CVD Equipment Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by. Welcome to CVD Equipment Corporation's 2nd Quarter Fiscal Year 2023 Earnings Call. As a reminder, this call 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, member of the CVD Board of Directors and Richard Catalano, Executive Vice President and Chief Financial Officer.

Operator

We have posted earnings press release and call replay information to the Investor Relations section of our website at www.cvdequipment.com. Before I 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 product 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 the 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 statement based on the new circumstances or revised expectations.

Operator

I would now like to turn the call over to Emmanuel Lachios. Please go ahead, sir.

Speaker 1

Thank you very much, and good afternoon, everyone. Thank you all for joining us to discuss our Q2 2023 financial results and other important company developments and the pertinent information related to our business. Your thoughts are always important to us and we look forward to your questions in our question and answer session. As previously communicated, our order and revenue levels have historically fluctuated, Which is often typical in the highly cyclical process equipment industry. As such, we while we experienced a year over year decline in 2nd quarter revenue, we are pleased that our first half twenty twenty three revenue of $13,800,000 was 31% higher than the corresponding period in the prior fiscal year.

Speaker 1

In addition, we have Made significant progress divesting and winding down non core business entities. This will allow our team to focus on our equipment product lines and pipeline of potential customer opportunities in our key strategic markets of high power electronics, battery materials, energy storage and Aerospace and Defense. During the Q2, we sold our Tantaline subsidiary And on August 8, 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. Orders for the Q2 were $12,900,000 driven by demand in 2 of our 3 strategic markets, while orders for the Q1 of 2023 were $2,900,000 This continues to show the variability quarter to quarter of our business. The 2nd quarter orders included Aerospace market opportunities in the amount of $8,700,000 for multiple system orders, which will ship over the next 12 months.

Speaker 1

The 2nd quarter order bookings included a battery nanomaterials production system of approximately $1,800,000 to 1D Battery Sciences as we previously had announced. In the high power electronics market, while we have not received PBT-one hundred and fifty orders to date for 2023, we are continuing our marketing efforts. These marketing efforts include support of our installed base, direct outreach to multiple potential customers, SaaS of our PBT-one hundred and fifty and PBT-two hundred marketing efforts are dependent on the performance of our equipment in the field, Overall market conditions, our customers' ability to qualify their end product with their customers and their ability to obtain funding required to purchase our equipment. As stated previously, our order and revenue levels have historically fluctuated. Accordingly, we anticipate that our orders received from customers and revenue recognized as a receipt of these orders will continue to show fluctuation from quarter to quarter.

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 an overview of our 2nd quarter results.

Speaker 2

Thank you, Manny, and good afternoon. Our revenue for the Q2 of 2023 was 5,100,000 as compared to $5,800,000 for the Q2 of 'twenty 2. This represents a decrease of $700,000 or 12.7%. The decrease in our revenue was primarily attributable to lower revenue in our CVD equipment segment of approximately 700,000 Related in part to lower PBT-one hundred and fifty revenues, lower revenue in our CVD Materials segment of approximately $500,000 as an outcome of the sale of our Tantaline subsidiary on May 26, 2023. These declines were partially offset by an increase of approximately $400,000 in revenue from our SDC segment.

Speaker 2

It should be noted, based on the terms of the aerospace orders that Manny just mentioned, revenue under these contracts that we received in the rather than the overtime method which we use for the company's other system sales. Our operating loss for Q2 of 2023 was 1,200,000. This was higher by 0.5 $7,000,000 in the Q2 of 'twenty 2. The increase in the operating loss was due to the 2 non reoccurring charges, One related to Tanalyn for $162,000 on the disposal and then we had a small impairment on certain MesoScribe fixed assets of 11,000. In addition, our operating expenses increased by approximately 200,000.

Speaker 2

Our gross margin Percentage was 27.4 percent in the current quarter as compared to 24.8% in the prior year quarter. This improvement in gross profit from the prior year quarter is due to higher employee related costs to support the growth of our business, additional selling expenses, and also additional professional fees. After non operating other income and that consists principally of interest income, Our net loss for the Q2 was 1,100,000 or $0.16 per share for both basic and diluted. This compares to a net loss in the Q2 of 'twenty two of $800,000 or $0.12 loss per share for both basic and diluted. Now turning to our backlog.

Speaker 2

Our backlog at June 30, 2023 was $18,800,000 as compared to $17,800,000 as of December 31, 2022. Our orders during the 6 month period ended June 30, 2023 exceeded our revenues by approximately $2,000,000 However, our reported backlog at June 30 has been reduced by $500,000 related to the sale of Tampoline on May 26, 2023 and also $600,000 related to our decision to wind down the operations of MesoScribe. Our working capital at June 30, 2023 is 16,600,000. This compares to 15,500,000 at December 31, 2022. Our cash and cash equivalents at June 30, 2023 was 13,000,000 as compared to $14,400,000 at December 31, 2022.

Speaker 2

In early July 2023, right after our June 30 close, We did collect $1,500,000 receivable for employee retention credits from the IRS. As to our future results, we are unable to predict what impact the current economic and geopolitical uncertainties on our financial position and future results of our operations and cash flows. Our return to consistent 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 capital expenditures and our 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 we will take actions as necessary to maintain our operating cash to support our working capital needs.

Speaker 2

I will now turn it back to Manny.

Speaker 1

Rich, thank you for the presentation. In The Q2 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 the success in the year ahead and continue to be cautiously again optimistic. Your comments and questions are important to us.

Speaker 1

With the close of the formal presentation, I would like to open the floor up to your questions.

Operator

Thank Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed.

Speaker 3

Could you give the people on the call just some flavor on the sales process For like the PBT 150 and the next generation 200.

Speaker 1

Yes, of course. Well, I appreciate the question. I think that's a great lead in. Typically, when we develop and again, we had Discuss that we many years ago had shipped tools into that space and that activity was dormant For a period of time and we reinitiated that in 2021 mid year by By identifying silicon carbide as an opportunity and we closed an order for what we term to be our Alpha Systems from our first customer and to date our only customer per se recently. And then we received the betas.

Speaker 1

So it's a formal process that we went through. We wanted to first determine the performance of Product in the field before we did a broader launch of that product. And we did that in January of 2023. In the end of To the beginning of January, we started to discuss the PVT-one hundred and fifty product with other customers, potential And since then, I've continued to state that it's my personal objective to close on 2 more in the near term, in the next 6 months or so. And so we go through the alphas and And then we do a broader launch to the marketplace by introducing the product to a larger group of potential customers.

Speaker 1

We attended trade shows. We hired a marketing manager at the end of 2022. We hired a dedicated sales manager In March of 2023, we've attended several trade shows in that period of time and we've engaged with The list of who's who in silicon carbide bull or silicon carbide device Level Manufacturing over the last several months. I would say that we're engaged at some level of a stage engagement, whether it's an introduction, non disclosure agreement, discussion of technical specifications, Bake off as far as a technical bake off, discussions on potential commercial contracts, We're at some stage of that with several customers as we speak of today. And it's a process.

Speaker 1

It's a running game. It's Not a Hail Mary. When somebody buys your equipment for this process, they're not making a decision to buy A stove or an oven or some type of equipment from 1 supplier and then they'll buy From somewhere else, they really are getting into bed with you, let me say, and really it's a longer term relationship. And that just takes a bit of time to close out. So that's really where we are today.

Speaker 1

We're Because the next question is where are we in the process? We're engaged with many different potential customers at different stages of the process.

Speaker 3

Can I just follow-up on that? So it's really kind of Word-of-mouth by the engineering teams, I'm sure it's a kind of small world of people that Our experts in this niche area, so it's just kind of word-of-mouth?

Speaker 1

No, not per se. It's unlike the historic Develop a product and they'll come and they'll buy your product. I mean, we obviously don't operate that. We have converted to an outreach program for our sales and marketing. We've attended the major trade shows and conferences.

Speaker 1

Last week, we're at another one this week. We'll be in Italy for the largest silicon carbide show In September, I'll be there. We have 2 days of meetings with high level management at several different accounts. No, it is not a word-of-mouth. It is an active sales and marketing activity.

Speaker 1

We have had advertisement. We've had booth presence. We've had in the booths specifications. We have collateral material that we sent out. We've done news blasts.

Speaker 1

It's a bit more active than a word-of-mouth.

Speaker 3

Okay. I appreciate that. Now in your opening comments, the price of the device is an impediment to some customers purchasing it. Would you explore Some sort of financing or lease arrangement to make it Yes, more available for

Speaker 1

Yes. So look, a couple of things on that. My initial monologue of sorts In our script today was that we await our customers to be able to fund some of this equipment. Some of our customers are Very early stage startups, others are late stage startups, other are established companies That need to raise working capital. Others are very well funded companies that require capital budgets for the year.

Speaker 1

So there's a different level of financing required depending on the character of the company itself. As far as us leasing and becoming a we really have not entertained that. That We don't think that that would be helpful. They're not looking to buy initially they can buy 1, 2, 5, 10 of these tools To do development and characterization, but long term they're going to buy They would need to buy 50s and 100s of these systems. That's not something that we would entertain being able to finance And they would have to be pretty serious companies to be able to do that.

Speaker 3

I appreciate that. One last one. There were items in the paper talking about the water levels of the Panama Canal being so low That, that might complicate supply chain issues in the near to intermediate term future. Is that something that No. CBD is concerned about?

Speaker 1

No, no. That's not something that's going to affect us. The supply of raw materials continues on. We've seen and we that's one of the reasons we don't talk about supply chain issues from the standpoint of metals. At this point, We've seen a recovery in that space.

Speaker 1

Most of our electronics, the supply any supply chain issues are Really associated with components used in the semiconductor industry where there's just a high demand for those components. But no, We don't see that. And by the way, I missed that news report on the Canal. But no, I would not anticipate.

Speaker 3

Great. Thank you for taking my questions. I'll drop back in queue. Thank you.

Operator

Thank you. We are now Once again, thank you for your patience. We will resume this conference momentarily. We are all good to proceed.

Speaker 1

Yes. Hello. This is Manny Lakios and Rich Catalano. Again, we're sorry about that. We somehow I dropped off the call.

Speaker 1

Brett, thank you for your questions and giving me an opportunity to shed some light on the subjects. It doesn't seem like there are any more questions. So operator, again, thank you. And thank you all for dialing in today. We call.

Speaker 1

If you have any further questions, feel free, you can contact myself or Richard at any And this concludes our Q2 call. Thank you very much.

Operator

Thank you. This will conclude today's conference. You may disconnect at this time and thank you again for your participation.

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Earnings Conference Call
CVD Equipment Q2 2023
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