CVD Equipment Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 15, 2023

Key Takeaways

  • Q1 revenue jumped 87% YoY to $8.7 M with a net loss of just $40 K vs. $1 M last year, driven by higher sales volume and improved gross margins.
  • Q1 bookings totaled $2.9 M, below guidance, causing backlog to shrink from $17.8 M to $12 M and potentially pressuring revenues in coming quarters.
  • The company is sharpening its focus on three core markets—high-power electronics, EV battery materials and aerospace & defense—while bolstering marketing with a dedicated sales hire.
  • It secured a repeat $1.8 M order from 1D Battery Solutions for its PowderCoat 1100 system to enhance battery anode performance, underscoring traction in the EV supply chain.
  • A $3.7 M production CVI tool award for aerospace ceramic matrix composites contributed ~$300 K in Q1 revenue, and management is engaging two leading turbine OEMs for further orders.
AI Generated. May Contain Errors.
Earnings Conference Call
CVD Equipment Q1 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

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 Lachios, 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.cbdequipment.com.

Operator

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 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 ks 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. Now, I would like to turn the call over to Emmanuel Lachios.

Speaker 1

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 and A session. We are pleased to report strong revenue growth for the Q1 of 2023, an increase of 87% over our first quarter of 2022 and a 20% increase over our Q4 2022. During the Q1 2023, we recognized a net loss of $40,000 or $0.01 per basic and diluted share.

Speaker 1

This compares to a net loss of $1,000,000 or $0.15 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 order of in the timing of orders. Orders for the Q1 of 2023 were $2,900,000 This was lower than anticipated orders for the quarter. This This resulted in a decrease in our backlog from $17,800,000 at December 31, 2022 to $12,000,000 at March 31, 2023. The decrease in order may have a negative impact on our revenues over the next couple of quarters.

Speaker 1

We continue to be cautiously optimistic as our served markets recover, develop and grow, we will be able to obtain an As there is a history of market cyclicality, our strategy is to serve a few growing markets. We have narrowed our market focus to 3 areas, the first being high growth power electronics market, our emerging battery materials market and our legacy aerospace and defense market. In These orders were received in 2021 2022 from a customer who uses our system to grow silicon carbide crystals that are subsequently processed into 150 millimeter silicon carbide wafers. We recognized $2,500,000 of revenue during the Q1 of 2020 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 Q1 with the hire of a dedicated sales manager and broadening our general marketing efforts including attendance in key silicon carbide related shows and conferences.

Speaker 1

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 PowderCoat 1100 system and components for approximately 1,800,000 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 a chemical vapor as CMC for use in gas turbine engine components. CMCs can with And extreme temperatures are 1 third the weight of nickel based superalloys.

Speaker 1

This allows jet engines to run hotter, thereby consuming less fuel and emitting less pollutants. As previously announced, during the Q4 of 2022, we received the production CVI tool to manufacture CMCs for aerospace gas turbine engines for approximately 3,700,000 Our customers now include 2 of the leading manufacturers of gas turbine engines. This order contributed to approximately $300,000 of revenue during the Q1 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. CVD 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.

Speaker 1

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 Q1 results.

Speaker 2

Okay. Thank you, Manny, and good afternoon. Our revenue for the Q1 of 2023 was $8,700,000 as compared to $4,700,000 for the Q1 of 2022. That represents an increase of $4,000,000 or 80 7%. The increase in our revenue is primarily attributable to our PVT-one hundred and fifty product line, which contributed $2,500,000 to the current quarter as compared to $300,000 of such revenue in the Q1 of 2022.

Speaker 2

In addition, our SDC segment had a strong quarter with an increase of $800,000 in revenue over the Q1 of 2022, representing an increase of 59%. Our revenue for the Q1 of 2023 was also 20% higher than for both our CBD Equipment and SDC segments. Our operating loss for the Q1 of 2023 was was $187,000 This represents an improvement of $783,000 as compared to the Q1 of 2022 and is slightly lower than the $221,000 operating loss we reported in our recent 4th quarter. The improvement in our operating results from the prior year quarter was related to the increased revenue of $4,000,000 which resulted in an increase in our gross profit of $1,700,000 This was offset in part by increased operating expenses of approximately $900,000 Our gross profit margin percentage was 28.0 in the current Q1 as compared to 16.5% in the prior year Q1 and as compared to 20 7.7% in our recent 4th 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.

Speaker 2

These benefits These benefits offset certain increases in material components as well as compensation costs. The increase in our operating expenses for both the prior from the prior year quarter and from our Q4 is due to higher employee related costs to support the growth of our businesses as well as 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 Q1 was $40,000 or

Operator

and diluted. This compares to

Speaker 2

a net loss for the Q1 of 'twenty two of 1,000,000 or $0.15 loss per share for basic and diluted. Our net income in the Q4 of 2022 was $1,500,000 or $0.23 earnings per share basic and However, as a reminder, the 4th quarter did include the recognition of other income of $1,500,000 for employee retention credit that we recorded after we completed an analysis that determined the company was eligible to receive credit for certain quarters during fiscal 2021. Now turning to our backlog. Our backlog at March 31, 2023 was $12,000,000 as compared to $17,800,000 as of December 31, 2022. This does represent a decrease of $5,800,000 as our revenue of $8,700,000 exceeded our bookings of $2,900,000 Our backlog at March 31st consists of $10,100,000 relating to remaining performance obligation on our contracts in progress as well as certain contracts not Get started with the balance of approximately 1,900,000 representing other orders received from customers such as compared to $14,400,000 at December 31, 2022.

Speaker 2

The decrease of 3,400,000 due to increases in contract assets of $1,500,000 and decreases in contract liabilities of $2,800,000 as we incurred costs on of 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 crude 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 1,400,000. Our working capital at March 31, 2023 was 15,700,000 as compared to 15,500,000 at December 31, 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.

Speaker 2

Our return to consistent profitability is dependent, Among other things are the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions and inflationary pressures, as well as managing 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 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.

Speaker 1

Rich, thank you for your presentation. In summary, the Q1 results for 2023 reflect our efforts to continue to focus on everything we do and those who we serve. Our focus remains on our customers, our employees, our shareholders, of course, 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

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed with your question.

Speaker 3

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

Speaker 1

We're doing well, Brad and yourself?

Speaker 3

Good, good. Everything is good. The orders in the Q1 being less than anticipated, Why is that? Is it macroeconomic?

Speaker 1

Well, it's a bit of a And let me say we didn't lose any orders to any competitors. But in our 3 markets, It's interesting that each one of those have a different spin to it. In the silicon carbide area or Arena for our PBT product line. There it is a bit of waiting for qualification by our customer to take the next step on expansion and us then also getting our order from our second potential customer. And there's always capital raise involved So it's a bit of the capital markets, but also the qualification process and it does take a period of time and it's in quarters to be able to get On the Aerospace side, there is a capital side orders pushed out a little bit through a capital procurement process.

Speaker 1

We continue to be engaged with our 2 customers that we have presently, are more legacy customer and also more recently the order that we closed in the December timeframe And we continue to talk to both of those about their capital requirements as the aerospace industry, the gas turbine engine, the The airline manufacturers start now the airplane manufacturers Boeing, Airbus, Etcetera, start actually gearing up some more. So there's been some positive news there. And then in the battery side of the As you know, we were hopeful to have closed our order in the Q1 timeframe. That was delayed into Q2 into May. We're very pleased to have received that order and we believe that that partnership continues to be on a solid course.

Speaker 1

We did announce the customer for the battery material, Brett, that's 1D. And of course, that's In concert with their acknowledgment that we can do such.

Speaker 3

Great, great. Now the Margins of the PT150, the PowerCoat 1100 and the CVI system, which have the best margins?

Speaker 1

Yes, we they have Similar margins, obviously, the higher volume tools, we get some economy of scale on. So you'll see some a few margin points or Up to several margin points higher, and that would be the PBT tool. But we believe that we'll continue with getting additional Volume will be getting above our present level. Again, it's all volume based on the absorption of our overhead in our factory.

Speaker 3

Right. Now on the PBT-one hundred and fifty, Additional orders, will they come from the existing customer that has ordered 30 of them and whose Type might be satiated or is it going to come from a new list of customers on that particular system?

Speaker 1

Okay. So I'll go with C, both. Clearly, the performance of our tool is such That we anticipate as our initial customer needs additional tools that we will be the selected supplier. There is no reason that I can think of that that wouldn't be the case. The and then we also with the launch Our marketing efforts in Q1, we've engaged with a few additional customers already.

Speaker 1

In the last call we had, I think It was John that asked the question what my objective was for the year and it was to get 2 additional accounts. That's still my objective.

Speaker 3

Last question, thank you for your responses. Can you tell us a little bit about the background of the new dedicated sales manager?

Speaker 1

Yes. He comes from An LED background, so he is very familiar with selling into very large accounts. He previously had Worked with 1 of the top 3 LED manufacturers heading up a portion of Their sales efforts, I have a prior history with the sales manager as well and have all the faith in

Operator

Thank you. Our next question is from Krish Sankar with Cowen and Company. Please proceed with your question.

Speaker 4

Hi, this is Robert Mertens on for Krish. Thanks for taking my questions. Just Real quick on the backlog. Thanks for providing the prior color. So is it fair to say the majority of the difference is Probably due to timing and push outs and might be expected to be recovered in later quarters and not As much as the pullback in general demand?

Speaker 4

And then I had a quick follow-up.

Speaker 1

Yes, I think the orders are definitely, I think that That would be correct that it was all push outs. And it's a matter of timing, of course, Again, as I said earlier, there are no orders that I know of that we lost that we are anticipating closing in the Q1. And we're still pushing to close those orders even as we speak and we've closed actually 2 of them that equate to about $2,300,000 $2,400,000 already this quarter. So yes, it's more I think event for me than it is an absolute number.

Speaker 4

Okay, got it. Thank you. That's helpful. And then Just could you provide a little more color on what you're seeing in the silicon carbide market and what the major growth opportunities are outside of, Of course growing the earn customer account, is there a focus on expanding the customer list or are there Additional opportunities within the supply chain, whether it's on the wafer or equipment side of the silicon carbide market?

Speaker 1

Yes. Two broad questions. It's great for a different for a good presentation. The first is do we plan to expand outside as far as the customer base? Yes, we do plan to expand to other U.

Speaker 1

S. Manufacturers and And then European manufacturers of wafers, some are wafers and devices, some are Devices, wafersbools and also equipment. So we have a strategy for each one of those categories. Our primary focus is again the United States and then Europe. We're not putting a lot of focus On Asia at this point in time, we think there's enough business for us.

Speaker 1

So we have, I would say reached out to At least 7 and engaged in discussion with at least 3 additional ones to the one account that we have already in installed base. So we were in the selling process. Now as far as after you land in the account, how do you expand in the account, we So announced previously that we were working on a silicon carbide epi system for 2014. We continue to be on that path and timeline.

Speaker 4

Okay, Got it. Thank you for all the clarity. I really appreciate it. Thanks for taking my questions.

Operator

Our next question is from John Gruber with Gruber McVane. Please proceed with your question.

Speaker 5

Good afternoon. I'm a little confused on the on your large on your current customer. They have a huge facility, 400,000 square foot feet and the units that you shipped in on order won't Even begin to cover anywhere near that. What's the hang up there? Why haven't you got a follow-up?

Speaker 5

Or do they have an issue with Qualification on these units or what?

Speaker 1

John, how are you? And I can't really speak to the any issues that we may be they may be having or that They are ahead or behind on their roadmap. I am aware that there has been There are 20 tools installed and I have 10 systems on the floor that are shipping starting over the next couple of weeks next week. So those will be out by the beginning of or middle of June. And they're all shipping.

Speaker 1

I have We installed, but I don't know if I really can't say where the location is, but I I believe the announcement that you're looking at is a facility that has just been closed. We shipped many systems prior to that facility Being closed out on. Did I help it

Speaker 5

a little bit? When did you hang up on more units Does that cut to your reaction?

Speaker 1

I think it's based on they feeling comfortable that they have wafers And I can't really say more than that at this point. Okay.

Speaker 5

The second question then is on your new targets. When do you expect to gather orders, get initial order from Your new targets, the other big players in the industry, either European or U. S?

Speaker 1

Yes, we have them at different stages. We have one going through Capital funding, we have so it's based on the closing out on their funding. We have that's an if statement, of course. And then we have another in a little earlier in the process where it's they're evaluating our technology. Now to answer your question specifically, I thought I was hoping to get orders in Q1 and they've moved out.

Speaker 1

Well, they happen in Q2 or early Q3. It really depends on their acceptance So, our technology, which I think we have some proven results, the market conditions, which I think so inclined by none of us are I disagree that that's a growth market and big demand. The capital market, that's a question mark and their ability to and in some cases, The ability to get wafers produced and that's with our present Account. So I think the answer kind of the question this end of this quarter and next quarter, I would be disappointed if we're not able to get at least evaluation units.

Speaker 5

Okay. Thank you.

Speaker 1

Thank you, John.

Operator

Thank you. Our next question is from Orin Hirschman with AIGH Investment Partners. Please proceed with your question.

Speaker 6

Hi, thank you. Can you go back You know that you're working on the additional EPI tool for silicon carbide, you've had an experimental tool out there. How's that all done? And obviously, it's a much bigger TAM and a much bigger ASP. How does your special secret sauce in terms of, let's say, temperature control and other things play into that pool?

Speaker 6

Do they come into play in that pool as well?

Speaker 1

Well, I don't think thanks. I appreciate the question. I don't think you're asking me how we do it because otherwise it wouldn't be a secret anymore. So we shipped our original silicon carbide, FETooler back in 2,008. And we clearly it has to go through a productization and also a bit of maturing on the heating technologies.

Speaker 1

We have demonstrated the ability to control temperatures up to 2,000 degrees with For long campaigns, days, weeks with plusminus half a degree, which It's fairly exceptional, I would say. Our ability also to manufacture the product in Gives us what I anticipate to be a competitive advantage from a price performance perspective. I can't really speak to the performance on the silicon carbide tool that we have in the field and that it was Really an R and D system. And but similar to how we took our PBT tool, which we shipped in 2011 And we productized it and we're successful in achieving Very good results, if not the best results that I can see in the marketplace. I think that we'll also have a very competitive system as well.

Speaker 1

As you know, wafers are very cost sensitive. We have our internal manufacturing That allows us to cut out the middleman on the machine shop side and some of these That will give us an advantage, I believe, in being able to penetrate the market. And again, We'll be releasing more information later this year and into the beginning of 2024 with the product release probably in the Q3 of the year.

Speaker 6

Product release in Q3 of?

Speaker 1

2024. Okay.

Speaker 6

I mean, do you have someone interested as a lead customer here without naming anybody you can't name?

Speaker 1

Are they interested? Everybody is interested And a proper position cost of ownership silicon carbide tool. Do I have an agreement with the customer? No, I don't have With the customer right now, but I have a list of customers we can have discussions with, but I really need to provide them performance Before I can have an intelligent discussion that will be closer to the end of Q1 to beginning of Q2.

Speaker 6

Okay. Thanks so much.

Speaker 1

You're welcome. Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Emmanuel Lachios for any closing comments.

Speaker 1

Paul, thank you. We appreciate everybody's attendance today on the call. And I want to extend my gratitude to our shareholders and to also our Thank you for all of their expressed support and loyalty. If you have any questions, be encouraged to please reach out to either Rich or myself directly, and this concludes our Q1 call. Thank you.

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