CVD Equipment Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

Key Takeaways

  • Revenue for Q3 FY2023 was $6.2 million, down 23.2% year-over-year, although year-to-date revenues remain up 7.6% compared to the prior year.
  • The company reported an operating loss of $1.0 million and a net loss of $0.75 million in Q3, due to lower PBT system sales, divestitures, higher component and employee costs, and unfavorable contract mix.
  • CVD sold its Tantaline subsidiary in May 2023 and licensed MesoScribe assets for approximately $900 thousand in August, streamlining operations to focus on its core equipment product lines.
  • Marketing efforts for the PVT-150 and newly launched PBT-200 systems have been expanded to multiple silicon carbide wafer and device manufacturers, though system performance, market conditions, and customer funding remain critical factors and no PVT-150 orders were booked YTD.
  • With $14.3 million in cash, $16.2 million in working capital, and a backlog of $16.6 million, management believes liquidity is sufficient for the next 12 months and is not actively pursuing major financing.
AI Generated. May Contain Errors.
Earnings Conference Call
CVD Equipment Q3 2023
00:00 / 00:00

There are 4 speakers on the call.

Operator

Thank you for standing by, and 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 Manny Lachios, President and CEO and a member of the CVD Board of Directors and Rich Cannellano, 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 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, general business conditions and outlook.

Operator

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 ks for the year ended December 31, 2022. Actual results may differ materially from those described In addition, all forward looking statements are made as of today, and we undertake no obligation to update Any forward looking statements based on new circumstances or revised expectations. I would now like to turn the call over to Emmanuel Lachias. Please begin, sir.

Speaker 1

Sherry, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our Q3 2020 And we look forward to your questions in our Q and A session. As previously communicated, our order and revenue levels have historically fluctuated and we'll continue to do so. This is typical for the highly cyclical process equipment industry. As such, while we experienced And a year over year decline in 3rd quarter revenue of approximately $1,900,000 we are pleased that our year to date revenue for 1st 9 months of 2023 continues to be $1,400,000 or 7 0.6% higher than the prior year.

Speaker 1

On the order front, during the Q3, we booked $4,100,000 of new orders principally in our aerospace and defense sector. In the high power electronics market, there were no PBT-one hundred and fifty System orders received in the 1st 9 months of 2023. Our installed base of PVT-one hundred and fifty Our next question comes from the line of David. Please go ahead. Hi, good morning, everyone.

Speaker 1

I'm going to turn the call over to Eric. Hi, good morning, everyone. 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 Gauge customers both include silicon carbide wafer manufacturers, as well as fully integrated wafer and device manufacturers. The success of our PVT-one hundred and fifty Our recently launched PBT-two hundred 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.

Speaker 1

We continue to make progress divesting and winding down non core business entities to allow our team to focus on the equipment product lines and pipeline of potential customer opportunities in our key As previously announced, we sold our Tantaline subsidiary in May 2023. And in August 23, 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 for approximately $900,000 The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones. During the Q3, we welcomed 2 Board members, Ms. Deborah Wasser and Doctor. Ashraf Latsy, both Board members bring extensive experience to the company in the areas of corporate governance and financial communications for Mrs.

Speaker 1

Wasser and high power electronics for Doctor. 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 continue our efforts to reduce our overall operating costs. I would like to turn the call over to our CFO, Rich Catalano will provide an overview of our Q3 results.

Speaker 2

Thank you, Mandy, and good afternoon. Our revenue for the Q3 of 2023 was $6,200,000 as compared to $8,100,000 for the Q3 of 2022. This represents a decrease of $1,900,000 or 23.2%. This decrease in our revenue was primarily attributable to Lower revenue in our CVT Equipment segment of $1,000,000 primarily related to lower PBT system revenues that was partially offset by higher Aerospace revenue. Our CVD Materials revenues were lower by $700,000 due to the sale of our Cannoline subsidiary in May 2023 and the wind down of our MesoScribe operations.

Speaker 2

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 the contractual terms. These contracts were modified during the 3 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 3 months ended September 30, 2023 includes $1,800,000 of revenues that was deferred at June 30, 2023 and recognized on the date of the contract modification. Our operating loss for the Q3 of 2023 was $1,000,000 as compared to operating income of $100,000 for the Q3 of 'twenty 2. Percentage was 25.6 percent in the current 3rd quarter as compared to 29.8% in the prior year quarter.

Speaker 2

The decline in gross profit margin from the prior year was primarily due to results in 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 Mesos Pride operations. The increase in 3rd 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. After non operating income, which consisted principally of interest income, Our net loss for the Q3 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 30th was $16,600,000 as compared to $17,800,000 as of the beginning of the year as our orders were slightly less than revenues by approximately $100,000 Our reported backlog at September 30th was also reduced however by about $500,000 related to Tantaline and $600,000 related to the planned wind down of MesoScribe.

Speaker 2

Our working capital at September 30th was $16,200,000 This compares to $15,500,000 as of the beginning of the year and our cash and cash equivalents was $14,300,000 very similar to the $14,400,000 we started at the beginning of 2023. In July 2023, we did collect $1,600,000 of employee Retention credits from the IRS related Navios credits were 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 to 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 Our working capital and capital expenditure requirements for the next 12 months, we will continue to assess our operations and we'll

Speaker 1

Rich, thank you for your presentation. In summary, the financial results of 2023 reflect 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 Your comments or 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. We will now be conducting a question and answer session. Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed.

Speaker 3

Hi, Manny. Hi, Rich.

Speaker 1

Hi, Brett. How are you? Good afternoon.

Speaker 3

Hi, Brett. I'm good. I'm good. The Softness in the PBT orders, that means, I guess, your existing customer Has decided not to expand. Do you have any idea why that is?

Speaker 1

Well, yes, I can't speak for the customer themselves. But what I can say is that the tools Are performing as to our expectations and also to our specifications. They are in the normal process of installation, adoption, ramp up and qualification of their end product. And as I always say, It's a matter of when, not if. And we continue to be very supportive of them.

Speaker 1

So again, I can't really say any more about their

Speaker 3

Okay. And I recall also with the PBTs That you were in discussions with a second potential customer. But The roadblock there had been that second potential customer needed to do some sort of capital raise, Which from my end, that's this is a bit of a challenging market for capital raises.

Speaker 1

It is. And as we say and as we commented in the script, the our Back in the Q1 of the year, we launched the PBT-one hundred and fifty to the broader community of potential customers. And that includes Anyone who makes a wafer both for their own consumption or sell it as a merchant. And yes, we have had Both startup companies and back in the March timeframe, I also say that We hired our sales manager and we stepped up our game and our presence in many of the trade shows. And we've gotten good, what I would call market awareness.

Speaker 1

We've created awareness of the CBD And at all of the high power electronics, silicon carbide, crystal growth companies. So that's all a positive. Today we're engaged with companies that are fully integrated, which means that they Grow crystals, make wafers, make power electronics from that, down to the startup That just grow crystals and make wafers to the established very large companies that just Grow crystals and make wafers. So we have a broad breadth of opportunities in our sales funnel. So even though that some of the and particularly one of our potential customers was not able to raise the capital Needed, we've added additional accounts that fit the bill of what I said.

Speaker 1

We're at the level of providing quotations and discussion with some of them on terms and conditions. So again, As I say, it is a it's a when, not an if statement. The Tools perform, the market exists. The venture market is very, very soft as you indicate, and that both troubles us. But we also have accounts that are very well funded also, potential accounts.

Speaker 3

Right. So

Speaker 1

it's a broad And to answer your question, yes, we're engaged with and having in-depth conversations with other potential

Speaker 3

Right, right. In prepping for this call, I kind of Perused your website, which I see has been revamped and it looked very good. But in poking around your website, I see you guys are involved with wide bound gap Semiconductors and there seems to be a lot of military use for wide bound gap semiconductors With what with the state of the world being what it is, is that potential Sure. Business for you guys?

Speaker 1

Well, just a little bit about this unfortunate Climate that we're in with 2 conflicts 2 major conflict zones. High power electronics Our large band gap with semiconductors, gallium nitride is 1, silicon carbide is another base material So we already are in that in the high power electronics area. The other is obviously gallium Right, which we sell R and D systems to. So we in that area, we have not seen a large uptick for military applications. We have seen interest in some of our other products, R and D products that are aerospace and defense, which are electronics based.

Speaker 1

But we've seen and in our press release, we noted that We've had a strong aerospace and defense market share mix this year With the CVI tools for the large gas turbine engines, we also, this past Quarter received 2 orders for R and D Systems from notable names in the area of ceramic matrix composite materials as well as materials that would be utilized Potentially in high speed, we're almost say hypersonic applications. So that's an area where CVD has had a history in it, in our legacies. And we're glad that and pleased with the Performance of our Aerospace and Defense product line, because quite frankly, it is part of our business. It's one of the legs. It helps, of Power Electronics Silicon Carbide Crystal Growth System gets adopted and we again, the when not the if statement.

Speaker 3

Okay. Also from your website, we're getting out of the Tantaline Business, but we're still in the tantalum business when it comes to our initiatives with implants?

Speaker 1

Yes, that is that was there are some applications that we have, whether it's stents or whether it's actual implant devices, Which are more phone related. It's not a large portion of our business, but yes, of We continue to sell the equipment related to those applications.

Speaker 3

Okay. And one last thing, I didn't see any employment openings at CVD. Does that mean your headcount Right now for the existing level of business is kind of where you want to be? And what is the headcount these days?

Speaker 1

We're north of 130 employees in our facility here in Central Islip and upstate New York in our Saugaty site. And we think we're Properly sized, we continue to find ways to improve our efficiencies and We always continue to look at talent as it may come along as we need the talent. So we monitor our both near term and long term order rates and we adjust our headcount accordingly.

Speaker 3

Right, right. If interest rates are topping out and start to come down And therefore, cap rates in real estate come down. Do you still have an appetite To sell and lease back your existing facility for added working capital?

Speaker 1

We have ample we never have enough, but we have ample working capital to Fund our 2024 objectives and business plan. So it's good, but you never want to raise money when You need it. So we would continue to look at options as they avail themselves, but we're not actively looking

Speaker 3

Great, great. Thank you for answering my questions and have a good Thanksgiving to both of you. Thank

Speaker 1

you, Brad. Thank you. Appreciate

Operator

I'll turn the conference back over to management for closing comments.

Speaker 1

Thank you, Sherry, and thank you to everyone for dialing in today. We appreciate your attendance on the call. As well, we appreciate your loyalty and also the loyalty of our employees And suppliers, if you have any further questions, feel free to reach out to myself or Rich. Happy Thanksgiving to all and this concludes our Q3 call. Thank you.

Operator

Thank you for your participation. You may now disconnect.

Powered by Quartr