Q4 2020 CVD Equipment Corp Earnings Call
[music].
Greetings and welcome to CVD equipment of 2024th quarter and year end results conference call. At this time, all participants are in a listen only mode of <unk>.
And the answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. 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 lack, yes, president and CEO and Thomas Mcneill Chief Financial Officer.
We have posted our earnings press release and call replay information to the Investor Relations section of our website at Www Dot CVD equipment Dot com 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 the risk factors section of our 10-K for the year ended December 31 2020.
Actual results may differ materially from those described during this call. In addition, all forward looking statements are made up of today and we undertake no obligation to update any forward looking statements based on new circumstances or revised expectations.
Now I would like to turn the call over to President and CEO Emmanuel Dulac, yes.
Thank you.
Welcome to the CVD equipment Corporation's annual conference call. My name is Mandy wacky.
In January I was appointed CEO of precedent I am honored to be presenting to you today regarding important company developments and pertinent information related to the business.
As we will providing.
Subset of information your thoughts are important to us.
Quest that you wait to ask a few questions at the end of our Q&A session.
I would like to introduce our CFO, Mr. Thomas Mcneil, who will provide our financial 2020 summer.
Thank you Manny and good afternoon, everyone.
In the fourth quarter of revenue was $3 2 million as compared to $5 6 million in the fourth quarter 2019.
The decrease of $2 4 million for 42, 9%.
Our net loss was $5 3 million, which includes an impairment.
In charge of $3 6 million related towards the endpoint product line.
And the Duluth.
The diluted share what's the.
So the 80.
As compared to a net loss last year of $2 6 million of 40 cents per diluted share.
In the fourth quarter of 2000.
The <unk> 19.
Our annual revenues for 2020 were $16 9 million as compared to $19 6 million in 2019, the decrease of $2 7 million for 13, 9%.
Net loss for 2020 was $6 1 million.
Inclusive of the $3 6 million impairment charge were <unk> 91 per diluted share.
As compared to a net loss of $6 3 million or 96.
<unk> per diluted share in 2019.
While our revenues for each of Q3 Q4 of 2000.
The 19 in Q1 of 2020 were in the range of five $5 million to $6 million.
We along with many other businesses were substantially affected by COVID-19, which resulted in reductions of new orders starting in the middle of Q1 2020.
This reduced.
<unk> order level negatively affected revenue in each of the last three quarters of 2020.
And into 2021.
With respect to of a backlog at the end of the year 2020, It was $5 7 million as compared to $8 9 million at December 31 2019.
The reduction of $3 2 million with 36%.
With respect to the materials business.
The project projected growth.
On the materials business has not met expectations.
Although we have made substantial investments in facilities equipment and acquisitions.
<unk> and further <unk>.
Of our strategy the foregoing has proven to be a significant drain on our finances and our liquidity.
Since 2018 revenues for the materials business have been approximately $1 6 million to $2 3 million in 2020.
With operating losses exclusive of the $3 6 billion of impairment charge.
Recorded in all years and for a total loss of $2 5 million.
With the appointment of many our new CEO in January of 'twenty. One we began an intensive analysis of our entire business and operations.
Including the materials business.
Based upon that analysis, we believe our primary focus should be on the core equipment business and that the materials business strategy should be revised with some of its current elements potentially minimized where ceased.
Base.
Based upon this analysis.
We are forecasting continued losses and negative cash flow for a 10th.
Tampa line product line.
And as a consequence, we have implemented plans to eliminate further investment in our tax line product line.
Which will result in the avoidance of approximately one.
On a half the 2 million additional costs.
In addition, we have recorded an impairment charge of $3 6 million due on our fourth quarter of 2020.
And obviously for the for the year end results.
Turning to our liquidity.
Cash and cash equivalents.
<unk> was $7 7 million at December 31, 2020, as compared to $8 7 million at December 31 2019.
Working capital was $8 1 million.
At December 31, 2020, as compared to $8 8 million.
At the 731 two.
2019, a decrease of $700000.
This decrease was primarily attributed to.
Substantially reduced revenue and the resulting operating loss for the yearend December 31 2020.
One $6 million.
Of capital invested in the year ended 2020, primarily related to taint the line equipment and installations.
Debt service payments of approximately 700000.
All of this was partially offset.
By of $3 9 million benefit from two items.
Items the first.
Is the PPP loan of $2 4 million, which we received in April of 2020.
And the second.
With the cares act approved in the.
The first quarter of 2020, we were able to carry back our Nols and as such.
We were able to have the tax receivable.
The one 5 million eight hundreds of thousand of which was received during the 2020 year.
The longer term impacts from the COVID-19 outbreak of highly uncertain and cannot be predicted.
Our return to profitability is dependent upon among other things.
The receipt of new equipment orders the.
The lessening of the ongoing effects of Covid on our business in the aerospace market.
The improvement in our operational efficiencies.
Such as the consolidation of our centralized.
Facilities.
Which is expected to save.
301000 on an annual basis.
The sale of our of 555 building.
And reduction of interest expense.
As well as managing planned capital expenditures and operating expenses.
In order to increase our liquidity and to provide.
<unk> necessary working capital to support the ongoing business needs and operations, we have decided to sell and have announced this afternoon that we have entered into a contract to sell of the 505 building.
And that was done on effective March 29.
The purchase.
Is 24 million 360, and the closing of the sale of subject to the satisfaction or waiver of certain conditions to closing or condition will contingencies.
A portion of the sale proceeds would be used to satisfy the existing mortgage debt.
On the building in the approximate amount of nine.
Price of $1 million at December 31, 2020.
Various costs related to the sale closing and in the amount to be determined.
And then any excess proceeds will be used for general working capital purposes.
With respect to the 505 building, we have determined that it.
Threat needed for present.
And future business operations and that any remaining elements of the materials business can be consolidated into the 355 building also located in central Islip.
And we believe it can accommodate any needs for our growth for the food for.
It is no future.
As I mentioned before with the consolidation of the two central ISO facilities, we will reap ongoing savings of 300000 per year.
And I would say that at this point, we're about 60% to 70%.
<unk> moved out of the <unk>.
One facility into the 355 facilities, so it's well underway.
Based on all of these factors, we believe our cash and cash equivalent positions cash flow from operations will be sufficient to meet our working capital and capital expense for the next 12 months.
Should the.
Receivable environment continue longer worsen, we will continue to assess our operations and take at actions anticipated to maintain our operating cash to support the working capital needs as well as compliance with our loan covenants.
And now I'd like to turn the call back over to the many RFC.
The courier.
Tom Thank you for your presentation.
2020 was a year of uncharted waters for the global economy, our business was not immune to this COVID-19 pandemic.
The decline in global travel, especially long distance referred to as.
<unk> long haul travel caused the decline in demand for aircraft engines and in turn impacted our equipment business.
Other end use aspects of our business were also impacted such as the University projects.
As the universities were shuttered and move to remote learning.
Even though of that we're making progress on the pandemic the commercial recovery of our core market aerospace is uncertain.
Industry News report on consumer input customary input appear.
Appear to indicate that the market may recover in 2022.
In late <unk>.
January we embarked on an evaluation of the business by market and by product segment.
Tom spoke to the outcome of our analysis of the cancel on the product line.
The analysis is based on market growth for Jack cash generation and overall return on investment.
I will speak to the product lines in a few moments.
The sale of the 555 building will provide capital for our sustainability and growth. This goes hand in hand, with our 2020 and three year on.
Operating plan, which is in development.
We will continue to evaluate.
Our infrastructure cost model and take thoughtful measures to reduce fixed expenses in the areas possible, while continuing to invest on our core business and product lines.
All with a renewed focus on our shareholders our customers on our employees.
Now for.
Summary sketch of our business on our product segments.
Yes.
After completing our product analysis, it was clear that our equipment systems and production spares on the core elements of our business.
There are two major market focuses aerospace and nano wires, both carbon and silver.
Silicon.
Of course, there are other legacy and emerging market opportunities, which we will continue to support.
Our focus will be on utilizing our 38 years of developed technology for increasing product is.
Production end use applications.
This standardization.
Allows us to provide more value and maturity of our products bring more support and value to our customers.
And the ability for improved gross margins.
And all of our business elements, our Knowhow and intellectual property is essential for both defense and offense of.
The market positions.
We will increase our activity to develop our IP and safeguarded.
Our metal scribe group.
Which we acquired in 2017 continues to focus on high temperature instrumentation.
In very challenging environments such as in.
As turbine engines and satellites.
The missile described group has secured several U S Air Force development contracts for next generation instrumentation and for turbine blade repair maintenance.
The group is cash flow positive.
They take top of the technology is in the adopt.
Option phase and presently we continue to explore possible growth applications.
The <unk> line product line, which was acquired in 2016 and since then the company has invested in the expansion in the marketplace and operational capability.
And again, Mark as well as our U S facility here in Central Islip.
And at this time of our evaluation is that the Denmark facility has ample capacity.
Our objective is to have the <unk> product line the cash neutral.
And to minimize any further investment requirement.
And Daniel will continue to evaluate the viability of the Tampa line product line over the quarters to come.
The U S. Tampa line facility in operations has been determined to not be required to serve the 10th line market.
Tom spoke to the financial considerations and actions taken in his report.
Our SDC division.
<unk> to be both a captive and merchant supplier of gas and liquid delivery systems.
Our FTC products are considered to be of standard in the marketplace.
There are also of supplier to our equipment division and further fulfill our in house.
<unk> facilities requirements.
The division continues to be cash flow positive.
As we reported in the past our applications lab has developed many novel application components.
One such innovation is the reactor core element.
The.
The combination of carbon nanotubes relative for an infiltration is instrumental in the functionality of the device.
One possible application is blood oxygen transfer and more specifically referred to as extra corporal of membrane oxygenation ecmo.
We will provide updates as there as there are developments.
In summary, we serve markets with growth potential.
Or where we have of legacy of pass sales our employees and customers of loyal we are focused on business and operational planning.
<unk> for our structured profitability and growth.
Our planning process continues.
And we expect to be in the execution phase of our plan throughout the year 2021.
As we committed to you in January.
We will continue to provide timely communication.
The that we have announced at our annual shareholder meeting will be in mid July.
And we will continue to communicate on important developments in the Meanwhile.
Your question.
Comments on your questions are important to us.
With the close of this presentation, we would like to open.
Or to your questions.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is open. The question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be.
The necessary to pick up your handset before pressing the star keys.
Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed with your question.
Hi, Manny Hi, Tom.
The good luck to you Manny.
Thank you Brett.
Just a couple of questions on the.
The building I mean, what what did we pay for it yes, we booking of profit on that and I know there were of course, but.
24 million three less the $9 3 million mortgage of our we netting 15 million left of the costs.
On this yes, so bryan.
What I can tell you is obviously.
Obviously 2000 and for 360.
Is the gross amount.
And the building.
Which we just filed our 10-K, but without that we pay but the 13 eight.
For for the building.
And then there is various of the closing cost conditions and we're obviously moving from one facility.
To the other but noted the substantial.
The number I.
I'd say its probably in the north of $10 million.
To be determined dose.
As we complete and we will report that in our Q1 will have a much better update on that right the substantial.
As of the substantial number.
When we look at our our looked on our balance sheet. This is both the balance sheet and on an operational review number one is we just didn't need both facilities.
<unk>.
For the operations number one number two we.
We would garner a lot of efficiencies better use of.
The individuals and through Department.
It is the ongoing benefit of on ongoing 300000 of <unk> year on the Euro Dr.
Not to mention.
The initial cash.
<unk> and the reduction of our total debt will go from.
The 99, three on that building down to nothing and we'll be left with about a $2 million.
Mortgage on our 355 facility so on a lot.
Once it made a lot of really good says.
Well talking about tier 33355 facility.
Debt.
Based on a comparable what do you think that building is worth and monetizing that and leasing it back.
Lot of it is is that of possibility and what would the arithmetic look like there.
Hey, Brad how are you and thank you very much for you for.
For your best wishes.
We would say at this point, we are really in the equipment business not the real estate business.
And.
And at this point.
Yeah.
We have no active plans to.
<unk>.
To leverage the of the value in the 355 building.
And Thats, probably all we can probably refer to right now we're pleased with that.
The net debt to value is very low.
<unk>.
We hope never.
Never to have to.
But we really cant answer that question at this point, we havent looked into it.
But what is the are the remaining mortgage against the 355 facility that's about $2.
Soon.
Okay.
Now with respect to.
Business on the.
Past the company.
Wood wax poetic debt they were a lot of opportunities for coatings and medical products.
Is there any possibility there you know because it wasn't mentioned in your introductory comments.
Yeah.
Yes, Brett allow me to take that one.
There are a lot of applications that we looked into when we quote and.
We follow up on.
We really speak to the ones that.
Have sizable.
The market opportunity and that really is in the aerospace for us at this point in some of our carbon products.
But we continue to explore.
There is in medical devices.
<unk> solid state of electronics or in <unk>.
For industrial type applications, but there is really nothing that I would say that would be an emerging.
Diamond in the rough right now that we can speak to.
Okay.
Now how many.
People.
Constitutes your sales force and how do you is the lead of many.
Still a kind of laser focus in the sales force to.
Do what's necessary to to.
<unk> up there and get revenues.
Sure well, we know of to answer quickly we have a distributed sales force.
Where we focused by product line, our STC product line has its own.
Sales and marketing group the missile scribe.
Go out at all by.
My successor, who was Jeff Brogan Doctor broken Who's now of the Vice President of sales and marketing.
And he is a veteran in the thermal spray and muscle scribe area. So he fell well known and that is of very focused.
If the marketplace of aviation and defense.
On the area of our equipment business. There, we have a series of reps and distributors that.
Of that bring in Leeds and handle the customer relationship and that's on a global basis in the United States. We are primarily.
Rack and we have.
Seasoned veterans I can't give the head count out, but seasoned veterans in the in that space. Some of them, who came through acquisitions over a decade ago and they are still with us and still market and sell that product we.
We do sell the product globally.
Whether China Europe, United States.
India.
Those are all been over the last several quarters.
How do we do it we were its all for me, it's all about the top line.
And you grow the top line in.
Early to line follows.
Institute.
Right.
I was going to ask you something but at the.
The scape thing.
Many of them.
It'll come to me.
Now I just did.
Dr Brogan.
The bottom of is in charge of all sales you know other than the reactor equipment sales too.
The research.
It departments at universities.
All of just adds with with my prior position all of the sales and marketing.
Is the funnel up to to Doctor Brogan.
On the STC is for the most part of Standalone Division and they do just brilliantly on their own.
And we just collaborate with SDC in that team.
Hi, Irina.
I remember now the.
The.
Named large aerospace customer that.
You gave us those big orders some years ago.
What is the status on on rehabilitating that relationship.
Sure.
Whatever customers, we do have we unless.
On the or.
An affirmative language allowed to speak to their names they will continue to remain unnamed.
We continue to have good relationship with with our aerospace customers, including our largest aerospace customer.
We are in constant communication.
With.
Their projections for of demand we.
Serve them both from a <unk>.
Our system perspective, and also our consumable on spare parts business is a large opportunity for us in the area of production, hence why we're focused more so.
Yes, we're day on.
On production level systems.
There is a recurring razorblade business that's associated with that.
And we're expecting based on I would say industry news that in 2021.
There is a.
So there is a belief not just the hope of a beginning of a recovery for aerospace and for travel in general.
Right right now just circling back and then I'll drop back in queue.
The.
Sales of the building for the 24 million $3 60.
I on the scale of one to 10 10 being.
The metaphysical certainty of the thing is going to close in one line.
But what would you say it is.
We went into our thinking we're going to close we have every expectation that it will end up.
<unk>.
The earnings tell us the deals on a deal for the money changes hands, we expected, but I can't give you a number.
And doing our due diligence we looked at capability to close certainty.
The price on the deal. So there were several aspects of the transaction we were.
We evaluated.
Our debt and weighed and we believe from selected the best for the the shareholders.
Great.
Thank you for answering all my questions on I'm going to drop back. Thank you.
Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
We do have a follow up question. Our first question is from Martin Howard of private Investor. Please proceed with your question.
My question is is there still a dream of inquiry was for the medical product.
Tony Brooks working on.
I know you said earlier the Joe.
Keep us updated on any progress there.
But.
Can we hang our hopes of does this could be possibly of big big deal.
For us who am I speaking to.
But it is more on Howard.
So let me I'll answer that question, Yes, we continue to do development that.
The soonest.
Stony Brook.
On under a small grant and that's for the evaluation on our Ecmo device.
As I believe what Youre, specifically inquiring about.
Yes.
There are some technical milestones and the development it is not.
As you very well no it's not.
Just.
Generating orders and.
And raising capital. It's also we have some development to do there are some technical milestones that need to be achieved in this program.
And we are over the next few months I'm expecting that we'll start getting some of those results in the Meanwhile, we continue to.
The look at.
On the opportunities to capitalize on the investment that we've made on this reactor core element Ecmo application device. So we are very active in that still but we don't want to overplay the opportunity at this point.
Okay. Thank you.
Thank you Sir.
Thank you we do have a follow up question from Brett Reiss with Janney Montgomery Scott. Please proceed with your question.
Alright, Thank you for the opportunity to allow me to circle back.
With the true Vale the company has been going through the last year to 18.
18 months have you been able to retain your top.
Engineering talent.
Well, we've retained our top financial talent Thomas here on the call with US where you go and Thats a good start.
Alright, yes, we have we have and.
Yes.
Every company has some level of turnover our turnover rate is not.
Not unusual the employees that have been there of with the company have been with the company for a long period of time we.
We do invest also in in turns.
In the company as well as we start.
Boeing and <unk>.
And cultivating new talent.
So I'm pretty excited about it.
I would say the team tells me that they're pretty quote unquote jazzed about the.
Opportunity to compete on the production equipment space.
So.
I think that the the answer your question, we're doing very well on that area.
Okay, now I know you're moving the residual.
Canter line business into the old facility.
But I thought that.
One of the reasons.
On the new facility was that there were certain functions and things.
That you could not mix and do with the old facilities mix of business with the the new tapped the line business.
On that that just was not the case.
<unk>.
Well the I.
I can't say that that wasn't of the thought process on the justification at that time, our present analysis of the of the market and under R. R.
Our metrics and our yard stick is that.
The bulk.
<unk> cost.
Is prohibitive to have multiple sites the capacity in Denmark is.
<unk> is more than adequate to satisfy the requirements for the global demand.
We have improved our operations it wasn't that it was the fact it was.
Was that over a period of time, we've hired some talent in Denmark, and they have brought to the eye for our operational.
The operational efficiency up.
And our objective there is.
His break at breakeven.
And minimize any further investment requirement of intent of.
Your line.
<unk>.
So.
Bringing it back here.
We there is not yet and there is no intent to start off can't line in <unk>.
<unk> five on tail.
And it may not occur.
Her as we continue to increase our capacity in Denmark.
We may not see it in three of five five.
And they're so therefore, there is no issue about co mingling.
<unk>.
Co mingling of products in 355.
In Britain.
Just to build on what Manny said.
Our team has really done a terrific job in.
Total uses of reorganizing and getting the 355 facilities in a more efficient clean and organized fashion and <unk>.
Even with bringing in.
In the.
Operations from 555 into our operations, we still have somewhere between 30% and 50000 of of.
Available square footage for expansion and growth.
And even with that we have the ability to.
Segregate out.
Certain of our operations should you want to do that so I think I think we're pretty well vetted on that.
Now when we went into the Tam for line business, we had such high hopes for it.
Why didn't pan out the way.
The company thought it would and what.
What lessons.
Do you learned from this experience so that.
Future.
Allocation of corporate resources.
We won't make the same mistake.
Okay.
It has to do with planning market analysis.
Planning of return on investment modeling and understanding.
When you acquire something.
In all best intentions, there is a cost of operation of needs to be <unk>.
Taken into account there is.
Backbone infrastructure required and applications development to expand the marketplace.
There is.
A burden of potential operating.
Losses.
Which we actually incurred.
And then the there is.
Our requirement for capital.
Total equipment potentially.
And.
Going forward.
Can't speak to the past, but I can speak to going forward will be doing a complete our return on investment model and market analysis on any new product that we're developing organically and any potential acquisition.
Our new marketplace that we go into.
Great. Okay, Manny once again break of leg and Tom. Thank you for taking my questions.
Of course, thank you Brad.
Thank you we have reached the end of the question and answer session and I will now turn the call over to Manny.
<unk> for closing comments.
Oh well.
I wish all of you.
In this very.
Trying time with this COVID-19 pandemic.
I wish you the best.
Health and.
And safety overall first and foremost.
I the management team the board of directors appreciate your participation today and you of loyalty to the company.
And you have our commitment that we will continue to do our most of them.
To have return on investments and also return on equity for you in the future.
We look forward.
Forward to speaking to you.
Soon.
I don't believe it's that far out I don't have the exact data on our next.
Gathering.
We've as we committed in January will continue to communicate with you as we have information that's permanent.
Thank you very much.
Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.