Q1 2021 CVD Equipment Corp Earnings Call
Please continue to standby for today's C V D equipment conference. The presentation on will begin momentarily once again, please continue to standby.
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Please continue to standby today's CVD equipment presentation will begin momentarily.
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Greetings and welcome to CVD equipment, 2021 first quarter results conference call.
At this time all participants are in a listen only mode.
A question and 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 Lake, Yost, 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 30 <unk>.
<unk> 2020.
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.
Now I would like to turn the call over to Manny.
Thank you.
Welcome to the CVD equipment corporations quarterly conference call. My name is Manny Lackeys, <unk>, CEO and president and I am pleased to be presenting to you today regarding important company developments and per.
Information relative to our business.
As we won't be providing subset of information youre thoughts are important to us.
Quest you wait to ask questions at the end during our question and answer session.
I would like to introduce our CFO, Mr. Thomas Mcneil, who will provide you our financial first quarter 2021 summer.
Thank you Manny.
As a result of the COVID-19 pandemic CVD is new order bookings substantially decreased commencing in the first quarter of 2020.
Which reduced revenues in subsequent quarters, resulting in our first quarter 2021 revenue from three 4 million as compared to $6 million, which is the pre COVID-19 pandemic era.
In the first quarter of 2020 a.
A decrease of $2 6 million or <unk> 44, 3%.
This reduction in sales and the resultant lower gross profit negatively affected our net income in the first quarter of 2021.
Our net loss for the first quarter.
Of 2021 was 1.5.
Million or <unk> 23 per diluted share as compared to a net income of $1 7 million or 25 cents per diluted share in the first quarter of 2020.
Let me note that during the first quarter of 2020 CVD was favorably impacted by the cares Act, which allows for the carry back of Nols and resulted in CVD, recognizing $1 5 million of an income tax benefit.
As compared to the fourth quarter of 2020.
CVD as revenue in the first quarter of 2021 increased 200000 to $3 4 million.
And the net loss decreased by 200000 as compared to the net loss in the fourth quarter of one 7 million.
And that one seven is exclusive of the impairment charges of $3 6 million related to the CVD 10th aligned product line.
The company's backlog at March 31, 2021 improved by 300000 to $6 million.
As compared to five 7 million at December 31, 2020.
Since the first quarter of 2020, the company continues to experience significant negative effects due to COVID-19, pandemic, including reductions of new orders as I mentioned before.
However, the.
The company's order activity has improved both in the quarter ended March 31, 2021, and also into Q2 2021.
And its longer term improvements are expected to be benefited by announced slow recovery in the aerospace markets, which industry industry reports indicate improvements into 2022 and 'twenty three.
With respect to the building sales as previously discussed at our year end conference call in order to increase our liquidity and to provide necessary working capital to support our ongoing business on operations, we have decided to sell our facility located at 555 North research play.
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In Central Islip, New York.
And on March 29, 2021, we entered into an agreement to sell this building for a purchase price of 24 million $3 60.
Subject to the satisfaction of waiver of certain conditions to closing or contingencies.
Which have now been satisfied.
A portion of the sale proceeds would be used to satisfy the existing mortgage debt of approximately $9 2 million at March 31, 2021 and to pay various transaction related cost and an amount to be determined.
The excess proceeds will be used for general working capital purposes.
On or about May 23rd 2021.
The buyer may advise us of any requirement to extend the closing date up to 60 days thereafter.
Which would also require them to put in additional escrow balance of $1 2 million.
In accordance with GAAP.
GAAP generally accepted accounting principles at March 31, 2021, the carrying value of the building and the amount of $16 2 million is reflected in current assets.
As assets held for sale, which was previously reflected in property plant and equipment were all one long term assets.
Also the 555 building mortgage in the amount of approximately $9 2 million is classified as short term debt.
Which was previously reflected in both current and long term debt.
Yeah.
With respect to the consolidation of our 555 building into 355.
We previously determined is not needed for present and future business operations.
In April 2021, we completed the move of our 10th Alon USA product line to our 355 building.
While all functions of the 10th light product line have been consolidated into the Denmark office.
In the United States expenses related to 10th wine has ceased.
Our mezzo scribe operations have.
<unk> has commenced and is expected to be completed by the end of June 2021.
Once both the sales of building and the consolidation into 355 is completed we anticipate achieving ongoing savings.
With the appointment of Manny <unk>, our new CEO in January 2021, we began an intensive analysis of our entire business on operations, including the materials business.
Based upon that analysis, we believe our primary focus should be on the core equipment business and.
And that the materials business strategies should be revised with some of its current elements potentially mineralized source ceased.
Based upon our analysis in January.
We were forecasting continued losses and negative cash flow for a 10 point product line and as a consequence, we implemented plans to eliminate further investment in our <unk>.
<unk> product line, which.
Which is resulting in the avoidance of approximately one on a half to $2 million in additional costs.
In addition, we have recorded an impairment charge.
As we previously noted on $3 6 million in the fourth quarter and year ended December 31 2020.
We are driven to achieve profit and ROI in all operating divisions in the future.
Turning to liquidity.
Our cash and cash equivalents were $5 9 million at March 31, 2021, as compared to $7 7 million at December 31 2020.
Working capital was $12 3 million at March 31, 2021, as compared to $8 1 million at December 31 2020.
That's an increase of $4 2 million or 52%.
This is the result of our actions, resulting in classifying our long term assets and liabilities related to selling the building as short term and for which we expect to building will close in the near term.
Offset in part by the net loss for the quarter of $1 5 million.
In addition, this quarter, we have substantially reduced our capex from 422000 in Q1 2022, just 26000 this quarter.
Related to ceasing further USA spend on the 10th aligned product line.
With respect to future expected benefits, we apply for forgiveness of our $2 4 million PPP loan in April 2021, and anticipate all or substantially all to be forgiven.
And we are waiting the balance of our tax receivable on the amount of 700000 from the cares Act approved in Q1, 2020, which allowed carry backs of the Nols.
The longer term impacts from the COVID-19 outbreak are highly uncertain and cannot be predicted.
Returned to profitability is dependent upon among other things the receipt of new equipment orders.
Lessening of the ongoing effects of COVID-19, our business and the aerospace market.
And improvements in our operational efficiencies such as the consolidation of our central Islip facilities.
The sales of $5 five building and reduction of interest expense as well as managing plane capex on operating expenses.
Based upon all of these factors, we believe that our cash and cash equivalent positions in cash flow from operations will be sufficient to meet on working capital and capital expenditure requirements for the next 12 months of the filing of this form 10-Q.
Should the current environment continue longer or worse, and we will continue to assess our operations and take actions anticipated to maintain operating cash to support the working capital needs as well as compliance with all loan covenants.
I'll now like to turn the call back to Manny.
Our CEO.
Tom Thank you for your presentation and insight.
As we completed our first quarter, we are cautiously optimistic that the 2020 COVID-19 pandemic as forecasted.
To be contained and the effects that they will eventually Wayne.
We have signs that the worst is over for our served markets. The damage done to the global economy cannot be monetized our business was not immune to this COVID-19 pandemic.
We have been set back in sync with our major market aerospace specifically in the area of advanced material gas turbine engine components.
The impact of global travel and cascading effect to aerospace is astounding.
On the timing of the recovery is uncertain, but what is certain is that global air travel will come back eventually CVD equipment will be poised and ready to respond to the demands for new equipment and services, we continue to receive customer input and industry News reports.
Supporting a beginning of recovery to what would be our order rate in 2022.
Our other markets such as carbon based products.
Our legacy products, serving the academia and research markets are showing signs of recovery.
As funding is becoming available and as University labs reopen after being shuttered during the pandemic.
Even with these signs of recovery, we remain cautious in our planning.
The sales of 555 building is on plan for closing in the next months.
Yeah.
We will use the provided capital wisely per the sustainability and growth of the company.
Pending on the order rate, we will continue to evaluate our infrastructure cost model and take thoughtful measures to reduce fixed expenses in all areas.
I would like to spend some time on our product lines.
The equipment group, we received in Q1, three first now system legacy products orders.
Our spare parts and service orders also showed some recovery, even though the recovery was modest.
The leading indicators for orders, which is our quotation level was up in Q1, indicating that our systems that are in production.
Being started up again.
Our key markets are slowly showing signs of recovery as previously noted.
Through more effective and increased account management, we are using this post pandemic period to reset and better position ourselves with our existing and future customers.
Our message scribe group, which we acquired in 2017 continues to focus on high temperature instrumentation, and very challenging environments, such as in gas turbine engine and satellites.
During Q1, we received an additional <unk> phase II grant for $750000 to further develop the application technology for additive manufacturing.
Of gas turbine engine components.
The message scribe group is profitable and cash flow positive.
Presently we are in the profit of consolidating the operations from our 505 five facility into our 355 facility. We expect that that will be completed and is on plan for the end of Q2 2021.
Angela.
The product line was acquired in 2016. Since then the company has invested in the expansion and the marketing apps and operational capability in Denmark as well as in our U S facility.
Our evaluation as the Denmark facility has ample capacity for the next few years. Our objective is to have the <unk> private client be cash neutral and to minimize any further investment requirement during Q1.
All sales and marketing activities from consolidating to the Denmark facility in the U S operations.
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These actions have reduced our operating costs and we expect that along with continued focus on obtaining orders, we should turn the corner and have the tantalum product line cash.
Cash flow neutral.
We are also in discussion with our landlord in Denmark to extend the lease reducing.
Any near term investment requirement.
The USA <unk> facility in operations.
Washington has.
And determined to not be required to serve the tangible on market.
Our SBC product line and division continues to be both the captive and merchant supplier of gas and liquid delivery systems.
Our STC products are considered to be a standard in the marketplace.
They are also supplier to our equipment division and further fulfill our in house facilities requirements.
With the bring technology at home to the U S initiatives.
Both the flotation.
And order rate for SDC has increased.
This is due to the build out of additional fabs, primarily in the United States as well as overseas.
The division continues to be cash flow positive.
The in the Ecmo products as we reported in the past our applications lab has developed many novel applications components.
One such application is blood oxygen transfer more explicit on specifically extra corporal membrane oxygenation ecmo at this time there is no recent notable developments to speak of.
And we will keep you informed as there are such.
In summary, we are cautiously optimistic that the worst is over that our served markets and customers will slowly recover we continue to apply focus in the area of our products and customers with financial scrutiny of our spending.
Our employees and customers are loyal and we are focused on business and operational planning for structured profitability and go up in growth.
Planning is not a one time and done event, but continues to evolve as the market conditions change, hence we continue to us on.
Our assessment of our plan and we expect to be in the execution phase throughout 2021.
Yeah.
On May seven 2021, Martin J Tennenbaum and member of the board of directors of CVD equipment cooperation notified the board that he was resigning his position as a director effective immediately.
We have accepted accepted such resignation.
We committed to you that we would continue to provide timely communication.
Yeah.
To that matter, we have announced that our annual shareholder meeting will be held July 15.
We will continue to communicate on important developments in the Meanwhile.
With that May I say your comments on questions are important to us with the close of our presentation, we would like to open the floor to your questions.
Thank you Hock, if you'd just give him a walk through.
Yes, Sir.
At this time, if you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question today is from Brett Reece of Janney Montgomery Scott. Please proceed with your question.
Hi, Manny Hi, Jim can you hear me.
Very well so Brian it would not be a meeting without you asking a question. Good afternoon. There you go good afternoon.
I'm just wondering have you do you sit down.
Do you get your sales people with you know your engineering talent that you have to kind a brainstorm to see if you can find a with the skill sets. The company has some products.
On that you can sell without having to kind of just sit back and wait passively for aerospace you know to recover.
Okay.
But if that's the question let me let me answer that because it is part of our new philosophy.
We do not wait for the phone to ring.
<unk>.
This week I actually was at and arrows are leading company in aerospace, which we won't discuss the name.
And in.
Not in searching but in response to customer satisfaction and product road mapping and technology.
Technology Road mapping.
We are presently.
Pleaded our strategic planning process, we will give the audience an opportunity to see some of those elements to the extent, we can supply those during our July shareholder meeting.
And give you a glimpse of our focus going forward, but we've spent the last four months working on planning our strategic planning.
Many of the actions that we've taken both on the cost side are not a precipitous across the board.
Cuts, but a what I would say a thoughtful of.
Outcome of our planning process.
So yes, we have a tremendous amount of communication within the organization today, everybody has their hands on on or to move to both forward.
Right right well.
What was the employee head count at the end of the year and what is it now at the end of this first quarter.
Yes Fred.
Right around 120 employees give or take what it was at the end of the year I think maybe about three net three down from there right.
Right right.
And if you know business you know really snaps back with the amount and mix of employees, you think you'll be able to.
You know manage the business.
Hum.
Hopefully order order flow comes back.
We have the technical and engineering talent.
On staff the variable labor would be primarily in our supply chain there were applying quite a bit of focus on.
How do we position ourselves.
More for a variable expense.
And a and leveraging the manufacturing that is outside of of CVD proper.
That would be.
I mean, I'd say the challenge, but that would be the area of focus for us if the as you say the business snaps back and is very elastic.
Right.
And.
I mean, you went into it somewhat but.
When you say order activity has improved can you go into a little bit more specificity of of what that means.
I can give you some insight that's not typically something that we that we do we were approximately 40% to 50% I'm looking at the numbers here I can't do the quick math, but about 50% higher in.
And orders in Q1 over Q4.
But obviously 2020 Q2 three four on an average we're very weak due to the the.
Kobe. So we are seeing some level of recovery, we are cautious and we're cautious in our comments and statements.
But we are seeing increased activity in aerospace spare parts demand for quotations and also the order rate increase.
That's an indication that the equipment is starting to light up again.
During that period of time, many of our sites on our production sites were turned off.
Right.
One last one and I'll drop back in queue.
In the past.
The company would.
<unk>.
You have to say that there was a great market opportunity for coatings with medical products and nothing seems to have have materialized there.
Why is that and is that an area of opportunity for us.
The medical industry, whether it's tantalum for prosthetics for implants that is a ball sockets.
Which was and it's an area for our product line that is a very specialized area. There are secondary competitors to us.
Not specifically people that provide.
Deposition, but theres titanium.
There are other three D additive manufacturing techniques for doing for building up these components.
Uh huh.
Some of those are entrenched technologies.
That.
It's a small tugboat trying to turn the Eisenhower.
Is a very sizable fee and it's not on or near term event.
I cannot say to you today that that is on my strategic roadmap as a large growth area.
We will continue to sell tantalum deposition and in other materials deposition systems to the medical but it is not a.
It is not one of the top three applications for us right.
Alright.
And if you were a betting man would you bet.
The buyer of the building closes may 23rd or looks for 60 day extension.
Well, we're not bettors, but it will close yes, they're a strong reputable long island come.
<unk>.
And we have every indication that we will close but yeah, we would not ventured into the deal Bryan.
We thought that there was an indication that we would not close.
And I think as Tom's comment is accurate.
That.
We.
Clearly not a better quite frankly, and I definitely don't bandwidth to other people's money, which is our shareholders' money. So I.
We have confidence.
And there is no indication that it won't close in the next few months.
Right right.
Alright, I'm gonna dropped back thank you for allowing me to ask questions as you always do.
Surplus.
Once again, if you'd like to ask a question. Please press star one.
Yeah.
Our next question is from Martin Howard a private Investor. Please proceed with your question.
Yes. My question is yes.
There's a lot of.
Hope for that.
Health product, it's Tony book last you said, there's nothing nothing has happened to report.
Why not I mean, they're working.
Presumably you're checking it out.
Do they have some time thing that will decide whether its a viable product or not.
Sure order or so.
Hi, Martin how are you, we chatted last time as well and let me give you and when I say there is nothing notable it doesn't mean that we don't have some ongoing activities in that area. At this point, we are looking at and options that are available to us.
We have.
Sure.
Continue to work on the technology.
And we are.
We're looking for some.
Some external funding.
Funding through other sources from research sources.
So we have not had a setback.
And we are in a.
Probably what I would term into product development terminology, where in a gauge review of the technology and that may take us a quarter or two.
But again, what we don't want to do is give you any misconceptions that next.
Next quarter or a year from now that this will be a substantial element of our business.
Thank you.
Okay.
Thank you Sir.
Rocco on should give it one more pull in.
As a reminder, if you'd like to ask a question. Please press star one on your telephone.
Okay.
There appears to be no questions further questions at this time.
Okay.
Yes.
Okay.
Hey, Brock there are no additional questions.
We'd like to adjourn today's meeting and we look forward to speaking to everybody give you some more insight on our company and our on our plans in.
In our July 15th annual shareholders' meeting.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Yeah.
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