
On the list.
Analyst right.
Yes.
Thank you and your email address.
Okay Rachel.
R E C H E L F a here.
I E R E Dot com.
Thank you Ann your line will be.
Oh, one moment please.
Yeah.
Yeah.
Yeah.
Thank you I'll be joining align now.
Thank you.
Sure.
I'm also joined by Dan Barton, Dan as our senior director of operations and if there are any questions later regarding operationally oriented items that we'll be able to to help out in answering those questions Bill.
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 Reform Act of $19 95, and should be considered as subject to the many uncertainties that exist in Cps.
<unk> 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.
And now I'm going to put on my Michael Hat and I will give you some of his comments.
Today, we announced revenues of $5 $5 million and an operating loss of $88000 for the quarter ending September 2005 2021. This.
This compares with revenues of $4 4 million and operating income of $254000 for the quarter ending September 26 2020.
The financial results in the third quarter were not unexpected given that the quarter included over $325000 in significant nonrecurring restructuring costs.
We believe these onetime restructuring costs will immediately begin to demonstrate a positive long term contribution to earnings beginning in early fiscal year 2022.
The 25% growth in revenue as compared to the same quarter a year ago is extremely positive. In addition to our fiscal year to date book to Bill of one six to one.
It continues to substantially exceed our planned reaffirming our growth in sales.
Sustainable and growing with a larger sample of data.
This increased sales will begin to directly translate into increasing revenue in fiscal year 2022.
We are continuing to remain vigilant and ensuring availability of raw goods throughout our supply chain.
The ability of our entire chain has been challenged since the pandemic outbreak nearly two years ago. We are confident we have multiple plans in place to control the issues we can control.
Michael I'll speak more form HEICO later on this but now I'm going to give you Chuck the Chuck hat and more detail about the financial results.
Revenues totaled $5 $5 million in Q3, compared with $4 5 million generated in Q3 2020, an increase of 24%.
This increase was due primarily to the company's first army production order, which didn't start until Q2 2021 as well as increases in sales to other customers in the aerospace and defense markets.
Gross margin in Q3, 2021 totaled $1 1 million or 21% of sales. This compares with gross margin in Q3 2020 of <unk> 9 million also 21% of sales obviously the increase in margin dollars directly correlates to the increased revenue.
Selling general administrative and administrative expenses totaled $1 2 million in Q3 dollars 21, compared with SG&A expenses of $684000 in Q3 2020.
This increase was primarily due to nonrecurring restructuring cost of $327000. The company executed a plan to streamline and streamline its operations in Q3, 2021 and incurred one time severance and other costs under the plan.
In addition to the restructuring cost Commission expense with increase from Q3 2020 to Q3 2021 due to the higher revenue.
The company experienced an operating loss of 88000 in Q3 dollars 21, compared with an operating profit of 254000 in Q3 2020. This decrease in operating income is due primarily to the increase in SG&A expense previously discussed.
In December 2018, with companies set up a valuation reserve against its deferred tax asset at the time following a period of sustained losses management determined that it was more likely than not that this tax asset would not be used management has reevaluated. This decision in light of.
Recent profitability and expected future profitability and has determined that is more likely than not that the company will be able to fully utilize this tax asset as such a tax benefit of $2 $8 million has been recorded on the income statement as of September 25 2021.
As a result of the above Cps recorded net income in Q3 2021 of $2 8 million compared to net income of 231000 in the same quarter last year.
Turning to the balance sheet, we ended the quarter with $3 8 million of cash. This is an improvement to our cash position of $195000 at the end of 2020 and.
In May we completed our at the market filing and began raising funds under that program through the end of the third quarter, we raised approximately $3 $5 million of net under the ATM offering. These funds have enabled us to completely cease borrowing under our line of credit as our daily cash balance fluctuates. In addition, we've been able to.
Zarb the increases in accounts receivable as our sales grow and in inventory as we develop our army line.
Ah raised under this offering has been managed such that as we've covered our short term cash needs. We have become more selective regarding the days and market prices at which we will sell additional shares.
Accounts receivable at June <unk>.
At September 25, 2021 totaled 5.0 or $1 million compared with $2 9 million at December 26, 2020.
Our days outstanding our days sales outstanding totaled 82 days at the end of the quarter compared with 62 days at the end of 2020. The increase in DSO was due to advanced billings to customers, whose orders require cps to purchase special raw materials in order to fulfill those orders. These billings are currently in.
Accounts receivable, but are not reflected in revenue, hence the increase in DSO.
Inventories totaled $3 8 million at September 25, 2021, compared with $3 7 million at December 26, 2020. This small increase in inventory is due to increased armor materials offset by better management of the inventory in our other product lines.
<unk> inventory management has now become an area of focus for us.
The inventory turnover in the most recent four quarters was four three times compared to four five times for the quarters ended December 26 2020.
Turning to the liability side payables and accruals totaled $2 6 million at September 2021 up from $1 8 million at December 26, 2020. This has grew to date due to greater expenditures due to higher sales levels as well as the accrued restructuring charges, which we talked about earlier.
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And now I am going to take a sip of water and then put my Michael hat back on.
Okay.
So what has just happened.
This past quarter, we continued to make sizable progress on current operations and our near term and long term goals to grow a sustained medium sized business.
We are completely focused on increasing our capacity to add sales and improve our ability to execute what will begin to show both top and bottom line performance increases.
Fiscal year, 'twenty, two and beyond.
These are exciting and transformational time here at Cps, we're in the final phase of our rebranding and digital strategy launch, we anticipate will be substantially completed by the end of this year and all our product lines will have equal representation and improved content.
We have selected a new logo that is representative of where we're going as a company a technology solutions provider using high performance material solutions. In addition, we have a new website about to be unveiled that makes cps technologies more accessible to customers investors as well as prospective employees.
For the near term future.
To take an opportunity to speak directly to the current progress of our hybrid tech armor lines the.
The progress on our current and emerging programs is extremely encouraging as you are aware. We are currently executing on a U S. Navy order with our partner kinetic protection. We just completed the equivalent of one aircraft carriers worth of Hybritech armor. We currently have four additional carriers worth of armor orders in the production.
Cycle with deliveries into fiscal year 2022.
In addition, our partner in the U S. Navy are signaling the potential for additional orders, which may be coming in by the end of this year. We're cautiously optimistic this will occur in that discussions on expansion beyond the aircraft carrier platform to command and control and other ships will advance.
In the long term future, we're also making progress on other applications of Hybritech armor.
As mentioned early earlier.
Hybritech armor is a phenomenal product that is significantly protected with patents in particular, our army performs extremely well against high ballistic threats in harsh environmental conditions. The RMR also does very well in lightweight applications with significant kinetic energy threats, we were <unk>.
Recently notified by another partner that we've been selected as their strike face for the proposed solution to the requirement for the future long range assault aircraft or the F. L. Our AA program for the U S Army.
This design win using a different hybritech army recipe under our intellectual property is confirmation that Cps technologies armour product line will be viable for the foreseeable future and beyond.
We're also continuing ballistic verification testing with an international partner for a significant vehicle program in Southeast Asia, We have been working with our customer for years now and have scheduled the test sometime in early 2022.
After the successful demonstration we believe the ultimate consumer will delineate the specific threat in solution and we will move forward into production until late 2022.
So that takes care of our prepared remarks for today.
We expect our performance to continually and incrementally improve as we move forward not just year to year, but also quarter to quarter.
We're always vigilant on the supply chain and COVID-19 disruptions that can occur.
Our fiscal year 'twenty, one appears to be growing upon the performance of last year in fiscal year 2022 looks better than this year.
I feel we're on firmly solid footing to see a compounded annual internal growth path for the next several years.
And with that operator, we can open up the call to questions.
Yes.
As a reminder to ask a question you will need to press star one on your telephone. So we draw your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Lenny Dunn. Your line is now open hi.
Yes.
Hi, Chuck.
I just wanted to compromise you I'm being scrupulously honest.
And the way you presented this because so awful lot of companies split it presented the 19th century.
And.
It would be would you.
It does secure earnings work.
You broke it down the kind of negative refers to them.
Got it thank you on labor so.
I wanted to compromise.
It's pretty easy for me to figure out.
I'm not sure if it is for everybody.
Okay.
I think you are right about that that's why we've tried to be.
Thorough with our explanation.
Okay.
Yeah.
So just looking forward to.
The next.
Enable contract or whatever good news you can put out there, but obviously.
It only happens when it happens so.
Hopefully soon.
Uh huh.
Hello, I wanted to compliment you and.
It looks very good.
Thank you, thank you and as far as the.
The soonest of the next orders from from your lips to God's ears.
Okay.
I would make.
Thank you Lenny.
Yes.
Yes.
Your next question comes from the line of Patrick White. Your line is now open.
Hi, Patrick.
Patrick.
Eric.
Yeah.
Mr. Patrick Ryan Your line is now open you can state your question.
<unk>.
Congratulations on solid quarter.
I wanted to.
Maybe.
On a couple of areas one is the hybrid armour as well as.
Touching base.
On a on the EV topic.
It's certainly a.
Really growing space and as such huge potential out till 2030.
So first on the.
The hybrid arm or tech.
Last time, you indicated there was I think four call four programs going and they all were comparable size maybe to the <unk>.
<unk> ship program for the Navy and I am wondering if that has changed a little whether its still four programs.
Out there you'd mentioned I think two or three today.
And one of which seems to be.
Rather sizable the southeast Asia, one if youre dealing with vehicles.
Can you and things changed in the last quarter.
More programs less I think.
Well first of all I would I don't believe that we would have stated that they were of Congress necessarily of comparable size to the one we have from the Navy. There are three additional programs right now that are out there.
<unk> is relatively small today, but it's.
Yeah.
<unk> it could grow obviously.
And then the other two that we talked about.
The.
We've made a shipment of sale of armor to.
To be tested for this southeast Asia program and.
And that we certainly expect that the results of the tests will be very good. So far I think all of our testing has been good do you want to comment Dan maybe on that a little bit.
Everything is going well yeah, okay. Good.
And and then and then the.
The FL.
Whatever it was program.
That's F L. Our AA program sorry.
That's.
Something that we're pretty excited about we just got some very good news.
Hum.
Two or three weeks ago I want to say so.
Really pretty excited about that.
Okay.
The acronym for this.
<unk> aircraft and is breakfast.
Right and I assume that is contingent upon.
That particular.
Prime contractor and getting wins in other words, it's a design win only.
In name and not necessarily.
Ticket sales until they until your prime wins.
Yes, exactly right exactly right, but yes, we are.
Very optimistic but yes, that's we don't have an order yet, let's just we'll just say that but we're very optimistic.
Great Okay.
Yeah.
Flipping over to the E&P space certainly, it's got an awful lot of attention and my understanding is that at least in some applications at a higher cost associated with ASIC.
Right justify some Oems.
Designing in your.
Products and so.
The growth rate.
With additional players coming on.
Yeah.
And some large Oems, including GM and Ford.
All suggest that we're talking about maybe 2000 and $30 million 20, or 30 million vehicles.
Towards the end of this decade.
And so I was wondering.
To what extent UCL being able to penetrate the passenger vehicle market.
If not that market, maybe larger vehicles and has anyone attempted in the company to quantify what the size of that market might be.
Even if it's a range and.
How do you see that playing out.
Sure. So I think certainly we've already produced.
Based plates for the for the hybrid.
Hybrid and electric high end luxury vehicles I'm sure that.
Before I, even got here I know that Audi none of the Audi models was using our base plates.
I think certainly on the luxury side of the of the passenger market.
There is there's a lot of opportunity I think the other big area is that.
With the.
The ASIC based place are used for high voltages because of the positive properties. It has with with silicon chips.
But with with electric vehicles, there's more interest in doing and using silicon carbide chips, which run hotter, which makes the likelihood of needing an ASIC base plate, greater and where that where that wind falls in terms of how how high up in AR.
On the passenger vehicle market.
Is it going to be in a chevy bolt or is it going to be only in our.
I have an audi or a very high Lincoln hybrid or whatever.
I Couldnt say at this point in time, but I do know that there are those that that outlook is much more conducive with the with the silicon carbide chips and by the way the silicon carbide chips are more efficient. So you can get more life out of your out of a single charge on your battery and that kind of thing. So it makes sense that they would try.
To work with that with those when it comes to electric vehicles.
As far as size of market.
Yeah.
We've had some projections from some customers that are.
That in six or seven or eight years.
They could be our largest customer in that kind of thing but.
Six or seven or eight years from now.
It is too far away for me to make any.
Specific comments on so.
Understood I'll leave it at that does that answer your question.
It does it does.
So I'm gathering that you don't see enough of a market opportunity in the next say two to four years to justify necessarily taking your pitch directly to the Oems I assume you're only working through the tier tier one.
Suppliers and not necessarily the Oems.
Curt could make it to make the value proposition I guess more widely known.
Correct.
And we are doing a lot of work with those folks, but as I said at this point.
It's real work in real and real sales and real money, but it's not.
Whether it grows faster than we than they originally thought or.
Who knows.
Is there any indication that this silicon carbide.
<unk> enables higher voltages, but gets to such higher voltage split almost <unk> becomes.
Necessity.
Aye.
I don't think I want to answer that because I I'm not an engineer and I don't really I don't really know the technical technical side of that I mean, I think that.
At some point as I said before there is going to be.
Whereas.
Today with Silicon chips, you might say that.
And again don't.
Don't take this to the bank at 900 volt.
Hum.
Power module with you you're fine with the copper base plate, but a 200 volt you want a you want an ASIC base plate and then.
Does that shift with the silicon shift to maybe 600 900.
I don't know the answer to that question, but but certainly at some at some level it would.
Sure.
Yes, I understand that 800, bolt, maybe where things start to get interesting for you or at least.
Might justify.
Consideration they all basically.
Okay well.
Thanks for considering today.
Yes.
Good luck in the next.
A couple of quarters.
Look to talk to you in the future.
Thank you Patrick.
Yeah.
As a reminder, if you would like to ask a question just press star one on your telephone keypad again, Thats star one to ask a question.
There are no further question at this time presenters. Please continue.
Alright, well then if that's in that case I'd like to thank everybody for calling in and listening to us and.
Dan say Hello, just so they know your voice.
Everything was very well Chuck you did a great job kind of thing.
I paid him to say that.
Anyway, thanks, everybody for joining the call and.
Look forward to speaking with you again in the future and hope to have.
Even better news next quarter. Thank you very much.
Yeah.
This concludes today's conference call. Thank you everyone for participating you may now disconnect.
Okay.
Yeah.
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