Q2 2023 CPS Technologies Corporation Earnings Call
Good day and welcome to the Cps technologies second quarter 2023 earnings call. At this time, all participants have been placed on listen only mode. The floor will be opened for questions and comments following the presentation.
It is now my pleasure to turn the floor over to your host Chuck Griffith CFO at C. P. S technologies, Sir the floor is yours.
Thank you Paul and good morning, everyone today, I'm joined by Brian Mackey, our incoming president and CEO and Anthony Kosky, our corporate development officer.
But first Chris witty, our Investor Relations adviser will provide a brief safe Harbor statement Chris.
Thanks, Chuck and good morning, everyone before I begin the business portion of the call I would like to point out that statements in this conference call. It.
Historical are forward looking statements within the meaning of the private Securities litigation.
1995, and should be considered as subject to the many uncertainties that exist in <unk> operations and environment.
These uncertainties include but are not limited to the warn you Queen economic conditions market demands and competitive factors.
Such factors could cause actual results to differ materially from those in any forward looking statement.
This information can be found in our filings with the SEC.
Now I will turn the call over to Chuck to offer his perspectives on our second quarter results.
Okay.
Thank you Chris first let me just take a moment to introduce Brian Mackey, Our next president and CEO . The company led an exhaustive search to find an experienced leader for our next phase of growth and Brian's background makes him a perfect to fill this role and we look forward to him being fully on board in the very near future as well as on our next earnings call.
Would you like to say a few words Brian .
Thanks, Chuck and good morning, everyone, a while I don't expect to be answering any questions. This morning, I just wanted to let our investors know I'm excited to be.
Joining cps at this critical point in our growth trajectory.
I'm familiar with our products in target markets are firmly believe the company is poised for substantial acceleration as topline profile due to due to innovative technology and unique applications.
Background does include helping organizations meet their full potential by responding to demanding dynamics and bringing on new customers, which I look forward to doing in the near future.
I'd like to thank the board of directors of Cps for this great opportunity.
With that I'll turn the call back over to Chuck Thank you, Brian and welcome aboard.
Today, we're pleased to announce second quarter revenue of $7 $4 million and an operating profit of $731000 for the period ending July one 2023, both of those are records for the company as I'll discuss more in a moment, we've continued to execute in a way that puts us squarely on track for our best year.
River setting the stage for even further improvement in 2024.
Speak more later about the overall business progress moving forward, but for now let me discuss the discuss the financial results in more detail.
As I, just mentioned revenue totaled $7 $4 million in the second quarter compared to $7 $1 million last year for the second quarter, an increase of 4% the revenue for the second quarter of 2023 represents the best quarter in our company history sales.
Sales growth was driven by demand from one of our major customers as well as increased armor shipments.
Gross profit in the second quarter totaled $2 2 million or 30% of sales. This compares with gross profit of $1 8 million or 26% of sales last year.
The increase year over year reflects the impact of higher sales on fixed factory costs as well as improved factory efficiencies and product yields.
Selling general and admin.
Selling general and administrative expenses totaled $1 5 million in the second quarter, an increase of 25% when compared to $1 2 million in the prior year period.
There were three major reasons for the higher expense.
First there was a significant increase in travel costs since last year. We were just beginning to come out of the COVID-19 pandemic at that time, many conferences continue to be virtual and numerous customers continued to prohibit outside visitors.
In addition, the company increased its 401k matching formula in 2023, resulting in increased payroll costs and lastly, the company accrued severance to a longtime employee who service with the company was terminated.
The company generated operating income of $731000 in the second quarter compared with $669000 last year.
This increase of 9% was a result of the higher gross profit partially offset by the increase in SG&A expenses.
Turning to the balance sheet, we entered the ended the quarter with $8 $7 million of cash up from $8 $3 million at the end of 2022. The increase was due primarily to higher net profit partially offset by an increase in accounts receivable and a reduction in deferred revenue.
Trade accounts receivable at July one 2023 totaled $5 1 million versus $3 8 million as of December 31, 2022.
This change was due to an increased.
Due to increased sales in the quarter and the impact of deferred revenue.
Our other receivable account balance of $75000 was reduced from December 2022 balance of 686000 due to the receipt of the employee retention tax credit in April <unk>.
Inventories totaled $4 $8 million as of July one <unk> compared with $4 $9 million at the start of the fiscal year.
Turning to the liability side payables and accruals totaled $3 $2 million as of July one 2023, an increase from $2 7 million as of December 31.
This primarily reflects a timing issue and that a number of bills came late in the quarter, which were not due to be paid until Q3.
<unk> revenue increased from $2 8 million at the end of.
2022 to $1 8 million on July one 2023, as a reminder, deferred revenue predominantly represents prepayments for larger orders to help defray the impact on cash of large inventory purchases for those orders.
Number of these were shipped in 2023, resulting in the recognition of revenue and thus a decrease in deferred revenue.
Yeah.
During the second pool during the second quarter, we announced one major contract win and additional follow on purchase order valued at $1 $4 million for Hybritech armour panels from kinetic protection. The U S. Navy's Prime sub contractor. The panels are an integrated component of advanced ballistic shield developed in support of protection system.
<unk> by the Navy the purchase order will equip more ships with enhanced ballistic protection for crew served weapon stations.
In addition, the company continues to see an active bid environment across all its end markets, including <unk> and new contract opportunities within the department of defense.
Anthony will speak more about the outlook in a moment.
Which remains very positive.
While the overall business activity level. It gives us confidence in the Companys growth trajectory, we want to let investors know that as was the case last year contract and shipping timing will likely lead to Q3 revenue being lower than the second quarter's record pace. Conversely, since some of the revenue for the third quarter has been.
Pushed into the fourth quarter, we anticipate a very robust and to the to the fiscal year with 2023 performance being our best ever.
I'd now like to turn the call over to Anthony So that he can get into a little more detail on some of the numerous growth opportunities.
Growth opportunities across the business development front.
But before I do so let me just mentioned that this will be Anthonys last time, joining us on our earnings call as he will be leaving Cps to pursue a new opportunity at the end of this week.
It's truly been a pleasure and honor to work with and so many of these past few years and we all wish him the best going forward.
Anthony.
Thank you Chuck I am pleased to see Cps pull together and post record results this quarter as the business development and marketing teams look for new opportunities to drive growth and position the company for the future as Chuck mentioned the outlook for Cps remains bright given recent wins the many items in our pipeline and an overall active bid and buy.
Okay.
<unk> from key customers for <unk> remains strong and this continues trending upward.
Previously announced hybrid farmer panel installation on naval aircraft carriers has begun and we successfully ramped up to two kinetic protection shipments per week during the quarter without any disruptions or significant head count additions required at.
During the quarter, we attended PCI on Europe , the thermal management Expo and exhibited at the electronic components and technology conference in Orlando the outlook for 2023 remains strong and our team is delivering on all of our growth objectives I continue to be upbeat about the company's ability to convert this into backlog and backlog into.
Our revenue as we leverage our innovative solution across a growing set of markets and new industry applications Lastly, as Chuck mentioned, our last day of Cps technologies will be Tomorrow August four.
This was a very difficult decision. The team here has made great progress over the past two years, but in many ways. We're only at the tip of the iceberg for what's to come ultimately I made a choice based on an opportunity closer to family I would like to thank the senior management team Dan Barton, our VP of operations, Dr. Kaczor VP of technology and of course.
Chuck you for all of your support these past years I am confident that the company under Brian's leadership, we will continue our growth trajectory building a truly great organization. Thank you also to the board of directors as well as our shareholders for your support and trust in closing it has been my honor to be a part of such a fantastic enterprise and I look for.
Thank you 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 ask that while posing your question you. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Once again, please press star one on your phone at this time.
Please hold while we poll for questions.
Once again.
Thats Star one if you wish to ask a question star one on your phone if you wish to ask a question. We did have a question coming in from Steve Fosse, Steve Your line is live.
Thank you.
Hey.
Good morning.
I had a couple of minutes late so I apologize if this.
<unk> has already been covered.
Do you expect the.
SG&A to go back down in the next quarter.
Yes.
We didnt cover it but yes, we do there were there were definitely a couple of things in there that were.
Unique to the.
To the second quarter in particular, the the severance payment that I mentioned.
Okay. Good.
Can you provide.
Provide maybe a little bit of color on.
Like the mix of business that you have at the moment.
Sure.
Yes, so I would say, it's it's fairly close to a third a third a third in terms of armor hermetic packages and <unk>.
Not.
Not exactly but maybe 35 for 1% and 30 for another that type of thing.
Spaced out amongst the three product lines and.
That sort of has been our goal.
Right, along although and obviously there is also a small amount that goes for R&D with the <unk> projects.
But that's just.
Just a few percent so.
For the most part basically a third a third a third.
Great. Thanks.
Welcome.
Thank you and once again please.
Please press star one.
You wish to ask a question on today's call Thats Star one.
If you wish to pose a question on today's call.
And we did have another couple of questions coming from Luke check.
Your line is open.
Hello Hello.
Martin can you hear me.
Yes.
Good morning, everybody congratulations on a very good quarter.
Maybe you could update us in terms of the.
<unk> Investor Relations firm.
And how that's helped you.
Sure.
Yes, I know, that's something you've been asking us about for many years.
Yeah. So so we've certainly Chris and his firm came onboard with us on may 1st.
I think so far the relationship has been excellent.
We had it we've had a number of calls with.
Outside investors that.
Chris has been instrumental in setting up.
In addition, he has made.
What I would consider some very insightful comments about.
Some of the ways, we did our presentations in the past versus our suggestions for ways to improve them as well.
So I think so far so good it's been I guess August 1st would be three months, if I'm doing my math correctly.
And yes, we are.
Pleased with the relationship so far.
Yeah.
Thank you. Thank you.
Apologies Wilson please.
Star one and again that will take your follow up in the meantime, we did have Steve Fosse with another question Steve Your line is live.
Okay. Thanks.
Uh huh.
I just wanted to thank you Chuck for filling in.
Okay.
Hey, guys.
On previous conference calls you mentioned possible armor contract with Southeast Asia.
Customer.
Is supposed to be done by the end of last year and it was delayed is there any update on that particular contract.
Sure.
Sure.
Yes, Anthony you can take that one.
Go for it yes, Hey, Ron how are you. So yes, it's still very much active we've continued to see delays and I think we briefed on the last quarterly call that we.
We were awaiting one final shoot to get us to the next round of qualification for what they call production qualification that shoe. Unfortunately has continued to be pushed we've been we have been expecting over the year that it will happen by the end of the year and that's still the expectation right now we're tentatively looking at mid September .
Majority of the delays and the issue has been related to identifying a facility in a range that allows us.
Us to shoot the level of cash.
<unk> requires obviously.
Can't get into specifics on that piece, but yes. It is still very much active we're still planning to do the shoe by the end of the year after.
At the moment is tentatively scheduled for mid September .
Alright, thank you.
Thank you.
And both the Shack if you did have a follow up your line is live. Please if you wish to proceed with a follow up just switching subject is that way you could comment upon New York Frank.
Business and there may be you electronic car involvement in any fashion.
Uh huh.
I'm not sure how far you can go on that and they want to discuss it.
Well certainly.
That relates to the to the <unk> and <unk>.
<unk> side of our business.
It is something Thats out there.
We have customers that are supplying IGT.
BT modules too.
Automobile manufacturers.
Some of them are utilized copper based place which of course, we're not.
Not really involved with it.
Others are using ASIC base plate.
There is certainly.
Theres certainly a lot of opportunity there.
The real question is how much will lease vehicle manufacturers want to.
Spend the extra money to use our sick.
Think as you get to larger vehicles.
That kind of thing.
It's more likely that will be involved in those kinds of things.
I think a little small.
Economical, but relatively inexpensive.
Electric car is probably not going to be.
Where you're going to find.
Announcing base plate.
So.
So I guess to answer your question.
Anthony is there anything you want to add to that.
Yes, I'll say working on the defense part of the business at.
The long term agreement that I, what I restaurants that we're negotiating is in support of aerospace application.
The defense and aerospace side, certainly more active at the moment in terms of EV.
Still a very much a developing market.
As this transition from silicon to Silicon carbide shifts continues to advance at a rapid pace identifying where and what those new challenges, bringing is where we're currently at so.
We've got some very.
<unk>.
New development projects I'll say that.
At various stages.
In their infancy, but are more geared toward what does or <unk>.
Next generation if you will.
Al sick or thermal management type basically look like and that's really where we're focusing our efforts.
A piece of it is we have the niche applications for <unk>.
Luxury high performance high strength applications for where <unk> has always had a play.
But when we're looking at more of the mainstream application.
As always been a difficult sell so we're looking at what are ways that we can leverage our expertise to maybe move up the value chain a bit.
Some different materials embedded into the <unk>, there's a lot of different <unk>.
Avenues that we're currently drilling down in multiple ones that are in conjunction with customers who are developing this technology. So.
I will say that defense and aerospace while being much more active at the moment and where I think a lot of near term growth is positioned.
We're certainly still very active in EV, it's just okay.
Yes.
A slow process that we're still continuing to work through to identify where are there areas, where we can bring real value and have a differentiator compared to copper base later other model look like.
Tight from thermal management applications. So.
A lot of stuff going on there, but it's very much development low volume Bill.
Building up towards that it's nowhere near where I think Tom some of the aerospace and defense opportunities are.
Thank you very much for your update.
Okay.
Thank you and once again, please press star one is there any more questions today once again Thats star one if there are any final questions on today's call.
And there doesn't appear to be any other questions. At this time I would like to hand, the call back to Chuck Griffith for closing remarks.
Okay, well, thank you very much Paul and <unk>.
Thank you everyone for joining us this morning.
In summary, we are very excited about the future here at Cps.
To help lead us through that through that future to that future.
And.
Yes, so I think that.
Again, we're very very optimistic about the future.
And with that Brian do you have any final comments or.
Thanks, Tony Okay very good so thank you everybody for joining us and we will.
Talk to you in about three months.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Got it.
Okay.