CVD Equipment Corporation

Greetings and thank you for standing by, and welcome to CVD's Equipment Corporation's first quarter fiscal year 2024 earnings 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 Calano, Catalano, Executive 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, 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 markets, demand for our products, and 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 filing with the SEC, included but not limited to risk factors sections of the company's 10-K for the year ending December 31, 2023. Actual 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 obligations to update any forward-looking statements based on new circumstances or revised expectations. Now I'd like to turn the call over to Emmanuel Lakios.

Operator, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our first quarter 2024 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 the Q&A session. First quarter 2024 revenue was $4.9 million, down significantly versus same prior year period, as our business continues to experience fluctuations in revenue given the nature of the emerging growth and markets we serve. While we are disappointed with our first quarter performance, we'll stay the course on strategic efforts to achieve profitability carefully managing our costs and cash flow while simultaneously focusing on growth and return on investment. As we mentioned in our year-end press release, we started off 2024 with several key order wins during the first quarter. Specifically, this included a strategic order for our PBT 200 system from a new customer, marking an important milestone for our silicon carbide crystal growth system. The PBT 200 customer plans to evaluate our equipment for potential additional orders. In addition, we received a multi-system order for our industrial market silicon carbide CVD coating system for approximately $10 million. The order performance of the first quarter resulted in an increase in backlog from 18.4 million at year end to 27.1 million at March 31st, 2024. We are encouraged by these orders as we continue to fund both research, development, sales, marketing activities, including direct engagement with multiple potential customers, highly focused on penetrating key market opportunities. I would like to turn the call over to our CFO, Rich Catalano. will provide an overview of our first quarter financial results.

Thank you, Manny, and good afternoon. Our revenue for the first quarter was $4.9 million. This compares to $8.7 million for the first quarter of 2023. This is a decrease of $3.8 million, or 43 percent. The decrease in revenue versus the prior year period was primarily attributable to lower revenue of $2.9 million from our CBD equipment segment, a $0.4 million decrease in revenue from our SDC segment, and a $0.6 million decrease from the CBD material segment due to the disposition of tantaline in May 2023 and the wind-down of mesoscribes operations. The decrease in CBD equipment revenue in the period was principally the result of the revenue associated with our PVT-150 systems in the prior period as compared to no such revenue in the current period. While our SDC segment revenues were 16% lower than the first quarter of 2023, it was $0.6 million or 44% higher than the fourth quarter of 2023 due to increased demand for SDC's gas and chemical delivery systems. Gross profit for the three months ended March 31, 2024 was $0.9 million with a gross profit margin of 17.5%. This compares to a gross profit of $2.4 million and a gross profit margin of 28 percent for the three months ended March 31st, 2023. The decrease in gross profit of $1.6 million was primarily the result of lower gross profit margins on contracts currently in progress as compared to the first quarter of 2023, which benefited from contracts with higher gross margins. The operating loss for the first quarter of 2024 was $1.6 million as compared to an operating loss of $0.2 million in the first quarter of 23. This increase in the operating loss was due to the lower gross profit margin of $1.6 million that was partially offset by lower personnel costs from a reduction in our workforce in January 2024 and also lower bonus accruals. After that income, which consists principally of interest income, our net loss for the first quarter was 1.5 million or 22 cents per share for both basic and diluted. This compares to a net loss for the first quarter of 2023 of 40,000 or one cent per share for both basic and diluted. As for our balance sheet, our cash and cash equivalents at March 31st, 2024 was $11.9 million as compared to $14 million at December 31st, 2023. This decrease in cash was principally due to the net loss of $1.5 million, an increase in contract assets of $1.1 million, an increase in accounts receivable of $1.1 million, as well as an increase in inventories of $0.5 million. These were offset by an increase in contract liabilities of $1.1 million, and also we have non-cash items of $0.4 million, principally depreciation as well as stock-based compensation. Our working capital at March 31st, 2024 is $13.1 million. This compares to $14.3 million at December 31st, 2023. We are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of operations and cash flows. Our return to profitability is dependent upon, among other things, 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 evaluate the demand for our products, assess our operations, and take actions as necessary to maintain our operating cash to support our working capital needs. I'll now turn it back to Manny.

Rich, thank you for your presentation. In summary, the first quarter results of 2023 reflect our efforts to continue to focus on everything we do and those who we serve. Our focus remains on our customer markets, our employees, our shareholders, and the pursuit of growth and return to consistent profitability. We look forward to continuing to build on our success in the year ahead and continue to be cautiously optimistic. Your comments and questions are important to us, With the close of the presentation, I would like to open the floor to your questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Brett Reese with Janie Montgomery Scott. Please proceed with your question.

Hi, Manny. Hi, Richard. How are you guys doing?

Hi, Brett. How are you? Hi, Brett.

Good. Backlog increase, you know, very nice. The 10 million silicon carbide protective coating order, and even the 3.6 million new PVT 2200 order. I assume you use some sort of percentage of completion method of recognizing revenue. Do you know kind of what the cadence of recognition will be of the revenues from those two orders, the balance of the year?

First, Fred, I think an adjustment to the discussion. The question on the $10 million balance, multi-system water for the silicon carbide protective industrial coating system is accurate. The PVT system was for a single PVT. I think you stated that it was 3.6 or 3.7 million. That's not accurate.

Okay. Okay. So let's unbundle it. $10, yeah.

Just to answer your question, Brent, on the accounting, the $10 million order will be recognized over time. We just got that order recently, and that will be recognized toward the latter part of this year in 2024 into 2025 as we work on the contract. With respect to PVTs, since we have that as one of our products, standard products that's available for sale, given that we have now a second customer, Our accounting position on revenue recognition will be based on when we ship the product to the end customer, or what's referred to as point-in-time revenue recognition. And that will be this year going forward. So we have not recognized any revenue on that PBT 200 order. That will be recognized later on in 2024. All right.

What I did is your backlog went up 13.6. I took the 10, and I just assumed that... The 3.6 is all the new PVT, but it's not, so the backlog came from other products.

We had a healthy SDC quarter as well, and in addition to that, spare parts is a portion of our business, and we had an additional system order, which we didn't speak about, which is part of our legacy product line.

Okay, that's great. The SG&A, you reduced it from 1.6 to 1.3 million this quarter. Is that a good run rate going forward?

Yeah, I think it does reflect, you know, our current run rate. We did have some reduction in force, as I mentioned. We do have lower bonus accruals as well. So, you know, we don't give guidance per se, but, you know, that is kind of consistent with what we would expect going forward. subject to other things that might pop up, for example, as far as any other business activities that might require additional fees, for example, which we can't predict.

Yeah, and it's also subject to the business situation and as we get more orders or as our order rate fluctuates.

Right. And I see, you know, despite this soft quarter, You still are keeping the pedal to the metal on R&D with 746,000 versus 602. You plan to continue to kind of do that?

We have not affected at all our engineering programs, and quite a bit of our engineering effort is going into satisfying the large silicon carbide coating systems. As well as the final launch and delivery of our alpha, beta, PBT 200 system.

Right, right. How many employees did you have to kind of let go to bring overhead down to our new current reality?

Yeah, we don't have a tendency to release that information. You know, we find that to be a competitive advantage.

Okay.

Got it.

All right. I'm going to drop back in queue. Thank you very much. And the backlog, you know, very encouraging.

Thank you. Thank you, Brett.

Thank you. There are no further questions at this time. I'd like to pass the call back over to Emmanuel for closing comments.

Thank you, operator. Thanks to everyone for dialing in today. We appreciate the attendance on the call and your support, as well as the loyalty from all our shareholders and some of the employees who are actually on the call today. We appreciate that. If you have any further questions, please reach out to me directly or with Rich, and this concludes our first quarter call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.