CVD Equipment Corporation

Greetings and welcome to the CVD Equipment Corporation 2023 Fourth Quarter and Full Fiscal 2022 Results Conference Call. As a reminder, this conference is being recorded. We will begin with some prepared remarks followed by a question and answer session. Presenting on the call today will be Emmanuel Lakios, President and CEO and member of the CVD Board of Directors, and Richard Catalano, Vice President and Chief Financial Officer. We have posted our earnings release and call replay information to the investor relations section of our website at www.cvdequipment.com. Before I begin, I'd like to remind you that many of the comments made on today's call contain forward-looking statements, including those related to future financial performance, market growth, total available market, demand for our products and general business conditions and outlook, These forward-looking statements are based on certain assumptions, expectations, and projections that are subject to a number of risks and uncertainties described in our press release and in our filings with the SEC, including but not limited to the risk factor section of the company's 10K for the year ended December 31, 2022. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today. and we undertake no obligation to update any forward-looking statements based on the new circumstances or revised expectations. Now I would like to turn the call over to Emmanuel Lacchios.

Thank you, Paul. Welcome to CBD Equipment Corporation's quarterly conference call. My name is Emmanuel Lacchios, CEO and President, and I am pleased to be presenting to you today regarding our fourth quarter 2022 and our full fiscal year 2022 performance and important company developments and pertinent information related to our business. Your thoughts are important to us and we look forward to your questions in our Q&A session. Now for our fourth quarter and 2022 results. We are pleased to be reporting a strong revenue growth for fiscal 2022, an increase of 57% over prior fiscal year. The fourth quarter revenue while lower than our third quarter 2022 was 53% higher than our fourth quarter 2021. During the fourth quarter 2022, we recognized net income of $1.5 million. For the full fiscal year 2022, we recognize a net loss of $224,000. Both periods include the recognition of other income of $1.5 million for federal employee retention credit. The 2022 and fourth quarter operating performance is aligned with our strategy of business focus, revenue growth, and return to profitability. The timing of the demand of our products is dependent on many factors, such as our customers' market conditions, the acceptance of our products by our customers, and the general economic conditions. While our revenue and profitability will continue to fluctuate due to this timing of orders and shipments, We believe that we are on the right track to achieve consistent long-term profitability in the years ahead. 2022 was an exciting period for all the stakeholders of CBD equipment. The order rate for 2022 lends further support to our belief that we are on the right path. Our core strategy, which includes focusing on markets that support the electrification of everything, specifically silk and carbide, is fueling our present growth. The market segment focuses on high-power electronics, which are used in the growing electric vehicle market. The end-use applications are electric motor power converters, power charging, and transmission. For 2022, we have received orders exceeding $33 million for our CBD systems and services segment, as compared to approximately $31 million for the same period, 2021. This is a 52% year-on-year increase in orders for the CBD segment. Our Q4 2022 orders were 9.2 million. The 2022 orders included 24 additional units of our recently launched PBT-150 system for silicon carbide crystal growth. All unit orders were from our initial alpha-beta customer. and amounted to approximately 8.8 million. 10 of the 24 PVT-150 systems were ordered in the fourth quarter. The PVT-150 system is utilized to grow silicon carbide crystals, which are sequentially fabricated into silicon carbide wafers. In the fourth quarter, we had the initial launch of the PVT-150 to the broader base of silicon carbide crystal growth customers. In the fourth quarter, we were selected and received a system from a major aircraft engine manufacturer. Specifically, the order was for a production chemical vapor and infiltration system valued at approximately 3.7 million. As I stated earlier, this system will be used to manufacture ceramic matrix composite materials for aerospace gas turbine engine components. We believe that this order is a tangible sign of the beginning of the aerospace market recovery, which traditionally has been a significant part of the CBD Equipment Corporation's business. The remainder of the 2022 orders were for our legacy advanced R&D and First NATO Systems SDC division products, as well as our non-core segments. Our SDC segment had increased sales over prior year of approximately 35%. That reflects a higher demand for our gas and liquid control system products. SDC is both an enabling captive supplier to the CBD equipment group, as well as a merchant supplier to the microelectronics industrial markets. Our Tantaline and Mesoscribe, which we deem as non-core product lines, were profitable in 2022. Supply chain issues relative to both inflation and lead times continue to negatively impact our revenue timing and profitability for all our segments of the company. In 2022, we installed additional machine centers and added capacity to our central isolate facility to increase our system output and to continue to drive towards increased operational self-reliance. The management of our product lead times along with the precise control of our equipment has been a competitive advantage for us. I would like to turn the call over to our CFO, Rich Catalano, who will provide you our fourth quarter and 2022 financial summary.

Rich Catalano Thank you, Manny, and good afternoon. Our revenue for the fourth quarter of 2022 was $7.2 million. This compares to $4.7 million in the prior year fourth quarter. That represents an increase of $2.5 million, or 53 percent. This increase in our revenue is primarily attributable to our PBT 150 product line, which represented approximately $2.2 million, or 30 percent of our revenues in the fourth quarter, as compared to no such revenues in the prior year fourth quarter. Our operating loss for the fourth quarter was $221,000. This was an improvement over the prior year, an improvement of approximately $800,000. This improvement in our operating results was driven by the increased revenue of $2.5 million that resulted in increased gross profit of $1.2 million. That was offset somewhat by an increase in operating expenses of approximately $0.4 million. Our gross profit percentage was 28 percent in the fourth quarter, in this fourth quarter as compared to 16% in the prior year fourth quarter. This improvement on our gross profit was primarily the result of leveraging our fixed costs over higher sales levels, as well as an improved product mix. These benefits were offset somewhat by increased costs in material components, as well as compensation costs. The increase in our operating expenses, principally due to certain higher Employee-related costs to support the growth of our business, that's including in marketing, as well as some general increase in our personnel cost overall. As Manny mentioned, in the fourth quarter of 22, we completed our analysis of whether the company was entitled to an employee retention credit, and we determined that for two quarters in 2021, we were entitled to a credit of $1.5 million, and that was recorded as a not operating income item in the fourth quarter. Based on the recognition of that ERC credit, our net income was $1.5 million, or about $0.23 per share for both basic and diluted. Our fourth quarter of this year also benefited from interest income of $88,000 and a foreign exchange gain on our intercompany loan with our Denmark subsidiary of about $155,000. Overall, our net loss for the quarter was $1.2 million. Our net loss for the fourth quarter of 21, I should say, was $1.2 million or $0.18 per share. Just turning to the full year of 2022 briefly, the revenue was $25.8 million. This compares to $16.7 in the same period of 2021. That's an increase of $9.4 million or 57%. Similar to the fourth quarter, this increase in revenue was attributable to our PBT-150 product line, which represented approximately 7.5 million or 29 percent of our revenue in 2022. Again, we had no such revenues in 21. The operating loss for fiscal 22 overall for the full year was 1.8 million. This represents an improvement of 2.8 million when we compare it to the loss we experienced in 2021 of 4.7 million. These improvements, again, in operating results principally related, of course, to the increased revenue of 57 percent on 9.4 million, and that resulted in increased gross profit of 3.6 million. We also had an offsetting operating expense increase of approximately $700,000. Our gross profit for the full fiscal year was 26 percent. This compares to 19 percent. Again, the improvement is related to the fact that we had much higher sales levels and allowed us to spread our overhead costs. We also had some increased revenue operating expenses. We did have some, like I mentioned, for the quarter, we had some increases as we grew the business, including marketing and general increases in our personnel costs. We did have a one-time severance charge of approximately $134,000. These increases were offset. We did have some reductions that were favorable. In July 2021, we did sell our building, another building we had here in Central Islip. The reduction in the operating costs for that building benefited operating expenses by approximately $600,000, and we also had lower professional fees of about $300,000 for the full year. As previously mentioned, the year also benefited from the recognition of the employee retention credit. I would mention that in the prior year, we did have two one-time benefits. We had a benefit of $6.9 million from the sale of a building, and we had $2.4 million from forgiveness of our PPP loan. That obviously helped the bottom line. So, overall, for the net income for 2022, it was 200. Net loss, I should say, for 2022 was $224,000, or 3 cents per share. The loss, again, that includes the $1.5 million. Net income for the prior year was $4.8 million, or 71 cents earnings per share. But keep in mind, there were those two non-operating gains that totaled $9.3 million. Now, turning to our backlog, our backlog at December 31st, 2022, was $17.8 million. This compares to $10.4 at the beginning of the year, and this represents an increase of $7.4. Our backlog consists principally of remaining performance obligations that we have on our contracts in progress, about $16.2 million, and the balance of 1.6 represents unfulfilled purchase orders that we've received. Turning to our balance sheet, our cash and cash equivalents at December 31st was $14.4 million as compared to $16.7 in the prior year. This was a decrease of $2.3 million, very little movement from operations, but that $2.3 million was principally the payoff of our mortgage on our central isolate facility. and also we had capital expenditures of about $700,000. Our working capital at the end of this year is 15.5, and this compares to 16.7 at December 31st, 2021. Just some closing notes. We are unable to predict the impact of the current economic and geopolitical uncertainties that we'll have on our financial position or our future results of operations and cash flows. Our return to consistent profitability will be dependent upon other things, the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions and the inflationary pressures as well as managing our planned capital expenditures and our operating expenses. In addition, our revenues and orders have historically fluctuated based on changes in order rate as well as factors in our manufacturing process that impacts the timing of our revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter. After considering all these factors, and we believe our cash and cash equivalents and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months, we will continue to assess our operations and take actions anticipated to maintain our operating cash to support our working capital needs. I'll now turn it back over to Manny.