CVD Equipment Corporation (NASDAQ:CVV) Q3 2023 Earnings Call Transcript

CVD Equipment Corporation (NASDAQ:CVV) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Greetings and thank you for standing by. Welcome to CVD Equipment Corporation’s Third 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 Rich Catalano, Executive Vice President and Chief Financial Officer. We have posted earnings press release and call replay information to the Investor Relations section of our website at www.cvdequipment.com. Before we begin, I would 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 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. 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 obligation to update any forward-looking statements based on the new circumstances or revised expectations. I would now like to turn the call over to Emmanuel Lakios. Please go ahead, sir.

Emmanuel Lakios: Sherry, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our third quarter 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. As previously communicated, our order and revenue levels have historically fluctuated and will continue to do so. This is typical for the highly cyclical process equipment industry. As such, while we experienced a year-over-year decline in third quarter revenue of approximately $1.9 million. We are pleased that our year-to-date revenue for the first nine months of 2023 continues to be $1.4 million or 7.6% higher than the prior year.

On the order front, during the third quarter, we booked $4.1 million of new orders, principally in our aerospace and defense sector. In the high-power electronics market, there were no PVT150 system orders received in the first nine months of 2023. Our installed base of PVT150 systems are meeting our performance expectations, and we continue to support our existing PVT customer in their end product development goals. We have expanded our marketing efforts to include direct outreach to multiple potential customers for our PVT systems as well as attended key silicon carbide-related trade shows and conferences including the Ice Cream Conference this past September. The engaged customers both include silicon carbide wafer manufacturers as well as fully integrated wafer and device manufacturers.

The success of our PVT150 and our recently launched PVT200 systems is dependent on the performance of our equipment in the field, overall market conditions, our customers’ ability to qualify their end product with their customer and their ability to obtain funding required to purchase our equipment. We continue to make progress divesting and winding down noncore business entities to allow our team to focus on the equipment product lines and pipeline of potential customer opportunities in our key strategic markets of high-power electronics, battery materials, energy storage and aerospace defense. As previously announced, we sold our Tantaline subsidiary in May 2023, and in August 2023, the company entered into a purchase and license agreement with a third party to sell certain assets and to license certain intellectual property of our MesoScribe business in exchange for approximately $900,000.

The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones. During the third quarter, we welcomed two Board members Ms. Debra Wasser and Dr. Ashraf Lotfi. Both Board members bring extensive experience to the company in the areas of corporate governance and financial communications for Ms. Wasser and high-power electronics for Dr. Lotfi. We remain committed to stay the course of our strategy to achieve consistent long-term profitability, growth and return on investment. Our return to profitability is subject to our ability to receive additional system orders and continue our efforts to reduce our overall operating costs. I would like to turn the call over to our CFO, Rich Catalano, who will provide an overview of our third quarter results.

Rich Catalano: Thank you, Manny, and good afternoon. Our revenue for the third quarter of 2023 was $6.2 million as compared to $8.1 million for the third quarter of 2022. This represents a decrease of $1.9 million or 23.2%. This decrease in our revenue was primarily attributable to lower revenue in our CVD Equipment segment of $1 million primarily related to lower PVT system revenues that was partially offset by higher aerospace revenue. Our CVD Materials revenues were lower by $0.7 million due to the sale of our Tantaline subsidiary in May 2023 and the wind down of our MesoScribe operations. There were certain customer contracts where our revenue was to be recognized at the point of time when the equipment was to be transferred to our customer based on contractual terms.

A worker in a factory environment assembling a e-vapor product.

These contracts were modified during the three months ended September 30, 2023, such that the revenue under these contracts will now be recognized over time using the input method. Our revenue for the three months ended September 30, 2023, includes $1.8 million of revenues that was deferred at June 30, 2023, and recognized on the date of the contract modification. Our operating loss for the third quarter of 2023 was $1 million as compared to operating income of $0.1 million for the third quarter 2022. The increase in operating loss was due to lower revenues as well as increased operating costs. Our gross profit margin percentage was 25.6% in the current third quarter as compared to 29.8% in the prior year quarter. The decline in gross profit margin from the prior year was primarily due to results and changes in our contract mix, increases in certain component costs as well as higher compensation costs as well as lower gross profit due to the sale, again, of our Tantaline subsidiary and the wind down of our MesoScribe operations.

The increase in third quarter operating expenses from the prior quarter is due to higher employee-related costs to support the growth of our business, additional selling expenditures as well as higher professional fees. At the non-operating income, which consisted principally of interest income, our net loss for the third quarter was $753,000 or $0.11 per share for both basic and diluted. This compares to net income of $63,000 last year or $0.01 per share for basic and diluted. Our backlog at September 30 was $16.6 million. This – as compared to $17.8 million as of the beginning of the year, as our orders were slightly less than revenues by approximately $100,000. Our reported backlog at September 30 was also reduced, however, by about $0.5 million related to Tantaline and $0.6 million related to the planned wind down of MesoScribe.

Our working capital at September 30 was $16.2 million. This compares to $15.5 million as of the beginning of the year. And our cash and cash equivalents was $14.3 million, very similar to the $14.4 million we started at the beginning of 2023. In July 2023, we did collect $1.6 million of employee retention credits from the IRS related – announced credits related to the fiscal 2021 period. As for our future operating results, we are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of operations or our cash flows. Our return to consistent profitability is dependent, among other things, the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions as well – and inflationary pressures as well as managing planned capital expenditures and operating expenses.

After considering all these factors, we believe our cash and cash equivalents and our projected cash flows 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 will now turn it back to Manny.

Emmanuel Lakios: Rich, thank you for your presentation. In summary, the financial results of 2023 reflects our efforts to continue to focus on our strategic markets and products. Overall, our focus remains on our customers, 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 years ahead and remain cautiously optimistic. Your comments and questions are important to us. With the close of the formal presentation, I would like to open the floor up to your questions.

Operator: Thank you. [Operator Instructions] Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed.

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