Q4 2022 CPS Technologies Corp Earnings Call
Okay.
[music]. Thank you Paul.
Good day, everyone and welcome to the C. P. S technologies 2022 earnings call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Chuck Griffith.
The floor is yours.
Thank you Matthew and good afternoon, everybody I'm joined today by Anthony Kosky, Our corporate development Officer, and Michael Mccormack, Our President and Chief Executive Officer, Michael will offer his comments on our fourth quarter and annual 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 and <unk> operations and environment.
These uncertainties include the impact of COVID-19, the Russian invasion of Ukraine, economic conditions market demands and competitive factors.
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 perspective on the year and the fourth quarter results.
Thank you Chuck good afternoon, everybody today.
Today, we are pleased to announce the fourth quarter revenues of $6 1 billion and operating profit of 309000 for the quarter ending December 31 2022.
This compares with revenues of $6 2 million and an operating profit of 312000 for the fourth quarter ended December 25 2021.
For the fiscal year, we are delighted to report revenues of $26 6 million as compared to revenues of $22 4 million in fiscal year 'twenty one.
The 19% annual organic growth rate over the previous fiscal year has been consistent with our strategy for growth since my arrival.
Fiscal year 'twenty, two reflects the highest year ever in terms of revenue and operating profit in the company's 38 year history.
For the fiscal year, we are reporting $2 2 million in operating profit compared to 513000 in fiscal year 'twenty. One this is an over 300% improvement compared to last fiscal year.
We're also delighted to report an impressive 6% improvement in gross margin over the entire fiscal year.
This also marks our third consecutive year of profitability.
Our book to Bill of over 1.1 for the fiscal year 'twenty two continues to reaffirm our growth strategy.
He is working over a larger sample of data coupled with growing base. We are cautiously optimistic that the increased sales orders all of fiscal year 'twenty to directly translate into steadily increasing revenue and operating profits in fiscal 'twenty three.
I'll speak more later about the overall business progress moving forward on the call, but for now Chuck will discuss the financial matters in more detail.
Thank you Michael.
Revenues totaled $6 $1 million in Q4, 2022, compared with $6 $2 million generated in Q4 2021, a slight decrease.
For the fiscal year 'twenty, two revenues totaled $26 $6 million compared to $22 4 million for 2021. The revenue for 2022 represents the best year in company history.
Gross margin in Q4, 2022 totaled $1 $6 million or 27% of sales.
This compares with gross margin in Q4, 2021 of $1 $4 million at 21% of sales.
For 2022 gross margin totaled $7 $3 million compared with $4 8 million for 2021. This increase in margin was primarily due to the impact of higher sales on fixed factory costs as well as improved factory efficiencies and product yields.
Selling general and admin.
Easy for me to say selling general and administrative expenses totaled $1 3 million in Q4, 2022, an increase of 30% when compared with SG&A expenses of 1.0 million in Q4 2021.
For fiscal 'twenty two.
SG&A totaled $5 1 million compared to $4 $3 million in 2021 seven.
Several factors contributed to this increase the company hired a corporate development officer in early 2022, which was a new position the company incurred higher variable compensation costs in 2022 due to our strong financial performance and.
And travel costs were significantly higher in 2022 due to the limited nature of travel in 2021 due to the COVID-19 pandemic.
The company generated operating income of $309000 in Q4, 2022, compared with operating income of $312000 in Q4 2021.
For 2022 operating income totaled $2 2 million compared with <unk> five.
$5 million in 2021. This represents our highest annual operating income and Cps is history.
Turning to the balance sheet, we ended the quarter with $8 $3 million of cash increasing from $5 $1 million on hand at the end of 2021.
The increase in cash was primarily due to our net profit somewhat offset by inventory.
Increases to support higher sales.
Although it remains open and available to US no additional cash was raised in 2022 under the ATM program.
Accounts receivable at December 31, 2022 totaled $3 $8 million down from $4 9 million at December 25, 2021.
This change was due to the reduction of deferred revenue occurring in the fourth quarter.
Prepayments received a 2021 were used to pay for shipments shipped in the fourth quarter, thus immediately reducing accounts receivable rather than having to wait for the customer to pay their bill typically 30% to 45 days later as such our days accounts receivable our days sales outstanding improved to 52 days compared to.
72 days at the end of 2021.
We also have in other receivable of $686000, primarily due to the employee retention tax credit.
Inventories totaled $4 9 million at the end of December 31, 22, compared to $3 9 million at December 2021. This.
This increase in inventory is due to increased work in process and raw materials needed to support our sales growth.
In addition in 2022, we had several large orders and inventory that were not scheduled to ship until early 2023.
The inventory turnover in the most recent four quarters was four two times, an increase compared to the four seven times for the period ended December 25, 2021 for the reasons stated above.
Turning to the liability side payables and accruals totaled $2 7 million at December 31, 22 down from $3 $2 million at December 25, 2021. This change is due to the final payments in 2022 of accruals for our 2021 restructuring costs.
Deferred revenue increased from $1 7 million at the end of 2021 to $2 5 million on December 31, 2022 deferred revenue predominantly represents prepayments for large orders to help defray the impact on cash of large inventory purchases for these large sales orders.
For further discussion I'd like to turn the call back over to Michael.
Thank you Chuck what a fantastic year.
We established new records for the company in terms of revenue and operating profits.
I would like to thank our investors for their patients their vision.
Vision over the past two years to continuously support a small material science company as we competed against companies significantly larger than Cps was truly appreciate it.
Beginning to realize there was an incredible pent up demand for the products, we have engineered investments, giving us the resource to compete and win is essential to our success.
Thank the incredible increasing number of customers for their continued confidence in our engineering and manufacturing capabilities.
Lastly, all the employees did an outstanding job over the course of the year and redefine what creating shareholder value it looks like moving forward at Cps.
As I look back over the year I'm very proud of the team we have assembled and the accomplishments of the team not only did we execute commerce at the highest and most profitable levels in history, but we transitioned from the outdated ERP to an integrated MRP ERP system that is already beginning to help us achieve even greater results, we returned to our tech.
Nickel cutting edge routes authoring numerous small business innovative research Spi and.
In small business technology transfer STR proposals various federal agencies within the government. We won four awards and are hopeful to begin to convert some of these two phase two awards that multimillion multiyear awards.
So the obvious question is whats next what are we we are continuing to invest in people processes and tools to build an even greater company. We are not content with the results and know we can do even more I am quite pleased with the progress we are making all aspects of the business sales product development operation Finance and.
Support activities.
Our business development efforts are now being run by Anthony Kosky, We're sad to see him and every time.
This president of sales show all of Iraq, and wish her and her husband, Rick the best in the next chapter.
Anthony and team have built upon our base of clients that shell has established and now have numerous growth opportunities, including some breakout prospects that could alter our future significantly and all three of our product lines that will make this composites hermetic packaging.
As a part of the transition the business development group has restructured our growing technical product development team to jointly focus on building, new customer relations and identifying new opportunities and build even more robust sales pipeline. As a result, we have several developing opportunities in defense aerospace and alternative energy markets.
With significant near and long term upside.
Given both application and competitive sensitivities I cannot divulge too many details.
I am confident that our ability to listen to our customers and effectively respond with diverse and unique advanced material solutions that solve their most challenging issues will allow us to convert these opportunities and continuing to identify new avenues for growth.
Under leadership of Dr. Steve catcher and Dr. Mark Ocean Arrow, we have Reenergized the contract research and development R&D service business as evidenced by our Spi and S. GTR program Awards. These programs are highly competitive awards that encourage domestic small business to engage and federal research and development with them.
Potential for commercialization. In addition to these programs as they advance through R&D to congratulations there afford it.
Additional intellectual property protection and sole source manufacturing rights within the federal government.
Operations led by Dan Button that made significant strides in the past year that positioned for even greater results moving forward.
Integration of the MRP without new ERP has enabled the business to make more informed decisions on process and yield improvements as evidenced by the 6% improvement to gross margin during fiscal 'twenty two.
We have made a concerted effort to ensure we grew the bottom line with the top line and Dan's organization executed the plan.
As we look beyond 'twenty two into fiscal 'twenty three in future years.
<unk> is continuing to follow up on the success of the past years with improving production volumes, we have a plethora of advancing material solutions that will enable our customers' products to function even more efficiently. We are qualifying more parts every week and are in dialogue with several large aerospace and defense clients that see the value of Cps is an enabling technology.
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The future is quite bright at Cps, we have several large scale future opportunities in all three product lines. These opportunities on a sphere, Quebec and also within the markets. We are focusing on aerospace and defense and commercial consumer electronics. The entire staff is working diligently towards growth and product offerings, while improving.
<unk> profitability.
We are pleased with the recent fiscal year 'twenty for performance and continued financial support our ever growing shareholder base. We expect that we will continually and incrementally improve as we move forward quarter to quarter and year to year.
We're aware of the unpredictability of the global marketplace, but have positioned the business. So we have more diversification in our product offerings and customer base. We believe that this diversification will lead to more consistent and growing results in the future. We have lots of additional opportunities today, both small and large.
That keep the entire staff focused on finding the ideal innovative material solutions for our customers' needs.
In closing my prepared remarks, I would just like to thank the board of directors for their continued faith and confidence in my leadership for our investors. Thank you for your patience and belief.
EPS is truly a unique material science company with a lot more to offer to clients.
All of our employees teammates and agents. Thank you for a tremendous year and we're looking forward to another process 'twenty three and beyond.
Thank you Chuck and I and Anthony are prepared to answer any questions at this time.
Certainly at this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from Michael White Your line is lives.
Hey, Mike Congratulations on the record setting 2022, and very impressive increase in gross margin.
Before I ask my question I would like to thank you again for your service to the country as well as the acknowledged the tremendous job you guys are doing at Cps.
Alright, I'm, a long term shareholder and my question is with the record operating income.
2022, and cash balances of $8 3 million any plans to get that cash back to shareholders in a dividend.
Share buyback.
Hi, Mike.
Michael.
For your comments about Dan in Ais service, there was a it was a privilege to serve.
The cash position currently is.
There to help us grow Michael.
We have plans.
To expand operations.
And we are using the cash that we are building up to give us more options to build greater growth in the company.
A dividend or a share buyback program is not a recommendation that have made that the board of directors and obviously.
The deciding factor on that but to date, we are in a growth mode and growth requires cash and so we were very pleased with our position right now in our cash.
Very strong position.
Thank you for the question Michael.
Thank you. Your next question is coming from Eric Gomberg. Your line is live.
Yeah, Hi, Mike Hi, Chuck.
Congratulations on the record sales and earnings here.
Can you give us some update on your RMR efforts.
Sure Erin nice to talk to you again.
Yeah, that's tremendous year I. Thank the entire team performed really well.
Our efforts are continuing to go as planned.
I think announced during the year additional orders of.
Strike based panels to our partner <unk>, who in turn provides funds to the U S. Navy.
Still continued to advance our overseas partners.
Our solution that we think by the end of 'twenty three may have the final decision for production Award.
Not only are when we we also won a small business innovative research award to develop a new Uhm 60 Blackhawk.
On the floor and we continue to do testing and.
Devaluation with the Southwest Research Institute down in San Antonio, Texas to try to qualify our AMR for even greater applications on larger formations in the military.
Hum in the past on some conference calls here.
Reference the possible armor contract.
For military vehicles go into South Asia.
Update us on.
On this program.
So that program is still a lagging and going well, we continue to do optimization testing.
Actually moving into a new phase now, which is integration testing, so where we have to make provisions for mounting onto a vehicle and we expect that that test will happen sometime in Q2, and then hopefully like I alluded to earlier than.
Data production decision will be made.
Later in the year.
Greg do you have competition.
The system, Oh, yeah, well, we always have competition right and so one of the advantages of our <unk> system instead, its a relatively light weight for the threats. We're trying to defeat so when you go with a monolithic steel or aluminum.
We have some.
Difficult advantage in weight.
It provides.
The vehicle to operate as intended I think as you recall there were lots of instances during the U S too.
Two warfront, where we were over burden vehicles with so much armor that they had second and third are the effects on the vehicle drivetrain and chassis. So.
I think one of the advantages of our solution is.
Wait to stop a significant threat.
Great.
On the armored vehicles.
These are mostly no new programs so any transom.
They upgrade the old systems.
They could use your system.
Yeah, well, certainly there's always opportunities to do that right and so what happens right now is it's a more deliberate contracting.
Right now in the U S. But Anthony has been attending several meetings up into Detroit Arsenal to talk about future years and upgrades to the U S fleet.
And that's obviously a significant opportunity for us, but that's a long process with.
Big friends that we have that to work with so.
Correct.
This carriers called Lightning aircraft carriers.
Wouldn't there be an obvious.
Area there.
Since they are.
And the way many aircraft carriers.
Do you see your system.
Yes.
There are a lot of surface vessels in the U S Navy and allied navies that could benefit from our high protect AMR.
It has the advantage of relatively lightweight for hydro ballistic threats.
And also can withstand harsh environmental conditions, so I think that bodes well for our future.
With surface vessels in the U S Navy and the allies.
Okay, well thank you.
Thank you everyone for the time keep up the good work.
Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.
Your next question is coming from Iran. Richards Your line is live.
Hey, guys.
On the last conference call you were talking about being very excited about the electrical electric vehicle market I was wondering if any updates on electric vehicles.
Well, we certainly have lots of progress report Anthony are you on the line do you want to take this one.
Yes, So hi, Ron Thanks for the question. So yes, we certainly made a lot of progress.
Certainly the commercial vehicle market.
It's definitely competitive.
And certainly a cost sensitive market. So we continue to work with customers and system integrators to try and identify where can we bring value.
So, we're certainly making progress in those discussions and understanding where some of the gaps are.
Trying to understand this investment in U S infrastructure in the EV market and how we can bring value there but.
But again, it's a long process to long qualification process and we're really working on understanding.
What the needs and gaps are in that market. So that we can identify technology to bring value to those needs. So we're certainly making progress but again it is a competitive process and it also is very cost sensitive so were really focusing on what is the value proposition and how can we meet those needs.
Okay and one other question I had was.
You were talking about possibly.
Hi.
Investor Relations firm in the fourth quarter also.
Progress on that.
Yeah. So this is a hi, Ron this is Michael so we have.
Now it is down to a few IR firms if you will.
We've decided that we're going to begin by attending two investor relations conferences in fiscal 'twenty, three one remotely and one in person and so with targeted I think one is in Q2 and one is in.
Don't hold me to it as either Q3 or Q4, and then we will measure our success with that.
We certainly appreciate the opportunity to talk to investors directly.
We like that approach and so we're going to try that first Ron but we do have two or three.
Our firms we are still engaged with talking about how they can help us add value.
Okay, great. Thank you.
Sure.
Thank you as a final reminder, if you have any questions or comments. Please press Star then one on your phone. Please hold while we poll for questions.
There are no further questions in the queue.
Okay, well Matthew Thank you for hosting US today, you know Anthony I think Dan's I'll, probably end of 'em too Chuck and.
We think the futures.
Go ahead.
Dan did come in yes, each year.
Uh huh.
We think the future is very bright for Cps, we're continuing to make progress on just about every front. We've had a lot of success in 'twenty. Two we just wanted to share that with our investors and the community today.
But we're not we're not done we're going to move forward and 23, you can kind of see the blueprint of our growth plan.
And that continues to show very good results. So.
That's kind of what we're doing.
I appreciate everybody, calling in today and listening in.
And thank you for your continued support.
Okay.
Thank you everyone think that Christian Iceland.
May disconnect at this time and have a wonderful day. Thank you for your participation.
Thank.