Q3 2021 CVD Equipment Corp Earnings Call
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Ladies and gentlemen, thank you for standing by our presentation will begin momentarily, ladies and gentlemen, thank you for standing by our presentation will begin momentarily. Thank you all for your patience.
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Okay.
Greetings and welcome to our CVD equipment 2021 third 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 question and answer session.
Presenting on the call today will be Emmanuel lack Eos press.
It didn't in CEO and member of the CVD Board of Directors, and Thomas Mcneil 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 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 the future financial performance market growth.
Total available market.
Demand for our products and general business conditions and outlooks.
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 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.
<unk>.
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.
Okay.
Hello, and welcome to our CVD equipment corporations quarterly conference call. My name is made at <unk>, CEO and President and I am pleased to be presenting to you today regarding important company developments and pertinent information related to our business.
As we will be providing subset of information you thoughts are important to us.
We look forward to your questions at the end of our conference call into question and answer session I would like to introduce our CFO, Mr. Thomas Mcneil, who will provide you with our financial third quarter 2021 summary.
Thank you Manny and good afternoon, everyone.
CVD third quarter 2021 revenue was $4 3 million as compared to $4 million in the third quarter of 2020.
An increase of <unk> 3 million or eight 4%.
<unk> operating loss for the three months ended September 32021, and 2020 was <unk> 9 million and $1 4 million respectively.
With Q3, 2021 improving in performance by <unk> 5 million compared to Q3 2020.
Included in other income for the three months ended September 32021 was the gain on the sale of the building and the amount of $6 9 million.
Net income for the third quarter was 6 million or <unk> 89 per diluted share as compared to a net loss of $1 3 million or <unk> 19 per diluted share in the third quarter of 2020.
With respect to our nine months.
Results.
As a result of COVID-19, pandemic Cvd's, new order bookings during 2020 were substantially impacted which reduced revenues and social current quarter, resulting in revenue of 11 7 million for the first nine months of 2020.
Sorry of 2021 as compared to $13 7 million in the first nine months of 2020.
A decrease of 2 million or 14, 7%.
CBD is operating loss for the nine months ended September 32021, and 2020 was $3 6 billion and $2 4 million respectively.
Included in other income for the nine months ended September 32021.
The gain on the sale of the building and the amount of $6 9 million and the gain on debt extinguishment in the amount of $2 4 million, which was related to our PPP loan received due to the effects of the COVID-19 pandemic.
And the subsequent forget so that debt.
Net income for the first nine months of 2021 was $5 9 billion or <unk> 89 per diluted share.
As compared to a net loss of <unk> 8 million or 12 cents per diluted share for the first nine months of 2020.
Included in the first quarter of 2027.
<unk> net income was favorably impacted by the cares act, which allowed for the carryback of net operating losses and resulted in CBD, recognizing an income tax benefit of $1 5 million in the nine months ended September 32020.
Yes.
Sequentially.
<unk> revenue in the third quarter of 2021 was $4 3 million as compared to $4 million in the second quarter 2021.
An increase of <unk> 3 million.
And the operating loss decreased $2 9 million in the third quarter of 'twenty, one as compared to an operating loss of $1 1 million in the second quarter of 2021, an improvement of <unk> 2 million.
During Q3, 2021, CVD was impacted by increased cost on certain manufacturing material components as well as delays in supply chain deliveries.
This may also impact <unk> ability to recognize revenue and reduce gross profit margins in future quarters as well as extended its manufacturing lead times and reduced manufacturing efficiencies.
CBD has commenced placing orders with increase lead times to try to help mitigate the manufacturing delays as well as assessing all of the materials supplier.
To mitigate the potential cost impacts.
Addition, CBD is utilizing its in house flexible manufacturing to further mitigate potential schedule delivery delays and material cost increases.
The company's backlog at September 32021 improved by $1 8 million.
To $9 9 million.
As compared to $8 1 million at June 32021.
Since the first quarter of 2020, the company continued experienced significant negative effects from COVID-19, including reductions of new orders.
And while the company's order activity has improved in the first three quarters of 2021.
We believe its longer term improvements will be benefited by the anticipated slow recovery of the.
The aerospace markets, which industry reports indicate will begin to occur in the 2022% to 2023 time frame.
With respect to our building sale.
As previously announced we are pleased to have closed on the sale of our facility at 555, both research and Central Islip New York.
On July 26 2021.
With a sales price of $24 4 million, we've satisfied our then mortgage debt of approximately $9 1 million on that facility and paid various transaction related costs.
The net proceeds of approximately 14 million improves our current cash position.
Which at September 32021 is $17 4 million.
And provides us with the balance sheet to bolster sustainable growth strategies.
As a result of the gain on the sale of the building of approximately $6 9 million, we improve cvd's overall shareholder equity and retained earnings by approximately $6 million.
And our retained earnings is now a positive $3 million.
At September 32021.
With respect to our liquidity again, primarily the result of the sale of the Wi Fi five building, our cash and cash equivalents improved to $17 4 million at September 32021.
As compared to $7 7 million at December 31, 2020.
And our working capital was $17 7 million as of September 32021, as compared to $8 1 million at December 31 2020.
An increase of $9 6 million or 118%.
In addition, during the first nine months of 2021, we have substantially reduced our capex from $1 2 million in the first nine months of 2020.
Two 213000 during the first nine months of 2021 related to ceasing further USA spend on the 10th line product line.
The longer term impacts from the COVID-19 outbreak are highly uncertain and cannot be predicted especially.
Especially now with the recent outbreaks of the COVID-19 Delta variant and impacts on our supply chain as I previously discussed.
While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability.
Can be no assurance of the ultimate impact and the length of time.
That's the supply chain factors may impact, our revenues and profitability.
Our return to profitability is dependent upon among other things the receipt of new equipment orders.
Lessening of the ongoing effects of COVID-19 on our business in the aerospace market.
Improvement in our operating efficiencies.
As well as managing planned capital expenditures and operating expenses.
Based on all of these factors, we believe our cash and cash equivalent position and projected.
Projected cash flow from operations will.
We will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months of the filing of this Form 10-Q.
So the current environment continued to worsen 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 our loan covenants.
And now I'd like to turn the call back over to Manny our CEO.
Tom Thank you for your presentation.
We've spent the first nine months of 2021 shoring up our balance sheet.
And optimizing our market focus and product offering.
All with the interest of maximizing our present and future profitability and viability.
In Q3, we initiated our strategic planning for 2022.
We also want to announce that we obtained strategic orders in our focused growth markets.
During the third quarter, we closed on two electric vehicle battery nano materials system Motors.
One of which was with a production use case customer one day battery Sciences.
And the other two are research and pilot production customers.
Our order rate has now shown incremental recovery with orders in the range of $6 million per quarter in both the second and third quarter.
We received five CVD system orders in the third quarter and 14 year to date.
Our SDC Division continues to show incremental order growth.
It is our strategy to continue to focus on production applications for nano materials, including battery anodes as well as our aerospace and defense applications.
We are also pleased to see a recent increase in our spare parts business within the aerospace market.
And that gives us cautious optimism that our assessment that the timing of the resurgence in gas turbine engine demand will materialize in 2023.
And our production group, we have seen and further had been addressing this the global supply chain issue.
Increases in material cost and the general delays and uncertainty of material delivery.
This will be a challenge for most companies.
We have implemented a vigorous supplier engagement as well as expanded our network of suppliers.
Our vertical integrated manufacturing is being tapped to supply capacity to improve the delivery cost of our products.
We have ample capacity in our 355 central Islip facility to accommodate a shift in our manufacturing strategy to assist in addressing any long term supply chain issues.
On another front the sale of our 555 building was completed in July with the outcome of providing approximately $14 million of additional cash on hand.
All of the building provides both short term working capital.
As well as for future growth opportunities.
In summary.
Even with these positive indicators the ear is far from over.
And we expect to face many challenges.
However, our focus remains consistent.
Customers, our employees, our shareholders and the pursuit of growth and returned to profitability.
Your comments and questions are important to us with the close of this formal presentation, we'd like to open the floor to your questions.
Thank you 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 tone will indicate your line is in 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 necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Okay.
Okay.
Your first question comes from the line of Brett Reiss with Janney Montgomery Scott. Please proceed with your question.
Hi, Manny Hi, Tom how are you guys doing.
Well, we're doing Brett we're doing very well knowing that you're on the call good.
Hi.
I have a series of questions with respect to the.
The device.
Sure.
Delivering to the <unk> battery in the first quarter are we still on schedule to deliver that in the first quarter.
Yes.
'twenty two.
The the plan is to deliver in the first quarter, yes, and we are on schedule for that.
Right Great now, it's a private company, but you know when you go on their website they talk about.
This pilot plant to do the battery stuff in Wisconsin is that where the.
The reactor, which were making for them.
Where it's going to be employed by them.
Well, Brett I really this is a CVD equipment conference call, but.
But.
And Vincent is a great CEO and probably would.
Answer your questions as well, but.
Is the I believe it's not confident as Wisconsin, It may be Pacific Northwest, Washington State, possibly.
And.
Just for I think just some correct I'm not sure. They stated that it was in Wisconsin.
Okay.
I don't yes.
I own CVD and that's what I'm really interested of course when you yes.
But when you read what possibly.
They may have.
Got it.
It reads like this could be.
First plant among many.
I mean are they possibly going to need one of your devices for every location.
They're going to open up.
They will need a CVD reactors likely they will need a TVD reactor for each and every one of their locations and sites that's correct.
State Pablo size, they have a very interesting and attractive model.
I would probably suggest.
The listeners go to their website.
We are doing.
Our utmost.
Feel confident that we will be there a supplier of choice for each of those sites.
Okay.
Now if what they have really.
Lifts off and clicks.
They have barriers to entry because of their patents in their intellectual property.
What what do we bring to that equation are they using us.
Solely for our know how and experience or do we have something propriety proprietary that.
No one else could could.
Yeah.
Deliver on yes.
Should should they go with with somebody else.
The breadth of the typically the.
The barrier to our competition is our performance.
We will deliver on time.
As per the committed.
Specification.
We will facilitate their installation and we will continue to partner with them.
But we are pleased that we were selected.
<unk> as a strategic this is not a one and done.
For us and we're putting that level of effort into the development of the engagement with them.
And we.
We see that imagine important customer for years to come.
Right right.
Once our devices installed in there or are they a plant being used is there any future recurring revenue stream that would accrue to us.
There is of course, because it's a production application or a pilot production applications similar to our aerospace install.
The installed base.
We will continue to support them, even just the installed base without additional orders, which we.
Hope and expect that they will be at <unk>.
SaaS pulling adopted.
And we will have again.
Apply them consumable and spare parts.
Under separate contracts.
Okay.
Different.
Our line of questioning you.
Change the way.
Your sales force is compensated.
And of course, you report.
Backlog.
When you get a firm order, but some of the companies I follow have a metric where they will sometimes say that DLR.
Dollar amounts of tenders or potential orders outstanding they're not firm orders, but these submissions that are out there.
Do you have something similar that you monitor and if so has that gone up.
Because you've changed the way you compensate your sales force.
Well, we have a competitive compensation package for all of our employees.
Which is also partially based on the performance of the company.
To our objectives and thats been communicated to the to the entire rank and file from executives to.
To every level in the organization.
There is also metrics associated with individual or group performance.
Specific to the department of the function.
For the sales team you can imagine it's order rate that's the answer to your first question. The second question.
Question as we monitor our opportunities clearly there are people, Jeff and his team that monitor it on a daily and.
Every hour of the day on the opportunities.
But we update our internal forecast on a weekly basis looking at all our probabilities and all are.
All our opportunities and we do a weighted average of total opportunities to compare that to the best view and then we compare our forecast that we actually commit to ourselves management.
The team that can mix to myself on.
What we anticipate our forecast would be which we just what we roll into our financial forecast.
The ratios are our strong ratios.
The aspect of.
The best few to the what we have in our forecast and then the opportunities.
Two real opportunities too.
Two what's actually that what we call our best view. So it goes through a couple of filters or iterations.
I'm pleased with the with the ratio of those numbers.
We have.
Ample targeted accounts in our forecast and we have backups for those as well.
Okay now.
Since as you said aerospace is picking up again.
The type of reactor you successfully made for general electric some years back.
Is.
Is there any possibility of getting some more additional orders either from general electric or any other aerospace manufacturer similar to those large orders, we got two or three years ago.
Well I appreciate both the question and the positioning as.
I think for the record we have never specifically stated that we have received orders from general electric but they are.
A major player in the <unk>.
In the ceramic matrix composites gas turbine engine industry.
I'll say that the customer that we have shipped the product to.
Clearly we'll see.
Start recovering.
From a standpoint of Av.
Engine demand, therefore component demand and that will trickle down to us what will first see Brett is an increase in the spare parts business and in the consumable business, where they start now buying for their internal production of.
Of material for these.
Gas turbine engine components.
We've started to see that we've started to see.
A nice uptick it's not back to where we were in 2019, though.
Alright, so I anticipate that that will likely will take another year.
Year to year and a half until 2023 before we start seeing that level of consumables and before their capacity is.
Fully tapped and where they would have to buy additional equipment now that doesn't mean that other players long.
The market as well.
And we continue to engage.
Other than one or two customers, we have we continue to engage others as well with vocations proposals and discussions.
Alright.
But again I don't see a recovery in.
In in.
In demand until 2023 for the for the engine recovery for our components.
Sorry to have to buy equipment prior to that.
We're engaged with all of the <unk>.
Component manufacturers.
And.
Well some of them buy before that we're optimistic and believe that that's possible.
Are we.
Hanging our hat on it and saying that Jason you know next year, we're going to triple our business now that's I think that would be extremely.
Unprofessional Boston unethical.
We continue to be conservative.
And.
When we when we see something that changes the needle.
For our direction, we will absolutely speak up and and provide additional information.
But right now we see indications of recovery.
But I think as we all know we need to be a little gun shy.
Due to the fact that we were all caught off guard with this COVID-19.
A year ago.
Alright, alright.
Thank you for answering my questions and have a good Thanksgiving.
To Brett Thank you so much.
Okay.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Okay.
Your next question comes from the line of Martin Howard.
I'm an investor. Please proceed with your question.
Okay two questions one.
Yes.
Conference call.
Or just not to get too excited about what was going on at Stony Brook.
As a potential moneymaker for CBD is there any change in that as they made any progress in it.
In terms of getting us a little bit confused about what's going on up there.
Hi, Martin how are you.
I'm fine.
Nothing that would again change the needle on that.
We are working on a couple of things and I don't want to spook them right now.
But.
<unk>.
We will because we had previously issued some press releases when things look much brighter for the Ecmo device.
We will when there is a change we will absolutely.
Send out a note on that.
At this point, we're looking to we're looking at other applications.
For this.
Media to media exchange, which is in the case of an Ecmo device is a blood oxygenation, but there are other potential uses for that.
Even in the area of desalination or water.
So we're looking at other opportunities.
I can tell you one of our handbag.
Nor did everybody excited as well.
Don't get too, but I don't want to et cetera.
On the board to death with his company for 10 years.
Hum.
Caroline Let me let me go to my second question. Thank.
Thank you for that one.
You mentioned that material cost may be going up.
I will take most of your products.
The part of the material.
The cost of material versus the technology you have.
That's correct that we are changing the model of the company to be less.
Hardware and more value proposition.
And so are our orders are much more performance based than they were just hardware specifications that length that lens.
Our company to be right in line with your comment that it's more value oriented.
The material content is still the material content.
We're seeing some increases material content to the extent of it affecting gross margin points.
We're assessing that as we speak I'm not ready to.
Have that conversation at this point.
But I think we all know that raw materials, especially the specialty materials. The the C 22.
Half the alloy materials.
<unk> gone up 300% in price.
And that's been somewhat.
For some jobs.
For other jobs no effect at all.
What we are seeing a bigger issue on his delivery and just the uncertainty of delivery of some key components.
And.
We'll continue to manage through that.
This is where we can hibernate we can.
You may believe it doesn't exist.
Going to our own machine shop, and working overtime and the machine shop and on the floor and our core job.
Will help alleviate that.
And the.
The company has historically been very vertically integrated so we're leaning more on that than we probably would have had it not been for this supply chain issue.
Okay. One last question a few years ago graphene with talent as.
The miracle material of the future well I've heard that kind of stuff.
Okay.
<unk> been hearing that kind of stuff from 50 years, not just about graphene, but other things so.
So I was a little skeptical then.
Graphene.
I mean, we're an expert in graphene apparently are one of them.
We are very knowledgeable, hence people think alright, thanks, Brett we're extremely knowledgeable and.
Does that area of carbon and were very knowledgeable and expert in the area of silicon anode wires.
Looking ahead five years do you think this will start to pay off.
Sort of a bigger production products or we can get recurring income.
Yeah.
I would I'm betting my bidding my hat on.
On the carbon nanotubes carbon nano fibers.
Silicon Nanowires silicon deposition.
IC market that exists today that benefit from that batteries are an earn exceptional example, no. One on this phone call can argue that electric vehicles are not going to be the future.
No one can state that will all state just be positive. It's all about the battery. That's the biggest problem. It's not the motor. These cars can go zero to 60 in three seconds.
It's not the motors, it's not the braking system. It is not the upholstery, it's the battery thats the problem.
So theres a lot of focus on batteries the amount of our market research shows that the amount of battery material required now granted today. It's for the most part just carbon for the anode, but when you try and have a an evolutionary roadmap of performance.
Do you start looking at modifying that carbon with silicon So that's hence what.
This one firm that we received the order we received two orders in that area.
Two different applications one.
On carbon based materials, the other ones on silicon based material deposit in carbon on it.
Both of them are evolutionary processes. So they it's not they don't have to change the direction of a.
Of an aircraft carrier they are in the path and their technology insertion point for the for the battery material suppliers. So we feel that that is a market that exists. We are players in that market and we're doing our utmost as per some of the comments that Brett made is.
Wrapping our arms around the customers in that space to be a provider.
Thank you very much I appreciate your thoughts.
Thanks Mark.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Ladies and gentlemen, there are no further questions at this time and I'd like to turn the call back to Mr. Manny <unk> for closing remarks.
Well, we appreciate your attendance.
And we.
Both loyalty and.
And to some extent your patience as we continue to.
To clean up the shelves.
We've done a lot in the last nine months.
And we continue to plan for the future.
As information is available we will be pleased to.
Send that out.
In our releases, we wish you all a happy and healthy healthy Thanksgiving and holiday period.
And with that thank you very much.
Okay.
Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
Okay.
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Okay.
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