Q2 2022 CPS Technologies Corp Earnings Call

Good day, everyone and welcome to the C. P. S Technologies Corp, second quarter investors call. Today's call is being recorded at this time I would like to turn the conference over to Chuck Griffith. Please go ahead.

Thank you operator, and good morning, everyone. Thank you for joining us I'm joined today by Michael Mccormack, Our President and Chief Executive Officer, who will offer his comments on our second 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 subject to the many uncertainties that exist in Cps its operations and environment.

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 material materially from those in any forward looking statement now.

Now I will turn the call over to Michael to offer his perspectives on our second quarter results.

Thank you Chuck today, we are delighted to announce revenues of $7 million and an operating profit of $669000 for the quarter ending July 2022.

This is a 21% increase compared with revenues of $5 8 million.

164% increase compared with the operating profit of 253000 for the corresponding quarter a year ago, ending June 26 2021.

We are pleased to report that revenues in the second quarter of 2022 were the highest in the company's history and showed a six 3% improvement over revenues in the first quarter of 2022, our previous record high for a quarter X.

<unk> aspects of our growth initiatives are beginning to show results from the challenging work and effort that we've undertaken at Cps.

We are cautiously optimistic that our growth initiatives and profitability changes. We are executing will continue through fiscal year 'twenty two and beyond the team is continuing to drive growth and efficiency to sustain this momentum.

The economy continues to progress and deal with the challenges of seamlessly endless new variance of the virus continuously emerging there are also emerging new normal practice, such as inflation material availability in transportation and shipping delays that we are actively working to mitigate despite these uncertain times, we remain incredibly pleased with our second.

Quarter performance and are confident in our outlook I'll speak more later about the overall business progress moving forward later on the call, but for now Chuck will discuss the financial results in a little bit more detail. Thank you Michael.

Revenues totaled $7 $1 million in the second quarter of 2022, compared with $5 9 million generated in Q2 2021, an increase of 21%.

This increase was due to increased shipments of armour panels in hermetic packages, but in particular base place, which last year board the largest negative impact from the COVID-19 pandemic.

For the first six months of 2022 revenues totaled $13 $7 million compared with $10 $7 million for the first half of 2021 the revenue over the first six months of 2022 represents the best six month period in company history.

Gross margin in Q2, 2022 totaled $1 8 million or 26% of sales. This compares with gross margin in Q2 2021 of $1 4 million at 23% of sales.

This increase in margin was primarily due to the impact of higher sales on fixed factory costs.

For the first six months of 2022 gross margin totaled $33 8 million compared to $2 3 million for the first half of 2021 that would be a 28% of sales at 21% of sales respectively.

Selling general and administrative expenses totaled $1 $2 million in Q2, 2022, compared with SG&A expenses of $1 1 million in Q2 2021. This increase in SG&A expense was due to increased compensation expenses as a result of the addition of our new Chief Development Officer.

<unk> and other salary increases.

For the first six months of 2022, SG&A totaled $2 6 million compared to 2.01 million for the first half of 2021.

The company experienced operating income of 669000 in Q2 2022, compared with operating income of 253000 in Q2 2021. This increase in operating income is due primarily to the increase in revenue and gross margin previously discussed.

For the first six months of 2022 operating income totaled $1 2 million compared with 289000 for the first half of 2021 <unk>.

This represents our highest opening six months of operating income in Cps is history.

Turning to the balance sheet, we ended the quarter with $5 $1 million of cash basically the same as the $5 $1 million on hand at the end of 2021. The neutrality of cash was primarily due to our net profit and reduction in accounts receivable offset by increased inventory to support the higher sales and reductions in.

Accounts payable and accrued expenses expenses.

Although it remains open and available to US no additional cash was raised in the second quarter under the ATM program.

Accounts receivable at July <unk>, 2022 totaled $4 5 million down from $4 9 million in December .

2021.

Our days sales outstanding totaled 58 days at the end of the quarter compared to 69 days for the year ended 2021, the decrease in accounts receivable and DSO both relate to the inclusion of deferred revenue of 600000 in the year end accounts receivable balance which was collected during the first quarter of 2000.

'twenty two.

Inventories totaled $4 7 million at July 2022, compared with $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 most recent four quarters was four six times.

Basically equivalent to a four seven times for the period ended December 25 2021.

Turning to the liability side payables and accruals totaled $2 3 million at July 2022 down from $3 2 million at December 25, 2021. This change is due to the continuing payment in 2021 accruals from the restructurings that we did last year and for further discussion I'd like to.

Turn the call back over to Michael.

Thank you Chuck.

It continues to be my humble honor to lead Cps on a growth journey I. Appreciate these opportunities to share with our investors and hopefully interested new investors of the current state of the business as well as our future. We generally appreciate your continued support and belief that Cps is a growing company that is on the move to improved outcomes.

All three of our product lines metal matrix composites, Hermetic packaging and <unk> continue to perform on or slightly ahead of plans the year to date operating progress of the business is the best half in the company's history, and a 7% improvement over the first half of last fiscal year. We are excited by the path, we're on but still must execute the second half of the year.

To solidify the growing value proposition of Cps, we are committed to creating positive outcomes for our customers and are growing more confident that continued positive financial results will also be achieved.

This past quarter. In addition to executing commerce at the highest levels of the company history, we implemented a new material resource planning and enterprise resource planning MRP ERP software tool the new tool. We selected with Appian has made to manage after a nearly a year of planning we implemented the new system at the end of the quarter.

And are encouraged by the ease of working with this new tool, but the tool is only part of the solution we need to combine the outstanding people at Cps with improved processes enabled by this tool this will enable us to create and grow an environment that can easily manage two times. The current business at Cps without incurring linear increase in fixed costs.

We are encouraged that our gross margin and operating profit continuing to exceed our goals. The implementation of this new MRP ERP tool will never be term sexy, but we believe it will enable us to conduct more business with fewer resources and that investors will realize that this is an essential to scale the business to greater heights.

Yes number one in growing the business is and always will be sales. We have a tremendous sales staff led by our vice president of sales Cheryl Olivera, Cheryl working with Greg Weatherman, Judy <unk>, Kevin Langley and now Anthony Kosky are the right team to achieve our near and long term goals for growth.

Sales team is supported by our growing technical SaaS materials science doctors, Steve catcher and micro Janeiro lead our product development efforts. We recently added another material scientists Matthew Karnik Engineers, Kevin simple, Jorge Hernandez and Jonathan legally.

The staff additions combined with our existing staff make for a strong technical team here at CBS as I've shared before we have several opportunities to assist customers with new and innovative solutions. These solutions are at various stages of approval and implementation, but because these solutions are competitive centers, we treat them with an abundance of caution prior to any.

Public release.

What I can share with you is that our engineers are working with sales staff recently launched two new products in the quarter, both new products successfully passed a rigorous first article test with these customers and we are anticipating low rate initial production awards. During the second half of this fiscal year, both clients are well regarded aerospace and defense companies in the U S.

We are also continuing to work on the benefits of additive manufacturing <unk> printing into our product lines customers are requesting larger metal matrix composites components with features that are extremely difficult to manufacturer. We have consistently we have had consistently good early results with substantially lowering the coefficient.

Thermal expansion Cte at the request of several customers and now in the process of some invention disclosures impossible intellectual property patents to secure our competitive advantage in the future. We still have lots of scientific work to be done to conduct extensive characterization necessary to take the next steps by expect to report positive.

These results later in the year.

As I've shared previously Cps is quite active in utilizing the calls for technology under the small business innovative research svar and small business technology transfer S GTR programs.

I'm happy to report that the second small business innovative Research award from the Navy has officially under contract now we are continuing to make proposal submissions under these programs to assist in the manufacturing of.

Different materials Sciences solutions.

Tungsten warheads and hypersonic vehicle installation to name a few.

We anticipate hearing about the technical evaluation before the end of fiscal year, we are quite excited and proud of our success with the department of defense and look forward to possible awards from other federal agencies like the department of energy and.

In the missile Defense agency MDA in the months ahead.

We think there are numerous opportunities for Cps to provide products to both the military defense and commercial aerospace markets as well as the commercial electronic vehicle EV market. There is always a demand for lower cost high reliable and scalable metal matrix composites. There is considerable evidence that trends are for increased use of MMC.

But structural aerospace component parts and increased thermal management needs, while the hybrid electric vehicle EV and EV markets. We believe now that evs have passed through the mass adoption tipping point of acceptance and at Cps, we'll see even more opportunities as vehicle manufacturers forecast, even greater pool of refractory <unk>.

<unk> in the future.

Lastly, we are encouraged by our results, but even more by the opportunities to introduce additional mmc's into the market, we're making measured investments in research and development coupled with our growing contract research awards to further expand our technical expertise, but more importantly, our reach to potential customers. We enjoy a 38 year here.

We are providing unique value added metal matrix composites to customers and we think we have only begun to help customers and investors reach their goals.

The entire team at Cps believes we are on the right path to creating inherent shareholder value. We are fortunate to expand upon the solid base of business. That's been built on since 1984, we appreciate the opportunities and continued support from our investors because we are in a growth mode and as all know growth requires cash.

We are beginning to deliver consistent and growing financial results, but our goal is not incremental improvements, but a considerable one.

This requires all parts of the business working well together I can assure you that there is a tremendous amount of arduous work being done at the company for our customers and investors.

We remain focused on building an improved CBS that can serve customers for decades to come.

In closing I am encouraged by our performance to date. This fiscal year, we are committed to growing both the top and bottom line, while we advanced materials science from ideas to concepts and concepts to products that our customers want and need today and tomorrow, we're not satisfied yet, but we're well on the journey I'm always thankful to the board of directors, representing our investors for <unk>.

Estimate to lead this amazing company, so with that I will say this completes my advance remarks, and Chuck and I will take any questions now Connie.

Okay.

We're ready for questions and answers Connie.

Okay.

Thank you if you would like to ask a question today. Please signal by pressing star one on your Touchtone telephone.

If you're using a speaker phone. Please make sure your mute button is turned off to allow your signal to reach our equipment voice prompt on the phone line will indicate when your line is open please state your name and.

Before posing your question again, please press star one to ask a question and we'll pause for just a moment to allow everyone the opportunity to signal for a question.

Okay.

Yes.

And again it is star one to ask a question and we will take our first question.

Hi, Good morning, guys. This is Steve.

Yes.

Hi, Steve.

Okay.

It sounds like.

Really great quarter and things are looking good did you.

I might have missed it happened to mentioned with the book to Bill is.

The book to Bill remains consistently.

Goal between 110 and 125 I think we are slightly on the lower end right now but.

This quarter that we're executing now that is starting to rebound so.

Okay, great. Thank you.

And again, if you'd like to ask a question. It is star one.

Okay.

And there are no further questions in the queue I'd like to turn the conference back over to Mr. <unk> for any closing remarks.

Our economy. Thank you. This is Michael Thank you Steve for the question and all of those listening again, we had a great quarter. We appreciate the continued support and onward and upward. We go. Thank you very much everybody for joining us today. Thank you everyone.

And this concludes today's call. Thank you for your participation and you may now disconnect.

Okay.