CPS Technologies Corp.

Ladies and gentlemen, thank you for standing by and welcome to the CPS Technologies Corp. Second Quarter Investor Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and the number one on your telephone keypad. If you require operator assistance at any time, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Griffith. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. I'm joined today by Grant Bennett, our President and CEO. 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 1995, and should be considered as subject to the many uncertainties that exist in CPS's 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 statement. Now I'll turn the call over to Grant to offer his perspectives on the second quarter's results. Thank you, Chuck, and welcome to the call, everyone.

We're pleased to report revenues for the second quarter of $5.8 million with an operating profit of $331,000. Revenues and operating income were down from Q1 of this year, which was our highest revenue quarter in our history, but both revenues and operating income were very similar to Q4 of last year, which was our last pre-pandemic quarter. The predominant factor in lower Q2 revenue compared to Q1 is that a large customer increased inventory in Q1 pulling in shipments originally scheduled for Q2 into Q1 to build a larger safety inventory given concerns about COVID-19 impacting the supply and logistics chain. In Q2 they reduced deliveries to begin to bring inventories back down to a more appropriate level. Let me parenthetically comment. I use the term supply and logistics chain to highlight that one somewhat unanticipated impact of COVID-19 is the impact the shutdown of passenger air travel has on air freight. International air freight costs are up very sharply because there are very few passenger planes flying between the U.S. and Europe. and many freight forwarders primarily use excess capacity on passenger planes rather than dedicated freighters for air freight. Moving from the revenue to the income side, we're very pleased with the very significant improvement in operating profit. For the six-month period just ended, operating profits were $952,000 compared to an operating loss of $486,000 for the same period a year ago. This positive swing of over $1.4 million comes even though revenues were up only $633,000. This improvement reflects the pricing, product mix, and operational improvements as well as the major customer contracts that we've discussed in previous quarters. And these improvements, we believe, will continue to bear fruit in future quarters. As indicated in our press release, we've been open and operating throughout the pandemic. To date, most of our customers remain open and operational. We saw in Q2 and now expect to see in near-term future quarters increased volatility in short-term demand as individual customers address pandemic-related issues, such as managing inventories up and down, addressing shortages of other components, in some cases having short-term shutdowns, and in some cases we found customers have longer approval cycles given that many employees are working from home. CPS continues to operate and follow CDC and OSHA guidance. Among the things we're doing is employees' temperatures are taken at the beginning of each shift. Shifts have been staggered to reduce employee overlap. Workstations have been rearranged to ensure social distancing. All employees are using face masks, etc. To our knowledge, there has been no transmission of COVID-19 between employees at CPS. I've commented over the last several quarters that we have a focus on more deeply penetrating the US defense and aerospace markets. Most applications in these markets require high reliability and high performance. At CPS, we're delighted and proud that we have been able to contribute to the NASA 2020 Mars Perseverance Rover, which is scheduled to launch tomorrow morning in just about 15 hours, to be exact. The Perseverance Rover contains an ALSEC module produced by CPS. We'll be issuing a press release with additional information after it's been approved by appropriate channels at the Jet Propulsion Laboratory. I mentioned freight costs earlier with a smile on my face. Let me just say I'm glad the customer is paying the freight cost to get the rover to its ultimate destination, not the suppliers. With that, let me turn the time to Chuck for additional details on the second quarter financial performance. Thank you, Grant.