CVD Equipment Q1 2024 Earnings Call Transcript

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May 13, 2024

Key Takeaways

  • Revenue decline of 43% in Q1 to $4.9 million versus $8.7 million last year, resulting in a $1.6 million operating loss and a net loss of $1.5 million ($0.22 per share).
  • Key order wins included a strategic PBT200 system from a new customer and a ~$10 million multi-system silicon carbide CVD coating order, driving backlog up to $27.1 million from $18.4 million at year end.
  • Gross margin contracted to 17.5% in Q1 from 28% in the prior year due to lower-margin contracts currently in progress.
  • SG&A expenses were reduced to approximately $1.3 million in Q1 after workforce cuts and lower bonus accruals, while R&D spending remained strong at $746 thousand.
  • Cash and cash equivalents of $11.9 million are expected to fund working capital and capital expenditure needs for the next 12 months, subject to order flow and supply-chain risks.
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Earnings Conference Call
CVD Equipment Q1 2024
00:00 / 00:00

There are 4 speakers on the call.

Operator

Greetings and thank you for standing by, and welcome to CVD's Equipment Corporation's First Quarter Fiscal Year 20 24 Earnings Conference 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 Catalano, 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, www.cvdequipment.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 filing with the SEC, included but not limited to risk factors sections of the company's 10 ks for the year ending 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 obligations to update any forward looking statements based on new circumstances or revised expectations. Now, I'd like to turn the call over to Emmanuel Lachios.

Speaker 1

Operator, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our Q1 2024 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 the Q and A session. Q1 dollars down significantly versus same prior year period as our business continues to experience fluctuations in revenue given the nature of the emerging growth end markets we serve. While we are disappointed with our Q1 performance, we'll stay the course on strategic efforts to achieve profitability, carefully managing our costs and cash flow while simultaneously focusing on growth and return on investment.

Speaker 1

As we mentioned in our year end press release, we started off 2024 with several key order wins during the Q1. Specifically, this included a strategic order for our PBT200 system from a new customer, marking an important milestone our equipment for potential additional orders. In addition, we received a multi system order for our industrial market silicon carbide CVD coating system for approximately $10,000,000 The order performance of the Q1 resulted in an increase in backlog from $18,400,000 at year end to $27,100,000 dollars at March 31, 2024. We are encouraged by these orders as we continue to fund both research, development, sales, marketing activities, including direct engagement with multiple potential customers, highly focused on penetrating key market opportunities. I would like to turn the call over to our CFO, Rich Catalano, who will provide an overview of our Q1 financial results.

Speaker 2

Thank you, Manny, and good afternoon. Our revenue for the Q1 was $4,900,000 This compares to $8,700,000 for the Q1 of 2023. This is a decrease of $3,800,000 or 43%. The decrease in revenue versus the prior year period was primarily attributable to lower revenue of $2,900,000 from our CVD Equipment segment, a $400,000 decrease in revenue from our SDC segment and a $600,000 decrease from the CBD Materials segment due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe's operations. The decrease in CBD equipment revenue in the period was principally the result of the revenue associated with our PBT-one hundred and fifty systems in the prior period as compared to no such revenue in the current period.

Speaker 2

While our SDC segment revenues were 16% lower than the Q1 of 2023, it was 600,000 or 44% higher than the Q4 of 'twenty 3 due to increased demand for SDC's gas and chemical delivery systems. Gross profit for the 3 months ended March 31, 2024 was $900,000 with a gross profit margin of 17.5%. This compares to a gross profit of $2,400,000 and a gross profit margin of 28% for the 3 months ended March 31, 2023. The decrease in gross profit of $1,600,000 was primarily the result of lower gross profit margins on contracts currently in progress as compared to the Q1 of 2023 which benefited from contracts with higher gross margins. The operating loss for the Q1 of 2024 was $1,600,000 as compared to an operating loss of $200,000 in the Q1 of 'twenty 3.

Speaker 2

This increase in the operating loss was due to the lower gross profit margin of 1,600,000 that was partially offset by lower personnel costs from a reduction in our workforce in January 2024 and also lower bonus accruals. After net income, which consists principally of interest income, our net loss for the Q1 was 1,500,000 or $0.22 per share for both basic and diluted. This compares to a net loss for the Q1 of 2023 of $40,000 or $0.01 per share for both basic and diluted. As to our balance sheet, our cash and cash equivalents at March 31, 2024 was $11,900,000 as compared to $14,000,000 at December 31, 2023. This decrease in cash was principally due to the net loss of $1,500,000 an increase in contract assets of $1,100,000 an increase in accounts receivable of $1,100,000 as well as an increase in inventories of $500,000 These were offset by an increase in contract liabilities of $1,100,000 and also we have non cash items of $400,000 principally depreciation as well as stock based compensation.

Speaker 2

Our working capital at March 31, 2024 is $13,100,000 This compares to 14 point 3,000,000 at December 31, 2023. We are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of operations and cash flows. Our return to 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 planned capital expenditures and operating expenses. In addition, our revenues and orders have historically fluctuated based on changes in order rate as well as other factors in our manufacturing process that impacts the timing of our revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter.

Speaker 2

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 working capital and capital expenditure requirements for the next 12 months. We will continue to evaluate the demand for our products, assess our operations, and take actions as necessary to maintain our operating cash to support our working capital needs. I'll now turn

Speaker 1

it back to Manny. Rich, thank you for your presentation. In summary, the Q1 results of 2023 reflect our efforts to continue to focus on everything we do and those who we serve. Our focus remains on our customer markets, our employees, our shareholders and the pursuit of growth and return to consistent profitability. We look forward to continuing to build on our best in the year ahead and continue to be cautiously optimistic.

Speaker 1

Your comments and questions are important to us. With the close of the presentation, I would like to open the floor to your questions.

Operator

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

Speaker 3

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

Speaker 2

How are you? Hi, Brett.

Speaker 3

Good. Backlog increased very nice. The $10,000,000 silicon carbide protective coating order and even the $3,600,000 new PVT-two thousand two hundred order, I assume you use some sort of percentage of completion, method of recognizing revenue? Do you know kind of what the cadence of recognition will be of the revenues from those two orders the balance of the year?

Speaker 1

First, Fred, I think an adjustment to the $10,000,000 multisystem order for the Silicon Carbide protective industrial coating system. It's accurate. The PBT system was for a single PBT. I think you stated that it was $3,600,000 or $3,700,000 that's not accurate.

Speaker 3

Okay. Okay. So let's take let's unbundle it. Dollars

Speaker 2

Yes. Just to answer your question, Brett, on the accounting, the $10,000,000 order will be recognized over time. We just got that order recently and that will be recognized toward the latter part of this year and 2024 into 2025 as we work on the contract. With respect to PVTs, since you know we have that as you know one of our products, standard products that's available for sale, given that we have now a second customer, our accounting position on revenue recognition will be based on when we ship the product to the end customer or what's referred to as point in time revenue recognition.

Speaker 1

And we anticipate that this year. Yes.

Speaker 2

And that will be this year going forward. So we have not recognized any revenue on that PBT 200 order that will be recognized later on in 2024.

Speaker 3

All right. What I did is your backlog went up 13.6. Percent. I took the 10% and I just assumed that the 3.6 percent is all the new PVT, but it's not. So the backlog came from other products.

Speaker 1

We had a healthy SDC quarter as well as and in addition to that, spare parts is a portion of our business and we had an additional system order, which we didn't speak about, which is part of our legacy product line.

Speaker 3

Okay, that's great. The SG and A, you reduced it from $1,600,000 to $1,300,000 this quarter. Is that a good run rate going forward?

Speaker 2

Yes, I think does reflect our current run rate. We did have some reduction in force as I mentioned. We do have lower bonus accruals as well. So we don't give guidance per se, but that is kind of consistent

Speaker 3

with what

Speaker 2

we would expect going forward. And then Subject to other things that might pop up, for example, as far as any other business activities that might require additional fees, for example, which we can't predict.

Speaker 1

Yes. And it's also subject to the business situation and if as we get more orders or as our order rate fluctuates.

Speaker 3

Right. And I see despite this soft quarter, you still are keeping the pedal to the metal on R and D with $746,000 versus $602,000 You plan to continue to kind of do that?

Speaker 1

We have not affected our at all our engineering programs and quite a bit is going if our engineering effort is going into satisfying the large silicon carbide coating systems. Great. As well as the launch the final launch and delivery of our alpha beta PBT200 system.

Speaker 3

Right, right. How many employees did you have to kind of let go to bring overhead down to our new current reality?

Speaker 1

Yes. We don't have a tendency to release that information. We that information. We find that to be a competitive advantage. Okay.

Speaker 3

Got it. All right. I'm going to drop back in queue. Thank you very much. And the backlog, very encouraging.

Operator

Thank you. There are no further questions at this time. I'd like to pass the call back over to Emmanuel for closing comments.

Speaker 1

Okay. Thank you, operator. Thanks to everyone for dialing in today. We appreciate the attendance on the call and your support as well as the loyalty from all our shareholders and some of the employees who are actually on the call today. We appreciate that.

Speaker 1

If you have any further questions, please reach out to me directly or with Rich. And this concludes our Q1 call. Thank you.

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