CVD Equipment Corporation

Good afternoon and welcome to the CVD Equipment Corporation first quarter 2026 earnings conference call. As a reminder, today's call is being recorded. We'll begin with prepared remarks, followed by a question and answer session. Presenting on today's call are Emmanuel Lakios, President and Chief Executive Officer, and Richard Catalano, Executive Vice President and Chief Financial Officer. Our earnings press release and information about today's call replay are available in the investor relations section of our website at cvdequipment.com. Before we begin, please note that the comments made during this call may include forward-looking statements, including statements regarding our future financial performance, market growth, product demand, business outlook, and strategic initiatives. These statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materials. For a discussion of these risks, please refer to our filings with the Securities and Exchange Commission, including the risk factors section of our annual report on Form 10-K for the year ended December 31st, 2025. We undertake no obligation to update any forward-looking statements except as required by law. With that, I will now turn the call over to Emmanuel Lakios, President and Chief Executive Officer.

Thank you, Officer. Operator and good afternoon, everyone. We appreciate you joining us today to review our first quarter of 2026 financial results and to provide an update on our business and strategic initiatives. Following our prepared remarks, we'll be happy to take your questions. As previously disclosed in response to continued volatility in our order rates and a recent decline in bookings within our CBD equipment division, we initiated a transformation strategy late last year designed to specifically reduce fixed operating costs, create a more agile organization, and better position the company to maximize shareholder value. Key elements of this plan included transitioning the CBD equipment business from a vertically integrated fabrication model to an outsourced fabrication for certain components, which we will expect to reduce fixed costs and improve scalability. Meeting a workforce reduction in CBD equipment division during the fourth quarter, which is expected to reduce annual operating costs by approximately $1.8 million in 2026. Revising our sales approach by leveraging distributors and external representatives to complement our internal sales organization and broaden market reach. And finally, exploring strategic alternatives for certain business product lines including potential sale of assets or divestitures. As part of our strategic review, on March 23rd, 2026, we announced that we had entered into a definitive agreement under which our SDC business was to be sold to Atlas or Copco. The purchase price was approximately $16.9 million in cash and is subject to certain purchase price adjustments, This action closed on April 1st, 2026. The sale of SDC enables us to concentrate our attention on our core CBD equipment business. The investor has strengthened our balance sheet and provided additional financial flexibility as we continue to evaluate strategic opportunities for the CBD equipment business, its product lines, and our facilities. We continue to drive operational efficiencies allowing for reduced operating costs and increased flexibility. Our objective remains to maximize shareholder value. Net cash proceeds from the sale of the SDC division received by the company in April 2026 after payment of transaction costs and employee-related liabilities were $14.8 million. Immediately following the sale of SDC, CVD equipment had approximately $23 million in cash and no long-term debt, as we repaid the remaining balance of an equipment loan during the quarter. Under the agreement, an additional $900,000 was placed in escrow for post-closing adjustments and identification obligations under the agreement. We have retained ownership of our Saugaties New York facility that is being leased to the buyer for an initial term of two years. Turning to our financial results for our continuing CBD equipment operations, first quarter of 2026 revenue was $1.8 million, down 70.9% from the prior year quarter, revenue of $6.3 million, and down 30.9% sequentially from the fourth quarter of 2026 revenue of $2.7 million. Orders in the first quarter totaled $1.8 million, driven primarily for the demand of spare parts. At March 31, 2026, backlog was 4.7 million, similar to the CBD equipment backlog at December 31, 2025. Our bookings for our business continue to be affected by several factors, including geopolitical uncertainty, reduced U.S. government funding for universities, and a slower pace of adoption of our solutions in certain end markets. We are actively monitoring customer demand, the broader geopolitical uncertainties, and potential future tariff impacts, and are adjusting our plans accordingly. Even against this backdrop, we remain focused on delivering solutions across our key markets, including aerospace and defense, industrial applications such as silicon carbide on graphite, silicon carbide for high power electronics, as well as emerging applications, including nuclear energy. With that, I will turn the call over to our CFO, Richard Catalano, to review the financial results in more detail.

Richard Catalano Thank you, Manny, and good afternoon, everyone. The financial results of SDC are now reflected in our financial statements as discontinued operations for all periods presented, and the SDC assets and liabilities are considered held for sale as of March 31st, 2026. With the sale of the SDC business in 2026, we now have one reportable segment consisting of our CVD equipment division that manufactures chemical vapor deposition, physical vapor transport, thermal process, and related equipment. I will review first the results from continuing operations. As Mandy said, our first quarter of 2026 revenue was $1.8 million. This compares to $6.3 million in the first quarter of 2026. and $2.7 million in the fourth quarter of 2025. The year-over-year decline, as well as the decline from the fourth quarter, was primarily driven by lower CBD Systems revenue. Our revenue was concentrated among three key customers, which together represented 66 percent of total first quarter revenue. Gross profit for the quarter was $147,000, resulting in a gross margin of 8%. This compares with gross profit of $1.7 million and a gross margin of 27.4% in the prior year quarter. The decrease in gross profit was primarily the result of lower revenues, which led to higher unabsorbed overhead costs. Gross profit during the quarter ended March 31, 2026, did benefit by about $3.3 million or $317,000, from a contract modification with one of our customers. Our operating loss from continuing operation for the first quarter of 2026 was 1.8 million, compared to 0.3 million in the first quarter of 2025. Included in the first quarter of 2026 was a gain of $46,000 from the sale of equipment. After interest income, net loss from continuing operations for the quarter was 1.7 million, or 25 cents per basic and diluted chair, compared with a net loss of $229,000 or three cents per basic and diluted share in the prior year quarter. Income from discontinued operations before transaction cost of our STC business division declined from 0.6 million in the prior year quarter to 0.5 million in the current year quarter. This was due to lower gross margins on higher revenues. Transaction costs associated with the sale of STC consisted of legal and investment banking fees of 0.4 million for the quarter ended March 31st, 2026. Thus, the total income from discontinued operations was 63,000 for the quarter as compared to 0.6 million for the prior year quarter. And again, this is principally due to the transaction costs incurred in connection with the sale of SDC that was consummated on April 1st, 2026. At December at March 31st, 2026, we have cash and cash equivalents of $8.2 million. And immediately following the sale of STC, our cash balance was approximately $23 million. The net proceeds from the sale of STC, totaling $14.8 million, has been invested in short-term treasury securities. Cash flows for the quarter. Net cash used in operating activities during the first quarter of 2026 was $0.9 million, principally as a result of a loss from continuing operation. This amount is net of approximately $0.4 million of cash that was contributed by SDC during the first quarter. During the quarter, we did receive $556,000 from the sale of equipment, and we used a portion of those proceeds to pay off an equipment loan in the amount of $181,000. Our working capital improved to $12.8 million at March 31st, 2026, And of course, it increased after we closed the sale of SDC in April. Looking ahead, our return to consistent profitability will depend on improved equipment order flow, disciplined cost management, successful execution of our transformation plan, as well as continued control of capital expenditures. With that, I will now turn it back to Manny. Thank you, Rich.