CVD Equipment Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 28, 2024

Key Takeaways

  • In Q4 2023, revenue fell 43% year-over-year to $4.1 million, driving a full-year revenue decline of 7% to $24.1 million and a net loss of $4.2 million ($0.62 per share).
  • Gross profit margins contracted to 21% for FY 2023 (from 26%) and were negative 8.5% in Q4 due primarily to a significant cost overrun on a large contract and reduced PVT system and materials revenues.
  • The company launched its new PVT200 200 mm silicon carbide crystal growth system with a second customer evaluation order and secured a $10 million multi-system order for silicon carbide coating reactors.
  • Backlog increased slightly to $18.4 million at year-end, cash and cash equivalents stood at $14 million, and management expects existing liquidity and cash flow to support operations for the next 12 months.
  • CBD Equipment continues to target growth in high power electronics, battery materials, aerospace and industrial markets, aiming for consistent profitability through new orders, cost controls and strategic investments.
AI Generated. May Contain Errors.
Earnings Conference Call
CVD Equipment Q4 2023
00:00 / 00:00

There are 4 speakers on the call.

Operator

Greetings and thank you for standing by. Welcome to the CBD Equipment Corporation's 4th Quarter and 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 CBD Board of Directors and Rich Catalano, Executive Vice President and Chief Financial Officer.

Operator

We posted our earnings press release and call replay information on the Investor Relations section of our website. 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, 2023. 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 new circumstances or revised expectations.

Operator

Now, I'll turn the call over to Emmanuel Akhios. Please go ahead, sir.

Speaker 1

Kevin, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our Q4 fiscal 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. Q4 2023 revenue was $4,100,000 down significant versus the prior year period. As our business continues to experience fluctuations in revenue given the nature of our emerging growth end markets we serve.

Speaker 1

We were and are disappointed with both the 4th quarter and full year performance. We will stay the course of our strategy to return to consistent profitability with a focus on growth and return on investments. Our primary goal is to expand penetration of our equipment solutions into high power electronics, battery materials, aerospace and industrial applications. To this end, I am very pleased to announce that we started off 2024 with several key new order wins. First of all, we successfully penetrated a second PVT equipment customer with an evaluation unit for our newly launched PVT200 system used to grow 200 millimeter silicon carbide crystals.

Speaker 1

This represents an important milestone for CVD with potential follow on production order should our equipment effectively meet the customers' needs. 2nd, we received a 10,000,000 dollars multi system order for our silicon carbide CBD coating reactors from an industrial customer. The tools will be used to deposit a silicon carbide protective coating on OEM components. We are encouraged by these orders as we continue to make investments in both research development and sales marketing which includes direct engagement with multiple potential customers, all focused on our key markets. I will turn over our call to our CFO, Rich Catalano, who will provide you an overview of our 4th quarter and fiscal 2023 results.

Speaker 1

Rich?

Speaker 2

Thank you, Manny, and good afternoon. Our revenue for fiscal 2023 was $24,100,000 a decrease of $1,700,000 or about 7%. The decrease was primarily attributable to lower revenue in our CVD equipment segment of approximately $400,000 related to lower PVT-one hundred and fifty system revenues that was offset by higher aerospace revenue. Our CBD Materials business was lower by $2,000,000 This is due to the sale of our Tanline subsidiary in May 2020 3 and the announced wind down of our MesoScribe operations. These decreases were offset by an increase of 600,000 dollars in our SDC segment due to higher demand.

Speaker 2

Our gross profit margin was 21% in 2023. This is compared to 26% in the prior year. The decrease in gross profit of $1,600,000 was primarily due to significant cost overrun on one large contract in 2023 and also lower PBT-one hundred and fifty and CBD materials revenues as compared to 2022. Our increase in operating expenses from the prior year is due to higher employee related costs to support our planned growth in our business, additional selling expenditures and higher professional fees. These costs were offset by lower bonus costs and lower expenses for CBD materials due to the disposition of Tantaline.

Speaker 2

Our operating loss for the fiscal year was 4,900,000 as compared to an operating loss of 1,800,000 in 2022. After non operating income consisting principally of interest income, our net loss for the year was 4,200,000 or $0.62 per share basic and diluted. This compares to a net loss of $224,000 or 0 point 2 was offset by $1,500,000 of other income related to the recognition of employee retention credits of that being related to fiscal 2021. Now turning to the Q4 of 2023, our revenue for the quarter was $4,100,000 a decrease of $3,100,000 approximately 43%. This decrease was primarily attributable to lower revenue in our CBD segment of $1,800,000 and this was related to lower PBT system revenues as compared to the prior year.

Speaker 2

Our system revenues for the Q4 was also impacted by an overrun that we had on that aforementioned large contract. Our CBD material revenues were lower by $1,000,000 based on the sale and the wind down. Our gross profit margin for the quarter was a negative 8 0.5% as compared to 28% in the prior year quarter. The negative gross margin in the quarter and the decrease in gross profit of 2.3 $1,000,000 was primarily due to the cost overruns on the contract that I mentioned as well as lower PBT and CVT revenues, CBD material revenues, I should say. The decrease in operating expenses of $100,000 during the quarter as compared to the prior year was due to lower bonus costs and lower expenses for CBD materials.

Speaker 2

And again, this was partially offset by some of our higher employee related costs. Our operating loss for the quarter was $2,500,000 as compared to an operating loss of $221,000 in the prior Q4. After interest income, our net loss for the quarter was $2,300,000 or $0.33 per share. This compares to net income in the Q4 of 'twenty two of $1,500,000 or $0.23 per share, but keep in mind that quarter had that $1,500,000 special item related to the employee retention credits. Moving to our backlog.

Speaker 2

Our backlog increased slightly from the prior year. It was $18,400,000 as compared to 17,800,000 dollars as of last year. Working capital was $14,300,000 at December 31, 2023. This compares to $15,500,000 at December 31, 2022. Our cash and cash equivalents at December 31, 'twenty three was $14,000,000 down slightly from the prior year, where it was at $14,400,000 As for our future results, we are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position or future results of our operations and 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 and inflationary pressures, as well as managing expenditures and operating expenses.

Speaker 2

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 sufficient levels of operating cash. At this point, I'll turn it back to Manny. Rich, thank

Speaker 1

you for your presentation. In summary, our focus remains on our customers, our employees, and the pursuit of growth and return to consistent profitability. We do look forward to continuing to build on our recent wins and remain cautiously optimistic. Your comments and questions are important to us. With the close of the presentation, I would like to open the floor up to your

Operator

Our first question today is coming from Brett Reiss from Janney Montgomery Scott. Your line is now live.

Speaker 3

Hi Manny. Hi Rich.

Speaker 1

Hi Brett. How are you? Hi Brett.

Speaker 3

I'm good. I'm good. The cost overrun, do you think whatever caused it was a one off and whatever you had to do to kind of make sure it doesn't happen again, protocols have been put in place?

Speaker 1

Correct. If that's the end of the first question, Brett. Yes, we do understand where the cluster of Veron deferred. And there are different flavors that contributed to which I can't go on the call right now. But we do understand what those were.

Speaker 1

We have put in some corrective actions to mitigate that going forward.

Speaker 3

Great, great. Now the backlog would be the reported $18,400,000 And then can I add the $10,000,000 from the multi system SIC plus whatever the cost of the new PBT200 is? So the backlog is $28,000,000 plus?

Speaker 1

Minus whatever we ship and any minor adjustments that may come up whatever we ship in the Q1, correct.

Speaker 3

Right. All right. That's good. It's been now like about a year with no new PVT-one hundred and fifty orders. Why do you think that is?

Speaker 1

Well, I think 1st and foremost, the demand for silicon carbide devices has been adjusted over the next couple of years and has been pushed out to the inflection point has been pushed out quite a bit. The customers we dealt with and that we have our installed base continue on and utilize our equipment. But again, this slowdown in the marketplace clearly has affected all of the ships in the harbor to the from the startups up to the very vertically integrated household name. So that's one, it's a marketplace slowdown. In addition to that, it takes certain period of time to give birth, it takes a certain period of time to get qualified wafers and customers etcetera.

Speaker 1

We can say our tools perform on the 150 basis and that level of technical performance has garnished us a PVT200 order which is a 200 millimeter system from our second customer and we planned to execute on that contract and our plan is to be successful. But again it takes a certain period of time to do the evaluation etcetera. So but I think the important thing is having that second account and also the successful launch with this first order of our 200 millimeter system.

Speaker 3

Right, right. Now since things have kind of slowed down with people's enthusiasm with electric vehicles, are there other areas in your business that can maybe take up the slack and you're going to allocate more attention in corporate resources too?

Speaker 1

Yes, I understand your point is well taken. We do have 4 markets or 4 end use applications that we target. The good news on the demand side and the orders and now the backlog is the fact that in addition to the power electronics, which the PBT-one hundred and fifty and then 200 serve from a crystal growth perspective, that market clearly, I think we all read the analyst reports and speak to the end users. That market is waiting for further adoption of its biggest market which is electric vehicles. There's not much we can do to influence short of going on buying EVs.

Speaker 1

But the benefit as we've seen and that we announced in our press release was that we also serve other market high temperature, carbides, hypersonics type, high temperature carbides, hypersonics type of applications. And also with this recent order, a repurposing of that reactor technology for more industrial applications in the case of a silicon carbide component coating deposition system, which again we received a multi system order and it equated to approximately $10,000,000 So the good news is we're in multiple and we also have the battery application, multiple markets again help us tread water and until a more substantive application such as silicon carbide actually that way it comes through. So I think we're from a marketplace perspective we're in 4 markets that have various degrees of health.

Speaker 3

Great. That's it for me. I wish you both a nice holiday and thank you for taking my questions.

Speaker 1

Thank you. Thank you, Grant. You as well.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Manny for any further or closing comments.

Speaker 1

Kevin, thank you. And I want to thank all of you for dialing in today. I want to wish you all a pleasant week happy holidays. We appreciate your attendance on this call, your support and the loyalty of our shareholders, our employees and all of you who are on the call today. If there are further questions, please reach out to myself or Rich directly.

Speaker 1

And this concludes our call. Thank you.

Operator

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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