CVD Equipment Corporation

Greetings and thank you for standing by and welcome to CVD Equipment Corporation's first quarter fiscal year 2023 earnings 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 press 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 in general business conditions, and outlook. These forward-looking statements are based on certain assumptions, expectations, and projections, and 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 risk factors section of the company's 10-K for the year ended December 31, 2022. Action results may differ materially from those described during this 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 Lakios.

Paul, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our Q1 2023 financial results and other 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. We are pleased to report strong revenue growth for the first quarter of 2023, an increase of 87% over our first quarter of 2022, and a 20% increase over our fourth quarter of 2022. During the first quarter of 2023, we recognized a net loss of $40,000, or one cent per basic and diluted share. compares to a net loss of $1 million or 15 cents per basic and diluted share for the same period, 2022. We have in the past noted that we expect fluctuations in revenue due to the fluctuations in the timing of orders. Orders for the first quarter of 2023 were 2.9 million. This was lower than our anticipated orders for the quarter. This resulted in a decrease in our backlog from $17.8 million at December 31, 2022, to $12 million at March 31, 2023. The decrease in order may have a negative impact on our revenues over the next couple of quarters. We continue to be cautiously optimistic. As our served markets recover, develop, and grow, we will be able to obtain an increased order level. As there is a history of market cyclicality, our strategy is to serve a few growing markets. We have narrowed our market focus to three areas, the first being high-growth power electronics market, our emerging battery materials market, and our legacy aerospace and defense market. In the power electronics market, we previously announced receiving an order for a total of 30 PVT-150 systems. These orders were received in 2021 and 2022. from a customer who uses our system to grow silicon carbide crystals that are subsequently processed into 150 millimeter silicon carbide wafers. We recognize 2.5 million of revenue during the first quarter of 2023 related to these orders and expect to ship the remaining 10 of 30 units before the end of the second quarter. We also expanded our marketing efforts during the first quarter with the hire of a dedicated sales manager and broadening our general marketing efforts, including attendance in key silicon carbide-related shows and conferences. The success of our efforts is dependent on the performance of our equipment in the field, overall market conditions, our customers' ability to qualify their end product, as well as the capital markets. A recent development in our battery material market occurred in early May, and we are excited to have received a repeat order from 1D Battery Solutions for our Powder Coat 1100 system and components for approximately $1.8 million. The system will be used by 1D Battery Solutions to add nanoscale silicon to carbon powder for use in the anode section of the battery. This addition of silicon enhances the performance of the battery, and the application is in line with our focus on markets that electrify everything. Related to aerospace and defense, we are a leading manufacturer of chemical vapor infiltration systems and also tow coating systems to manufacture ceramic matrix composite materials, also referred to as CMC, for use in gas turbine engine components. CMCs can withstand extreme temperatures and are one-third the weight of nickel-based superalloys. This allows jet engines to run hotter, thereby consuming less fuel and emitting less pollutants. As previously announced, during the fourth quarter of 2022, we received an oil production CVI tool to manufacture CMCs for aerospace gas turbine engines for approximately $3.7 million. Our customers now include two of the leading manufacturers of gas turbine engines. This order contributed to approximately $300,000 of revenue during the first quarter of 2023. We continue to engage with our aerospace customers on their technology and production capacity requirements for both the short and also long term. CBD Equipment Corporation's objective remains to be a profitable growth company through a focus on products that serve growth markets, specifically high-power electronics, EV battery materials, and aerospace and defense specialty materials. We remain committed to stay the course of our strategy to achieve consistent long-term profitability, growth, and return on investment. I would like to turn the call over to our CFO. Rich Catalano, who will provide you an overview of our first quarter results.

Thank you, Manny, and good afternoon. Our revenue for the first quarter of 2023 was $8.7 million, as compared to $4.7 million for the first quarter of 2022. That represents an increase of $4 million, or 87%. The increase in our revenue is primarily attributable to our PVT-150 product line, which contributed $2.5 million to the current quarter as compared to $300,000 of such revenue in the first quarter of 2022. In addition, our SDC segment had a strong quarter with an increase of $800,000 in revenue over the first quarter of 2022, representing an increase of 59 percent. Our revenue for the first quarter of 2023 was also 20 percent higher than the 7.2 million we reported for the fourth quarter of 2022. This increase was due to higher revenues from both our CBD equipment and SDC segments. Our operating loss for the first quarter of 2023 was $187,000. This represents an improvement of 783,000 as compared to the first quarter of 2022 and is slightly lower than the $221,000 operating loss we reported in our recent fourth quarter. The improvement in our operating results from the prior year quarter was related to the increased revenue of $4 million, which resulted in an increase in our gross profit of $1.7 million. This was offset in part by increased operating expenses of approximately $900,000. Our gross profit margin percentage was 28.0 percent in the current first quarter as compared to 16.5 percent in the prior year first quarter and as compared to 27.7 percent in our recent fourth quarter. The improvement in gross profit from the prior year quarter was primarily the result of leveraging our fixed costs on higher sales levels as well as an improved product mix. These benefits offset certain increases in material components as well as compensation costs. The increase in our operating expenses from the prior year quarter and from our fourth quarter is due to higher employee-related costs to support the growth of our businesses, and we also had additional selling expenditures and professional fees. After accounting for non-operating other income, which principally consists of interest income, our net loss for the first quarter was $40,000, or one cent per share, for both basic and diluted. This compares to a net loss for the first quarter of 22 of $1 million or $0.15 loss per share for basic and diluted. Our net income in the fourth quarter of 2022 was $1.5 million or $0.23 earnings per share, basic and diluted. However, as a reminder, the fourth quarter did include the recognition of other income of $1.5 million for an employee retention credit that we recorded after we completed an analysis that determined the company was eligible to receive this credit for certain quarters during fiscal 2021. Now turning to our backlog, our backlog at March 31st, 2023 was 12 million as compared to 17.8 million as of December 31st, 2022. This does represent a decrease of 5.8 million as our revenue of 8.7 exceeded our bookings of 2.9 million. Our backlog at March 31st consists of 10.1 million relating to remaining performance obligation on our contracts in progress, as well as certain contracts not yet started, with the balance of approximately 1.9 million representing other orders received from customers such as spare parts. Our cash and cash equivalents at March 31st, 2023 was 11 million as compared to 14.4 million at December 31st, 2022. The decrease of $3.4 million was due to increases in contract assets of $1.5 million and decreases in contract liabilities of $2.8 million as we incurred costs on the contracts that we currently have in progress. Other factors impacting our cash flow during the quarter was a small increase in inventories of about $300,000, a decrease in accrued expenses of approximately $500,000, primarily due to the payment of year-end bonuses. These changes were partially offset by a reduction in accounts receivable of $1.4 million. Our working capital at March 31st, 2023 was $15.7 million as compared to $15.5 million at December 31st, 2022. As to our future results, we are not able to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of our operations and cash flows. Our return to consistent profitability is dependent, among other things, on the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions and inflationary pressures, as well as managing planned capital expenditures and operating expenses. In addition, our revenues and orders have historically fluctuated based on changes in order rate, as well as other 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, 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 will take actions as necessary to maintain our operating cash to support our working capital needs. I'll now turn it back to Manny.