Q1 2022 CPS Technologies Corp Earnings Call
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Good day, Thank you for standing by and welcome to Cps Technologies Corporation first quarter Investor call.
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 that session you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the call over to our speaker Mr. <unk> the floor is yours.
Thank you operator, good afternoon, everyone and thank you for joining us I'm joined by Michael Mccormack, Our President and Chief Executive Officer, who will offer his comments on our first quarter results.
Before we begin the business portion of the call I would like to point out 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's operations and <unk>.
Byron. These uncertainties include the impact of COVID-19, the Russian invasion of Ukraine, economic conditions market demands and competitive factors such factors could cause actual results to differ materially from those in any forward looking statement.
Now I will turn the call over to Michael to offer his perspectives on the first quarter.
Thank you Chuck good afternoon, everyone. Today, we are pleased to announce first quarter revenues of $6 7 million and an operating profit of $547000 for the quarter ending April <unk> 2022.
This compares with revenue was up $4 9 million and an operating profit of 36000 for the quarter ended March 27th 2021.
We are delighted to report that revenues in the first quarter 2022 were the highest in the company's history and showed 7% improvement over the revenues from the fourth quarter of 2021.
Even more significantly we show a revenue increase of 37% over the first quarter of 2021.
Further we are beginning to see the benefits of the growth and cost control programs. We have put in place as our first quarter operating profit was greater than the operating profit for the entire 2021 fiscal year.
We are encouraged to realize returns on the growth initiatives and operational changes we are executing the team is continuing to drive growth and efficiencies to sustain this momentum.
As the global economy progresses, our pandemic recovery and into new challenges there are lasting impacts such as inflation material availability logistical delays attracting labor force that we are actively working to mitigate and an uncertain overall economic environment. We remain incredibly pleased with our first quarter performance.
And are confident in our outlook I'll speak more later about the overall business progress moving forward in the call, but for now I'd like to Chuck to discuss the financial results in a little bit more detail.
Michael.
Revenues totaled $6 7 million in the first quarter 2022, compared with $4 9 million generated in Q1 of 2021, an increase of 37%. This increase was due primarily to the increase in sales for armor and Hermetic packages in Q1, 2022 as well as the impact of.
The COVID-19 pandemic on our sales in Q1 2021.
Gross margin in Q1, 2022 totaled $2 million or 30% of sales. This compares with gross margin in Q1 2021 of $900000.
At 19% of sales.
This increase in margin dollars directly correlates to the increased revenue due to the increased absorption of fixed costs and also to improved manufacturing efficiencies.
Selling general and administrative expenses totaled $1 4 million in Q1, 2022, compared with SG&A expenses of 908000 in Q1 2021.
Compensation costs made up a little over half of this increase in particular increased accruals for variable comp.
Sensation due to the better results in Q1 2022 as compared to Q1 2021 share based compensation being postponed to Q2 in 2021, but done as usual in Q1 of 2022 and three additional members of our sales team that were <unk>.
Hired subsequent to Q1 2021, basically those three things made up the compensation differential the other significant portion of the SG&A increase was due to commission expenses incurred as a result of the increase in sales.
The company experienced operating income of $547000 in Q1, 2022, compared with operating income up $36000. In Q1 2021. This increase in operating income is due primarily to the increase in revenue and gross margin as previously discussed.
Turning to the balance sheet, we ended the quarter with $4 $7 million of cash. This is a reduction in our cash position of $350000 from the end of 2021. The decrease in cash was due primarily to the increase in inventory and reductions in accrued expenses and that was those were somewhat offset by our net.
Profit.
Although it remains open and available to US no additional cash was raised under the ATM program in Q1 2022.
Accounts receivable at April 2nd 2022 totaled $4 9 million the same as the $4 9 million at December 25, 2021, our days sales outstanding improved to 66 days at the end of this quarter compared to 72 days at the end of the year ending 2021.
The decrease in DSO was due to the inclusion of deferred revenue of $6 million in the year end accounts receivable balance which was collected during the first quarter of 2022 inventories.
Inventories totaled $4 $7 million at April <unk> 2022, compared to $3 9 million at December 25, 2021. This increase in inventory is due to increased work in process and raw materials needed to support our expected sales growth the inventory turnover in the foremost.
And the most recent four quarters was four seven times, which is the same as it was at the end of 2021.
Turning to the liability side payables and accruals totaled 3.0 million at April 2022 down from $3 2 million at December 25, 2021, the small changes due to payments in Q1 of certain year end accruals and for further discussion I would like to turn the call back over to Michael.
Thank you Chuck this.
This past quarter, we are continuing to make encouraging progress on our plans to translate our value creation through product development into definitive positive financial results that can be appreciated by the wide array of investors and Cps today and tomorrow as Chuck had mentioned we are quite encouraged to see the improvement in gross margin I would like to particularly highlight.
The work by Dan Barton, our head of operations and his entire team on the implementation of our continuous improvement program with sustainable substantial enduring improvements across every product line. We remained steadfast focus on increasing our ability to provide products to our customers at a reasonable cost, we believe creating positive financial results quarter over quarter.
Year over year, we'll continue to make Cps, an attractive investment opportunity to a diverse array of investors short term institutional index fees or even sophisticated investors don't appreciate bolt on near and long term benefits of our unique value proposition.
We also acknowledge that one quarter does not make a year. However, a growing consistency of profitable performance has been a focus of mine since becoming the CEO .
There are lots of opportunities for Cps to provide solutions to customers in the electrical vehicle market.
And move them from Silicon.
To silicon carbide Wideband gap semiconductors that operated higher junction temperatures will necessitate the need for thermal management high heat dissipation controlled expansion that we continue that we can provide with our metal matrix composite Fousek Cps is serving this sick <unk> need today with our customers with a.
New power module format.
In addition, we see continued growth in implementation of this format with the <unk> metal matrix composite for the sick W. BG applications. As these solutions are better suited to efficient power conversion and offer improved power design flexibility. We have several design wins with our partners <unk> customers that are still in the initial stages of product.
Testing and maturity and we're collaborating with them to ensure we have a robust plan to meet their future production high volume demands over their anticipated lifecycle.
There are also many opportunities within the United States Department of defense strategic objectives to move to hybridization in electric vehicles for tactical and combat fleets.
Cps recently attended the Michigan Defense acquisition with this was a big topic as you are aware the army ground vehicle expertise specifically located in Michigan and one of several reasons, we created a presence in Detroit Metro area and added Anthony Kosky, whose located near to the Cps staff is that corporate development officer away.
Ill still but our past success in the luxury end of the EV market has a lot of synergies with.
The defense market and I'd like to highlight the link between military platform electrification and the importance of size weight power and cost swap C and how this aligns directly to Cps as core competencies and value proposition are reduced wait superior properties in high rent liability that directly.
<unk> to the military Scholes of high operational availability.
In addition, many of our known competitors are prohibited from supplying key defense technologies in the United States due to existing National security regulations and laws.
We view accelerated acceptance electric vehicles worldwide, the advancement of large U S.
Defense modernization programs as evidenced by the most recent significant funding edition to the proposed R&D budget and the increased emphasize on modernizing U S transportation energy infrastructure as potential catalysts for future growth.
Beyond fiscal year 'twenty, two we remain cautiously optimistic that our collective growth initiatives, specifically in longer term new product development investments will expand the current product lines. Both in terms of revenues and earnings.
As I had mentioned previously we've re engaged with the small business innovation research SBA and small business technology transfer STR programs, having made several submissions and we'll continue to do so.
We have recently won two <unk> within the department of Defense the need the recent Navy awards like the initial award with the Army is calling for Nobel solutions to thermal management electronics in the military that could also be commercialized or proposed solutions for an aluminum alloy matrix reinforcement nickel titanium for thermal energy storage devices.
We are extremely excited that the department of defense thinks of Cps as a thought leader in thermal management and more importantly, their confidence that we can convert theory into products that can be enabled to safety and security of our defense forces. We also have several proposed solutions and with the department of energy that we expect feedback by the end of the second quarter.
Lastly, we continue to make measured investments to increase the capacity of our current high volume manufacturing.
We are working on a variety of additive manufacturing technologies.
Additive manufacturing processes continue to mature and we are looking at implementing <unk> precinct and processes throughout our all of our product lines.
Modern processing techniques that allow for the possibility of improved performance and manufacture abilities.
These improvements can range from flashy new material development, two things not necessarily seen in the public eye better quality increased efficiency, there's still quite a bit of research and development, that's little or big D to refine our ceramic powder combinations with buying the material to consistently replicate our current and future MMC formulations, but we aren't.
Making progress that are encouraging and will result in even greater production yields moving forward.
All investors and listeners today should know, but it's worth repeating that creating shareholder value is the focus of mine the board of directors and the entire Cps team. We have had several internal metrics with which to measure the business beyond profit and cash flow.
Find the best metric of results consistent with our overall growth strategy is the measurement of book to Bill over a rolling 12 months. This is the first statistic I look at every day for our business to thrive it needs to book as much business as it delivers whether it be daily weekly monthly quarterly yearly this would be a book to bill ratio of one to one to remain even.
That is not our goal here at CBS , we are in growth mode. Since I transitioned to leadership here at CBS , we are averaging in the one four to one six book to Bill ratio over the trailing 12 months basis. This is the result of a lot of arduous work and perseverance by our sales operation Finance Tech all of us.
Specifically, though our vice president of sales show all of era and her entire team, Greg whether men, Tim Davies, Judy victory, Kevin Langley as well as Jim Sorensen and our latest staff addition, Anthony Kosky all enabled by our engineers working in the product development, Dr. Steve catch our Doctor macro Osha NRO and build homes.
In closing my remarks. This afternoon, we are extremely pleased with our most recent quarterly performance, we still have lots to do we're not satisfied with our initial results and look for even larger actionable opportunities to build a business and even increase the assurances that the current growth and profitability trend will be approved upon even spread.
And that concludes my opening remarks.
Racecar I believe Chuck and I are available if there are any questions from folks on the line.
As a reminder to ask a question you will need to press star one on your telephone Keybanc.
Your question. Please standby, while we compile the Q&A roster.
And your first question comes from the line of.
Your line is open.
Congratulations on a record quarter.
It's nice to see company growing again.
I have a few questions.
On July 26 2018.
C P I announced it was working with Raphael defense systems provide.
For November .
Of course for some of their vehicles.
April 22022, they announce because the defense market.
It has its new models.
<unk> is providing some arbor for some of these vehicles.
This is Michael Thank you for the call.
<unk> complements to the business.
As of May we are continuing to work with Raphael I do not know the specific application you're talking about but we have been working and my entire 16 months here and prior with Raphael and a variety of programs of testing various army solutions, we continue to provide.
Representative target solutions, and we continue to shoot them and have a great positive results.
<unk> answered the what's going on at that Raphael and but we have a very good relationship with them and regrettably there on holiday. This week, but we were talking to them last week.
We have a quite a good relationship with them. We also have a joint venture with the Southwest Research Institute down in Texas, where we are doing some advanced modeling on AMR solution. So.
Yes, we are still working with Raphael, yes, they're a great partner and yes, we continue to make progress, but I cannot specifically address.
The application.
I mean do they show on their website.
Nicholas with tiles all over it.
For protection.
So obviously they are looking for technology, whether they're going to use your solutions because obviously.
Obviously ceramic armor has been.
Quite the advance its not new but the advances over the last 20 years of U S. Combat has shown that the lightweight performance. The hardness of ceramic provides lots of survivability features.
Certainly the body armor initiative here in the U S is saved.
If not thousands of lives.
And so I think putting.
Putting that to scale, whether it be a ground vehicles or in our case today, we provided and scale for Navy platforms, you can see the obvious value to that with the weight savings versus a metallic monolithic solution right.
Would you comment on any other.
Hybrid arms.
The.
Contracts you might looking forward true.
Yes, certainly.
We haven't been awarded them. Let me just tell you that first but we are working with partners here in the U S and I had mentioned Raphael we do have agents in the EU.
Obviously, the European Union has become more sensitive to their army needs with the invasion of Ukraine and they've begun to.
Invest more deeply into armor and what it could do and add to their survivability platforms. So we have those dialogues going on here in the states, we have been focusing on solutions and next generation.
Platforms that are in the defense Department budget, so that we have accurate and predictable.
Revenues in our forecast so that's been our focus its varies.
I can share with you it varies from helicopter to ground vehicles. So the.
Application of Hybritech armor has many and we are continuing to research to find solutions that will fit within our customers.
Cost profiles and bolt.
Great and then last question.
<unk> announced last week that book.
With 1200 volt modules.
Uh huh.
On the Windows, one Curtis theyre going to start marketing.
I have a picture of the module. It didn't look like there was any copper in there.
1200 Ross.
1200 votes, obviously.
I mean, the heat dissipation.
Yeah.
Sort of fits with what you were trying to do can you make any comments about too.
I don't know what specifically you are talking about but we were encouraged but as as is as we go up in the <unk>.
Hi.
1200 volts, you said 12 on adult module, yes, obviously the benefits of our metal matrix composite has become even more pronounced so I think that to your point.
We exceed the properties that you can get with the copper solution.
Or other solutions for 1200 volt modules besides yours.
I don't know overdue.
Thanks.
I think at.
At 200 volt I think we're kind of in that gray area, where.
If you want to.
Be more.
Efficient you can use our solution if you want to try to get away with a cheaper.
Solution you could you can I believe that is correct, yes, I'll get what the two docks tomorrow and see if we can post something and tell you something about more about that that's a better idea.
That's great.
Well, so we just talked about.
The car companies moving up.
They have 408 hundred volt, they say the 800 volts, becoming more popular in their future.
At the voltage.
Hello.
B a user.
So you can get away, we absolutely I mean, we don't know.
Full details of an application for some of our customers, but we are talking in those ranges with them. So.
Oh I see.
But that's what 'twenty four 'twenty five everything.
Before it really becomes a mainframe or are you talking years calendar years yeah.
To me, it's hard to put a number on it right I mentioned in my.
Earlier remarks that the process by which people go through to validate our products solution and tested.
It varies from company to company, but it's certainly we're in the material matrix materials science business and we know it's a long it's.
It's a long cycle to deliver but then you get to stay for a long time right.
So I would be it would be difficult for me to say, but I think youre on those lines, it's three to five years out right.
Obviously.
You've been studying this mercury to know the market is there any possibility you could make a module.
L sick, but something better than copper, but not as good as Elsa I'm trying to get.
We always work on different combinations of metals ceramics.
And one of the reasons we.
We are very proud of our accomplishments with the outbreak nine to 12, but.
Not just <unk> right, we do all combinations of metal matrix composites, and we're open to all kinds of solutions and I know, Dr. Mark and Dr. Steve are working on those all the time and I think.
To my remarks earlier.
We won a new contract.
Using aluminum nickel titanium. So so we were not just alsek anymore. So.
Which is smart.
You know as long as Youre in the middle business lineup.
What the market's looking for.
A better way.
Well, congratulations I think he's done a wonderful job companies on filing since you since you've come aboard obviously.
I'm sure that that's part of your.
Reasonable.
Thank you for.
That's fair.
Thats all my questions.
Your next question comes from the line of Patrick White Your line is open.
She is on a solid quarter, there, both Mike and Chuck excellent work and particularly on the gross margins.
And following up on that a little bit.
With the book to Bill running at one point to one four or higher.
Is it conceivable that youll be able to maintain those kind of gross margins going forward or.
Is that just a function of the <unk>.
Hybrid arm or that's being delivered now in 'twenty, two and maybe.
It's going to be tough to keep those margins at that kind of level.
Well certainly that's our goal right.
Our goal is to keep the margins up.
Working actively Patrick with a variety of things Chuck alluded to some of the the fixed cost with the higher volume help us but.
In total we have many initiatives being run through operations, whether it be sales.
Whether it be the.
Purchasing department, we're managing a lot of variables here and were just doing.
Hard work with it and it's not easy in and it's very much complementary to our staff that they have.
Been able to reduce our costs.
We think where.
We're onto something but like.
Like I alluded to one quarter doesn't make a year right we need a couple more quarters of this before.
I will say that we've made but we are trending positively.
Okay.
On the Evs you mentioned maybe several.
Design wins working through those right now with testing and getting those to maturity.
Are those wins.
Going to be strictly limited to.
Individual luxury type vehicles or are you working on something that might be more platform driven to that extend beyond certain limited vehicles, yes.
Yes, certainly more of the latter right and so when we talk to our customers.
They are talking.
Some extremely high numbers and high production and we like great win.
Of the earlier callers [laughter].
And so we continue to have dialogue with them about.
Being realistic on the demands but there are.
Really high volumes of parts being asked to be quoted and us to demonstrate the production capacity to ramp to that.
Okay would that require a capital raise to two handle.
And I don't know at this time right now we obviously continue to do a workman like planning, we look at different ways to optimize our factory here we're in a.
40000 square foot facility on a nine acre site, we have the ability to expand here.
And it's always difficult when you get into facilities and expansion do you get the contract ferocity expand first and that's kind of the dialogue that we've been working through these days with them as well.
Whats best to keep costs low keep us competitive and keep the orders are flowing to Cps. So.
Maybe just a question.
Yeah.
That would be a good problem to have yes.
That's the way we call we call it a high rent prevalent here too.
Yeah.
Okay.
Can you add any color.
I think one of the small business awards, you've mentioned aluminum alloy.
In the commentary and storage devices.
Of course, the storage market is exploding.
Commercial standpoint this is military.
Can you elaborate upon the application and whether it has broader.
Market.
Application for.
Just commercial storage.
Yes, well certainly we don't know the application yet with the Navy on what Theyre going to do with it very much.
Mental eyes, when they are pursuing technologies, we kind of know generally what part of the navy or 10.
But we don't know specifically, what theyre going to do with it yet.
And I think Thats part of the program as as we.
We execute phase, one which is which is a nice program.
I think in total it's $250000 over the course of.
10% to 12 months for contract research and development there are different phases.
And gates performance gates that we have to meet to continue to advance the program and I think during this phase one we get more information about applications that will lend us towards a phase III and.
And further development.
Okay.
Work in progress.
Okay.
Excuse me I have one last question I have a cold today, so im struggling.
Yeah.
You mentioned improvements in the manufacturing processes.
<unk> printing.
Can you elaborate upon weather.
Exploring three D printing might enable to you.
Yeah.
Okay.
<unk> costs down to a point where.
They become extremely attractive.
And the power module space.
Yes, well certainly I can.
Dream of <unk> less than comparable every day right.
But we're not there yet and the idea of reducing our production cost improving our manufacturing consistency.
And enabling our salespeople to make the value proposition to clients is always a good approach right and so the idea of lowering our cost to remain competitive whether that be with additive manufacturing improved current processes and they're not mutually exclusive right and so we continue to look at all of those parts of the processes.
But in the end.
Goal is to produce quality products at the lowest cost possible.
So our customers can be competitive in the market. So.
We are open.
Yes.
Thanks, very much for opportunities I hope you feel better soon.
Thanks.
Okay.
Take care.
Okay.
Again to ask a question you will need to press star one on your telephone keypad.
Question comes from the line of Kenneth pounds. Your line is open.
Yes, alright.
Good quarter.
A lot of talk about the military.
Are there any updates on what's going on in the EV market also I know you guys do business with.
Electric trains and other things like that to dissipate heat.
Yes.
Made some comments early about the EV market in both commercial and defense.
The train the transportation segment of the market continues to lag from the Covid Hangover if you will.
We have been in contact with our customers and they are forecasting increasing demand, but thats in 'twenty three.
I still think that's a lagging segment of the market.
But the business is still there for us we're still executing.
We're doing a good job and we have given your communication with these folks so yeah, I think it's going to be growing and.
The EV market could be really huge right in and I don't want to oversell that but.
We have been working on that here for a long time, we've had design wins, we are continuing to get advanced we advanced from design win to a couple of hundred to a couple of thousand.
As they go through all they are testing piece of pieces not dollars not dollars.
Pieces of.
Pieces and.
That continues to advance so it's a long cycle to get our solutions.
Approved and in line, but where we are in that in many different phases. Some are at 10 <unk> hundreds some are in thousands so.
I like the way they that could be feathering into us but.
We just need to keep the keep pursuing improvements and delivering.
And hopefully good things will happen for CBS .
You mentioned.
Locating someone in Michigan for at <unk>.
Good reasons, a lot of the EV definitely submit passengers ask what's going on in California.
And the idea to have some more presence there to go to the shows or other kinds of things that theyre doing.
Here at West.
Well, it's certainly we have a gentleman station in California already so we would.
We already have Greg whether men station in California, and I think he's at the show this week space Tech as well.
Sure Manav.
I think it's this week next week, but we already had Greg in California, and we also have Tim down in Florida, So he's kind of got the space coast.
And then we thought that positioning Anthony geographically in the Michigan area would kind of give us a nice kind of triangle of where we want to be.
Executing commerce so.
Great.
And now that that sounds really good.
Great well. Thank you so much thank you.
You Sir.
There are no further questions at this time please continue.
Okay.
Okay.
If we have no further Chuck I did most of the talking do you want to take us home.
I'll just say thank you everybody for joining us.
Hopefully we will have.
Equally or better or good news in the 90 days or so.
Thank you everybody.
Thank you today's conference call. Thank you you may now disconnect.
Okay.
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