Q4 2021 CVD Equipment Corp Earnings Call
[music].
Greetings and welcome to the C V D equipment, 2021 fourth quarter and year end results conference call. At this time, all participants are in a listen only mode.
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 an annual lock Yost president and CEO and member of the C. V. D 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 C V. The equipment dotcom.
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 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 our filings with the S E C, including but not limited to the risk factors section of our 10-K for the year ended December 31, 2021 .
Actual results may differ materially from those described during the 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'd like to turn the call over to Manny.
Thank you Kyle.
Welcome to our CVD equipment Corporation quarterly conference call. My name is Manny Lackey, OCR, President and I am pleased to be presenting to you today regarding our 2021 performance an important company developments and pertinent information related to our business.
We will be providing subset of information your thoughts are important to us.
We look forward to your questions at the end of our conference call and the questions and answer answer session.
2021 was a year of transition reorganization and focus on providing a path to proper profitability and growth. We are pleased with the improvements in performance of the company and increased demand of our products. During this difficult period. We spent the first half of 2021 shoring up our balance sheet and optimizing our <unk>.
Focus and product offerings, all in the interest of maximizing the future profitability and viability of the company.
In 2021 orders for the company as a whole were $21 million up 75% from prior year 2020, the equipment group had an increase of 100% over 2020.
23 systems were booked in 2021 compared to nine systems in 2020.
We have we obtained multiple strategic orders in our focused growth market, serving the electric vehicles.
The first being battery anode material in the second silicon carbide growth systems for high power electronics.
According to market research both of these market segments are expected to grow in the coming quarters and years.
Systems I mentioned are planned for delivery mid 2022.
Recently, we announced two strategic two.
Two additional strategic orders in Q1 up 2022.
One for battery nano material research and development and the other for carbon based discrete devices for <unk> cellular phone technology.
Both systems will be completed the second half of 2022.
During the first quarter of 2022, we also received orders for consumables that serve our installed base.
In the aerospace market.
This is a sign of continued recovery of the aerospace market, which we do not expect to recover fully until 2023.
The recent orders over the last three quarters further validate our strategy our focus on growth and use market such as battery nano materials silicon carbide growth systems, and advanced composite materials for aerospace and other markets.
Our consolidation of the tantalum product line operations into Denmark have yielded improved performance in 2021 over 2020.
The division had its first profitable year and was cash flow positive.
The micro the methyl scribe product line, which was moved in consolidated from our 555 building into our 355 building well. It's also operational in Q3 and was cash flow positive as was S. D C Division.
In 2021, we've right sized our employee head count.
And there was a reduction in certain operating expenses associated with the consolidation of the 555 building into our 355 building all located in Central Islip New York.
And into the tantalum facility in Denmark.
The sale of the 555 building was completed in July with the outcome of providing approximately $14 million of additional cash on hand.
Sales of the building provides both working capital as well as for future growth opportunities.
Our revenue in 2021 was down from 2020.
Due to the lower equipment orders in 2020 attributed to the Covid pandemic.
The impact of the reduction in revenue was partially mitigated by our right sizing.
Our employee head count and the consolidation of our facilities.
We have experienced four quarters of sequential revenue increase in 2021, and we expect that trend to continue through 2022, yielding a breakeven or profitability run rate by the end of 2022.
Hence achieving our profitability initiatives.
Yeah.
The Covid pandemic and now more recently, the geopolitical instability in Russia, and the Ukraine have caused global issues and supply chains.
The negative effect has been felt by all companies with increases in commodity and product material cost as well as in product delivery uncertainty.
In our production group, we have seen and further had been addressing these global supply chain issues.
This will be a challenge for most companies including CBD.
We have implemented rigorous supplier engagement as well as expanded our network of suppliers. We also in 2020 to have initiated a program to expand our internal manufacturing capability with the objective to be self reliant.
We have ample capacity on our 355 central Islip facility to accommodate a shift in a matter of factoring strategy to assist in addressing any longer term supply chain issues.
Yeah.
With that I would like to now introduce our CFO , Mr. Thomas Mcneil, who will provide you our fourth quarter and year end 2021 financial summary.
Yes.
Thank you Manny and good afternoon all.
CBD fourth quarter 2021 revenue was $4 7 million as compared to $3 2 million in the fourth quarter of 2020, an increase of $1 5 million or <unk> 48, 8%.
Cds operating loss for the quarter ended December 31, 2020, and 25 I'm sorry, So the 31st 2021, and 2020 was $1 2 million and $5 4 million respectively.
Included in the operating loss for the quarter ended December 31, 2020 is an impairment charge of $3 6 million related to the company's 10th one product line.
Net loss for the fourth quarter of 2021 was $1 2 million or <unk> 18 per diluted share as compared to a net loss of $5 3 million or <unk> 80 per diluted share in the fourth quarter of 2020.
With respect to our year end results.
As a result of the COVID-19 pandemic Cvd's do orders substantially decrease commencing in the first quarter of 2020.
Which reduced revenues in subsequent quarters Reis.
Resulting in revenue of $16 5 million for the year ended December 31 2021 as.
As compared to $16 9 million in the year ended December 31 2020.
A decrease of.
400000, or two 8%.
<unk> operating loss for the year ended December 31, 2021, and 2020 was $4 8 million and $7 8 million respectively.
Included in other income for the year ended December 31, 2021 was a gain on the sales of 555 building and the amount of $6 9 million and.
And a gain on debt extinguishment and the amount of $2 4 million, which was related to the PPP loan received due to the effects of the COVID-19 pandemic.
Included in the operating loss for the year ended December 31 2020.
As an impairment charge of $3 6 million related to the company's tantalum product line.
Net income for the year ended December 31, 2021 was $4 7 million was <unk> 71 per diluted share as compared to a net loss of $6 1 million or <unk> 91 per diluted share for the year ended December 31 2020.
In the first quarter of 2020.
<unk> net income was favorably impacted by the cares Act, which allows for the carryback of net operating losses and resulted in CVD, recognizing an income tax benefit of $1 5 million in the year ended December 31 2020.
Actually.
<unk> revenue in the fourth quarter of 2021 was $4 7 million as compared to $4 3 million in the third quarter of 2021.
An increase of 400000.
And the operating loss increased.
Two $1 2 million in the fourth quarter of 2021 as compared to operating loss of 900000 in the third quarter of 2021.
During Q3, 2021 and continuing to date.
CVD has been 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 reduced gross profit margins in future quarters, as well as extend its manufacturing lead times and reduced manufacturing efficiencies.
CBD has commenced placing orders with increase lead times to try and help mitigate the manufacturing delays as well as assessing other material suppliers to mitigate the potential cost impacts.
In addition, CVD is utilizing its in house flexible manufacturing to mitigate.
Both potential delivery scheduled delivery delays and material increases.
The company's backlog at December 31, 2021 improved by $4 7 million.
We're 82% to $10 4 million.
And this compares to $5 7 million at December 31, 2020.
While the negative effect of the COVID-19 crisis continues to impact the aerospace industry.
Due to reduced travel and reduction of industry gas turbine engine sales, we have achieved new orders during the quarters ended June September and December 2021, and the amounts of 6 million $6 1 million and $5 2 million.
This complaint compares favorably.
Two $3 8 million in the quarter ended March 31 2021.
With respect to the 555 building sale debt and our cash position.
As previously announced we are pleased to have closed on the sale of our facility located at 555 North research place.
And we did this in July 2021, with the sales price of $24 4 million, we satisfied our then mortgage debt of approximately $9 1 million.
And paid various transaction related costs.
Net proceeds of approximately $14 billion improves our cash position.
Which at December 31, 2021 is $16 7 million.
And provides us with the balance sheet to bolster sustainable growth strategies.
As a result of the gain on the sale of the $5 five building, we improve cvd's overall shareholder equity and retained earnings by approximately $5 1 million and.
And the retained earnings is now a positive $1 8 million at December 31, 2021.
Finally on March 1st 2022, we paid off our remaining mortgage debt on the 355 buildings and the amount of one.
$1 7 million.
And as such we have no debt outstanding.
With respect to our liquidity, primarily the result of the sale of 555 building cash as I mentioned increased to $16 7 million at December 31, 2021, as compared to $7 7 million.
In the prior year period.
Our working capital was $16 7 billion at December 31, 2021, as compared to $8 1 million in the prior year period.
This was an increase of $8 6 million or 106%.
In addition, during the year ended December 31, 2021, we have substantially reduced our capex from $1 6 million in the year ended December 31, 2020 to 236000 during the year ended December 31 2021.
This 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 now with the impacts on our supply chain as we previously discussed.
While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability there.
There can be no assurance of the ultimate impact and the length of time that the supply chain factors may impact our revenues and profitability.
I'll return to profitability is dependent among other things.
The continued receipt of new orders.
The lessening of ongoing effects of COVID-19, our business in the aerospace market.
Managing through the supply chain issues discussed.
And improvement in our operational efficiencies as well as managing playing cap capex and operating expenses.
Based upon all of these factors, we believe that our cash and cash equivalent positions and projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 to 18 months.
The filing of our Form 10-K .
It was filed today.
Should the current environment continue longer or worsen.
We will continue to assess our operations and take actions anticipated to maintain our operating cash to support the working capital needs.
At this point I'd like to turn the call back over to Manny.
Tom. Thank you for the presentation in summary, 2021 was as we expected a year of transition and reorganization and focus on everything we do and those who we serve.
Our focus remains consistent on our customers.
<unk> shareholders and the pursuit.
Outgrowth and returned to profitability.
We are looking forward to 2022 and are cautiously optimistic.
Your comments and questions are important to us.
With the close of our presentation wed like to open up the floor to your questions.
At this time, we will 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 and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Yeah.
Our first question is from Martin Howard a private Investor. Please proceed with your question.
My question is this.
I'm glad you have enough money in it.
Better.
Conditions to stay alive.
I have a reason to be excited.
Is there anything happening on the on the house thinking that.
Stony Brook or is there some great interest and some new product where you can see.
Maybe a few years five or $10 million to $20 million worth of sales something that would give us a reason to love the stock instead of tolerated.
Okay. So Martin Thank you very much and thank you for at least up to now are tolerating the stocking and it's our job to work at having you love This stock.
So like all of our various.
Not all of the various amounts for over 15 years.
Yes.
And let me, let me speak to some of the things that we've.
That we've.
Actually had public releases on.
Last year, we received six orders for Silicon carbide growth systems that are used as as you may know in.
In high power electronics, those high power electronics are used in the charging and transformation for devices and charging and transmission of electric power for electric vehicles as one great application for us.
And we received six from one customer and as you as I stated earlier in my presentation that is one of our growth focus areas and markets.
The other is in the anode battery material itself.
We announced last year that we had received an order from.
From a customer that.
And we actually announced that it was <unk> in one of our releases.
Where they are a they're an.
Evolutionary improving the carbon.
Nano material used in electric vehicle batteries.
So those are two areas that are large growth opportunities for us.
And Thats substantiated by obviously.
You read the news.
We can see that.
And also by market research.
In addition to that model, we still have a large.
Foothold I mean, the company did a great job over the last several years.
And in fiber telco for the aerospace industry as we know that that industry was impacted by by the Covid pandemic and long haul or travel to Europe traveled to Asia.
And the Airbus the borrowings were impacted therefore, then the manufacturers who are as well. So again are our market research and in the news indicate that that marketplace well some will come back at some point in time so.
With that said.
We're excited we received those orders last year for for for products that will be used.
In electric vehicle.
Battery and energy transmission and charging.
So we are.
We're pleased with those.
As far as we are not a medical device company I mentioned that earlier that that's not our our big play.
We look at.
Those type of products as applications for our carbon and our carbon CVI, both our carbon nanotubes and carbon CVI processes.
And primarily for the sale of tools, so with that said.
I think I gave you a couple of examples of areas that we do focus on.
One last question.
I mean, it would take too much time, graphene with sort of a powdered material like it was going to be.
The material or the next 50 years.
Well is there some truth to that.
What is your opinion on graphene for the company.
We see larger demands on C N T than we do for graphene.
Without spending a lot of time on that there are a lot of different ways too.
You can.
Harvest graphene.
It.
It's a good technology, we sell systems in that.
I really can't speak more than that.
Okay.
I think it's still a technology looking for a solution.
Thank you very much I appreciate your answers thank.
Thank you.
As a reminder, 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.
Our next question is from Brett Reiss with Janney Montgomery Scott. Please proceed with your question.
Hi, Manny Hi, Tom can you hear me yes.
Yes, we had great great.
Good show on the increase in the backlog and the trends in orders in <unk>.
A line of sight of profitability by year end, so I appreciate that.
Can I ask you like.
Last.
Quarter you sold.
No material system to one battery Sciences, which you mentioned and then you did you sold another system two way.
Our research and pilot production customer and then you had the March 29 news release that you're selling an atomic layer.
Deposition system.
To.
For the Georgia Institute.
Could you to this non engineer.
Just explain to me the differences between the systems and you can talk to me like.
Six years old.
As if you are 60 or 60 hour.
666 years Paul.
Okay.
Hum.
The one tool was for a production application.
And it's a higher volume.
System much higher volume system.
The tool that we spoke about in the fourth quarter and then the Georgia Tech announcement.
Our for real R&D applications, Georgia Tech the ILD tool is just another.
Just another deposition technology.
That is very similar to our CVD process.
And it's really just.
As a as a six year old you really don't need to know the difference is the equipment looks very much the same.
But it's too one of the best universities do with <unk>.
Research in this field and we're very pleased to have been selected.
When I'm probing.
Is the add on and and total addressable market in these areas I mean, because I mean, everybody knows you know electronic vehicles are just going to increase.
Market share. So you take for example.
<unk>, the one day battery customer.
Has there been greater acceptance of that.
In a node process that they're pushing so that.
We could look forward to.
Perhaps repeat additional orders from that customer can you give us any color there.
I can tell you that we're on schedule as we had committed to deliver it mid this year.
I can't speak to my customers.
Adoption of their technology in the marketplace.
And that's probably all I can really say on that.
We would.
We're doing our best to provide them the best technology and.
And with that technology, it's really up to them to be able to get adoption and traction in the marketplace.
Okay.
Now.
Another area that's just.
It seems to be growth prospect is this migration of the world two.
To five G.
This plasma enhanced chemical vapor deposition.
Okay.
Is that a one off or are there other since.
Since the world's going to five G. What is the potential for repeat orders and business in that area.
Hello.
Well again.
That's emerging technology on using.
Carbon based products, which I can't really speak to beyond that.
In.
In discrete devices that would be used in our <unk>.
Application.
The the platform that we're developing though is different than our standard platform that we've shifted cluster tool platform.
And that platform would be available to us to sell into other applications. So so it has both capability within this this specific use case of these discrete devices potentially.
Potentially for multiple orders.
But we plan on marketing that technology to other applications as well.
Is anything first is plasma enhanced chemical vapor deposition kind of.
I mean, you guys with the go to firm for chemical vapor deposition is this different.
Just like a new business that you're embarking on or is it.
Very similar.
No we have the company has.
Has a history of providing.
Plasma enhanced CVD systems.
This tool is a specific tool designed for low temperature.
M P CBD.
Assessing.
But it's on a cluster it is a true production system.
Wafer level production system.
The new cluster tool production platform, which you described is there anything proprietary.
Two the company with respect to to that new product.
Yes, there is and therefore I can't tell you about it okay well that's good because if it works we've got a protective moat yes.
Okay.
Yes.
Great great.
Yes.
You mentioned.
You've gotten some orders for consumer materials, and aerospace, which is a kind of green shoot could you just go into that a little bit more give us some more color on that.
There is a lot of capacity.
That <unk>.
Because of the pandemic and then the impact of.
All of the long haul travel therefore, the gas turbine engine reduction.
Orderly reduction and then therefore, obviously then they don't need there is excess capacity as you start now getting consumable in spare parts orders you start that as a projection that they are using the tools.
So that is good thing there will be some period of time.
That we would you know.
Anticipate and hope that they get those fully.
They use up all their free capacity beyond that they would have to add some additional capacity.
That happens we're not quite sure.
But we will offset the aviation portion of our business.
At this point with.
With some of these other emerging technology and business segments, which are electric vehicle applications, both the silicon carbide and also the battery materials.
Okay and this is probably for Tom what was your cash burn from operations.
This quarter.
Yes.
This this quarter on the cash burn.
So.
Let me get back to you on that one Brett I can take that offline. Okay. Okay and just the building you're in now which is which you know long debt free free and clear.
I'm, not saying you're going to do it but if you had to sell it tomorrow morning, what could you get for what's it worth.
The fair market value right now.
We would have to.
We would have to get an independent assessment of that.
We think it's worth a lot.
<unk>.
But to.
To give you a number I think we'd be hard pressed to do that.
Well you just sold the other one we're right down the block for $24 million and.
I think the one year in is is.
Arguably may be not worth as much, but but pretty close in a pretty hot market yes.
Yes, yes, I heard you and yes that sounds like a fair assessment, but again I can't give you a number on what the value is.
But thats margin of safety for people.
In terms of.
Monetizing that if you needed working capital for your business or if an acquisition comes along that that intrigues you.
Yes.
And Thats.
That guy goes through our minds as well and <unk> is up for consideration.
Yes.
Just one last one.
The morale and.
Of your sales force.
What can you describe it.
Yes.
They were a 100% year on year, I think that that having been in <unk> and <unk> sales organizations I think thats a morale booster for the entire organization not just the sales force.
Right right.
You know its possible aerospace could you know eventually come back and then you seem to be.
Right in the thick of things with the EV batteries and five G.
Things seem to be humming, along very nicely. So thank.
Thank you and keep it up.
Thank you Brett I appreciate that and Brent just to your question cash.
Burn Q3 to Q4 cash decreased about $800000.
Okay. So your assertion that <unk> got enough cash to last you through the next year to 18 months.
I mean, yes.
You've got a lot more runway than that yes.
That's a good point Brett the 12 months to 18 months is more of an SEC requirement that we are compelled to say that you have enough for that period of time.
We don't run out in 12 to 18 months based on our anticipated forecast.
We are well positioned we would.
With the order flow and.
Our focus on the operating efficiencies and expenses well and Brad. We appreciate you, bringing that up I think thats a good clarification.
Thank you Tom.
Great.
Dropped back.
For answering all my questions as always of course, Brett. Thank you.
We're going to take one more question.
<unk>.
Our next question is from Dan Jones, a private Investor. Please proceed with your question.
Hey, good afternoon, guys. Thanks for the question. This is Dan not Dan Jones.
Anyway be interested if you could provide a little more color on the silicon carbide materials opportunity.
Where your equipment plays in terms of the supply chain there.
And what Youre seeing in terms of capacity build out whether the weather that you know where that how that looks in the United States and also abroad.
Okay, well I mean, clearly I think we all read the news thank you Dan.
We all read the news and there is.
A big shift too.
Bring the Ics back to United States.
China initiatives et cetera.
Part of that is high power electronics battery material.
Semiconductor integrated circuits.
But let's focus as you said for a moment on the silicon carbide, we build.
Physical vapor transport systems.
Essentially used to grow the <unk>.
The rules of the.
Silicon carbide material itself.
So that is really our product offering today on the on this particular silicon carbide applications is not a coding. This is the actual growth of those pools. There then.
Then cut and polished and made into actual silicon carbide wafers.
And as you May know silicon carbide wafers are higher.
And to have a higher current capacity and temperature capacity than silicon.
Okay. Great. Thanks are there are many other merchant equipment suppliers for the.
Silicon carbide crystal the pool.
There are other more.
Merchant suppliers, there arent a lot of.
Of merchant.
Merchant suppliers of Silicon carbide.
Wafer is a lot of them had been gobbled up by the device manufacturers.
And in terms of the interest in your products is it those.
Vertically integrated device manufacturers or is it.
You could imagine that they are the ones that are going to now you can imagine that the up and coming merchants have some open space to run in.
And those are have been our primary focus.
Okay, great. Thank you.
Youre welcome.
We have reached the end of the question and answer session and I will now turn the call over to Manny <unk> for closing remarks, okay, well. Thank you all for being on the call today.
CVD equipment I speak for all of the employees and the board of directors.
<unk>.
And we appreciate the shareholder loyalty.
We look forward to 2022, as we said earlier.
And.
I wish you all the best stay safe and thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yes.
Okay.
Yes.
Sure.
Sure.
[music].
Yes.