Q1 2022 CVD Equipment Corp Earnings Call
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Greetings and welcome to the CVD equipment 2022 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 Lachiusa, President and 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 future financial performance market growth total available market demand of 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.
One.
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'd like to turn the call over to Manny Manny.
Thank you Doug.
Welcome to our CVD equipment Corporation quarterly conference call. My name is Manny lack yossi president and I'm pleased to be presenting to you today regarding our first quarter 2022 performance, an important company developments and pertinent information related to our business.
We will be providing you subset of information you are thoughts are important to us and we look forward to your questions at the end of our conference call and the Q&A session.
The first four months of 2022 I've been in an exciting period for all the stakeholders of CVD equipment.
Having spent the majority of 2021.
Transitioning reorganizing refocusing and realigning the company's resources and strategy towards a path to future profitability and growth. We are beginning to see the results in the form of improved market adoption and orders of our products.
Our strategy of focus on markets that support the electrification of everything is fueling our present growth. The market segment includes electric vehicle battery technology as well as high power electronics for electrical charging and power transmission.
Our Q1 2022 orders were free.
$4 1 million compared to $3 7 million in Q1 of this of the prior year.
April 2022 orders or 7.2 million.
In the first four months of 2022, we have received orders exceeding 11 million for our CVD equipment products as compared to approximately $5 5 million for the same fourth four months period in 2021.
100% year on year increase in orders for the company.
Orders, primarily consisted of 19 CVD first nano systems compared to 23 system orders for all of 2021.
Of the 19 system orders 14 are for our recently announced P. B T 150 system addressing silicon carbide growth in processing, while the remainder of the systems orders are for battery nano materials, both R&D and production advanced carbon based capacitors.
And for our legacy advanced R&D first nano system.
The systems are planned for shipment starting in the fourth quarter.
According to independent market research. These market segments are expected to continue to grow in the coming quarters and years.
As we noted in our earnings call for 2021.
Which was held at the end of March 2022.
We also received orders for consumables I serve our installed base in the aerospace market.
We take this as a sign that the aerospace market is beginning to recover however, it is not expected to recover until at least 2023.
We believe the orders we received during the first four months of 2022 and the order rate of the prior three quarters continue to value the validate our strategic focus on growth end use markets such as battery nano materials silicon carbide growth systems, and advanced composite materials for aerospace and other markets.
Our S D C Tampa line and Metro scribe product lines continue to show demand and orders in Q1, and the first four months of 2022, albeit not to the extent of the CVD equipment group.
The COVID-19 pandemic and the geopolitical instability in Russia, and Ukraine, and Eastern Europe have caused issues in the global supply chain. The negative impacts have been felt by all of our companies with increases in commodity and product materials cost as well as in <unk>.
Delivery product delivery, uncertainties and unpredictability revenue for the company as a whole was negatively impacted in Q in the first quarter by supply chain issues.
Some of our countermeasures to address the lingering supply chain issue or partnering with key suppliers and expanding our in house production capabilities.
Both are essential to our goal of self reliance and will support our commitments to our customers. Our plan is to expand our in house manufacturing capacity in our 355 Central Islip facility in the second half of 2022.
And this plan is well underway and the end objective to be self reliant. We continue to believe there are 355 facility has ample space in all areas of operations to support our growth.
In the first quarter of this year, we satisfied the mortgage of our 355 facility.
In 2021, we strengthened our balance sheet and liquidity with the proceeds we received from the sale of our 555 facility.
Our market focus order rate operational performance and manufacturing capacity, along with our balance sheet, all health position CVD equipment, along a path to continued growth and future profitability.
I would like to.
And I'll introduce our CFO , Thomas Mcneil, who will provide the first quarter 2022 financial summary.
Thank you Manny and good afternoon, everyone.
The first quarter of 2022 revenue was $4 7 million as compared to $3 4 million in the first quarter of 2021.
An increase of $1 3 million or 38, 3%.
Net loss for the first quarter of 2022 was $1 billion.
<unk> 15 per diluted share as compared to a net loss of $1 5 million or 23 cents per diluted share in the first quarter of 2021.
Dvds operating loss improved by 600000 to 1 million for the first quarter of 2022 as compared to an operating loss of $1 6 million for the first quarter of 2021.
This improvement was the result of leveraging fixed cost on higher sales levels, which resulted from improved orders towards the end of 2021 as well as product mix, which more than offset certain component cost increases in compensation cost.
In addition, general and administrative cost decreased 400000.
Which was primarily related to the reduced legal costs and lower building costs as a result of the sale of the company's five for our flagship facility in July 2021.
And the consolidation of operations into the company's 355 facility.
Beginning in Q3, 2021 and continuing today.
CBD has been impacted by increased cost on certain manufacturing material components as well as delays and supply chain deliveries.
This also impacts <unk> ability to recognize revenue and result in reduced gross profit margins in future quarters extended manufacturing lead times and reduced manufacturing efficiencies.
D V. D has placed orders with increase lead times to attempt to mitigate the manufacturing delays as well as assessing other material supplies to mitigate the potential cost impacts.
In addition, CBD is utilizing its in-house flexible manufacturing to further mitigate both potential delivery delays and material cost increases.
With respect to our balance sheet on March <unk> 2022, we satisfied all remaining mortgage of $1 7 million on our 355 self technology drive facility and as such have no debt outstanding.
Turning to our backlog at March 31, 2022, we had $9 9 million.
Backlog as compared to 10 4 million at December 31, 2021.
A decrease of 500000 or four 8%.
This decrease is due to the timing of the receipt of new orders during the quarter ended March 31, 2022 of $4 one.
$1 million as.
Yeah, it's a revenue of $4 7 million.
However.
With the new orders achieved in April of 2020 to me in excess of $7 million. This has substantially increased our backlog.
While the effect of COVID-19 crisis continues to negatively impact the aerospace industry generally in the form of reduced travel and reduction of gas turbine engine sales industry analysts believe improvement will begin to occur in the late 2022 2023.
Timeframe.
With respect to our liquidity, our cash and cash equivalents at March 31, 2022 was $13 3 million as compared to $16 7 million at December 31 2021.
This decrease of $3 4 million is primarily the result of the satisfaction of all mortgage debt on a 555.
At our <unk> facility in the amount of $4 7 million as well as our net loss adjusted for mud.
For non cash items of 650000 and other operating activities.
Our working capital was $15 9 million at March 31, 2022, as compared to $16 7 million at December 31, 2021 a decrease of 800000 or 5%.
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've previously discussed.
While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability. There can be no assurance of the ultimate impact and the length of time period that the supply chain factors may impact our business.
Our return to profitability is dependent upon among other things.
Substantial completion and delivery of existing orders.
Which include the significant April 'twenty, two orders in excess of $7 million.
You're all going to receipt of new equipment orders.
The lessening of the ongoing effects of COVID-19 of our business in the aerospace market.
Managing through the supply chain issues discussed and improving operational efficiencies as well as managing planned capital expenditures and operating expenses.
Based upon all of these factors, we believe 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 of the filing of our Form 10-Q today.
So the current environment continue vulgar or worsen we will continue to assess our operations and take action anticipated to maintain operating cash to support working capital needs.
And now I'd like to turn the call back to Matti.
Tom Thank you for our presentation.
Yeah.
Well in summary, the first quarter and four months of 2022 have built on our efforts in from 2021.
Which was again a year of transition reorganization and focus on everything we do and who we serve.
Our focus remains on our customers employees.
Shareholders and the pursuit of growth and return to profitability. We look forward to 2022 and are cautiously optimistic comments and questions are important to us with the close of our presentation, we'd like to open up the door. The Florida that is to your questions. Thank you.
Okay.
Okay.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad are compromised.
You May press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Orin Hirschman with AIG investment partners. Please proceed with your question.
Hi, how are you.
Hi, Laurence.
In terms of some of the competition that you face to the equipment.
In terms of the magnitude of the Asp's in what that ASP depends on can you go through some of the applications of the silicon carbide growth applications.
Battery.
Or some of the other applications that you're seeing.
Interest and demand for it.
Is it just did in applied materials.
That's the competition to beat or there are other specialty guys did too.
Chemical vapor deposition and what is the ASP seems like and what does that depend on.
Yeah.
Typically we don't think you ironed out all great questions. Let me start off with we we don't really see applied material and in our in our space and that's just.
The markets that we focus on.
Some of the suppliers that we would see that we would compete against we believe we do have an advantage and that advantage comes now from our expanding our internal manufacturing capability and leveraging the 38 years of technology that the company has developed.
I typically do not speak to asp's in that it gives us a bit too much information to potential competitors.
I I would say that we are competitively priced.
And the our value proposition is we provide the equipment and service support.
We can do that both globally and and with a higher degree of.
Our focus here in the United States. So.
Much of this opportunity as you can imagine is spurred from bringing technologies from overseas back here to the United States.
So we clearly have benefited from that in the silicon carbide area as you well know or you may know at least that.
It is a marketplace that has gone through quite a bit of consolidation of the a vertical integration.
And.
We're focused on serving as the merchant suppliers and many of the the emerging companies that I think will continue to serve the broader market.
Yeah.
I would say that that's from what I can actually say without.
Standing too far into our marketing plans.
Okay. Thanks, so much.
Our next question comes from the line of Brett Reiss with Janney. Please proceed with your question.
Hi, Manny Hi, Tom.
Or you good but yeah I'm good.
Congratulations on.
Good.
Progress on the quarter.
The battery nano and carbon base capacity their orders.
Hum you know you said in your opening comments that you see the growth and demand continuing.
That type of business.
Do you think that the order flow.
Will be less lumpy than your you know your past legacy.
Our businesses.
I would say the the the revenue side, what would could potentially be more less lumpy. The the order side, depending on on the magnitude of the number of units in the or.
Or.
Would be satisfied over a longer period of time than the months that we take the order and so I see you may see you may see some.
Some months with higher order rates than other months.
But this is all in an effort to continue to grow the business create a backlog, where we can be efficient in our manufacturing operations.
Okay.
Do you think if we go into a recession, which more people.
Consider that.
There might be a possibility.
The demand for the battery nano systems and carbon base, you know capacitors do you think.
That it'll be impacted by a recession or you know there might be or what or not.
Yeah, well I think that if I had an accurate answer to give you I would probably not have to be on the call because I'd be independently wealthy.
I would say I'm not a macro economist I would say that I believe strongly in this electrification of everything.
It also has proven out for us to be a very.
Positive growth area <unk>.
The initiatives for having the majority of vehicles manufactured in 2030 being electric vehicles requires a lot of Hanford structural growth both in the production of storage devices batteries transformation and and charging systems.
Silicon carbide, I don't see that requirement going away with the recession.
So.
To answer your question.
I really can't foretell the future but.
We're going to continue to support this electrification of everything our thought process and that I don't I don't think the world has much much of an option.
Right right well you know.
Look.
You know people have to eat so you know those type of products you know the agenda elastic demand I, what I was just driving at was whether you know.
The kind of gravity.
Gravitational poll since though.
The hockey Pucks seems to be moving toward electrification will will be somewhat recession resistant and you know what I guess time will tell.
Mhm.
We continue to be.
Operating op you too.
We just finished the hilli confirmed it but I'm just getting over you know my my Covid I apologize opt.
Optimistic.
But we still continue to be conservative in our forecasting but with that we are ensuring that we have all the backbone infrastructure in our facility to take advantage of any opportunities.
And in a timely manner. So we're not going to turn away business, we're not going to push it out will be positioned for it.
But we have a development process for these products for launching them to them to a broader market.
We have been fortunate that we've received.
The level of order and adoption of our technology so quickly.
Okay now with respect to the partnering with suppliers to relieve supply chain.
Dislocations.
Can you go into a little bit what is the nature of the partnering that.
That would really the supply chain dislocation.
Well, we that's a good question. One example is electronics product that we incorporate in our systems.
We have we have multiple potential sources of the of the product, but we partner, we typically will partner with one maximum two and we'll provide you.
You know longer term.
Visibility in orders for these products.
That did pan off patent.
And in Pan well for us on some of our tools and that we were able to see if the order and ship them in less time than our planned to ship them in less time that.
And we would have otherwise so it's it's.
Managing the inventory managing.
Our suppliers expectation.
And and we've had a shy away from from some suppliers that are in eastern Europe .
So we've gone to a heightened level of selection process.
One last one.
You know that the momentum.
Order flow.
The battery nano product and carbon based to passenger product.
Yeah, you know seems to be there.
And we will continue.
Is it too much.
Am I getting over my skis there.
You know we're at the point, where we've got a $15 million to $25 million.
Annual run rate.
Just based on those products.
Next one to two years.
So that is the aerospace.
God willing comes back that will be incremental order flow to CVD over and above.
The robust product.
Pipeline youre enjoying with battery nano and carbon based capacitors.
So first I just wanted to make sure they're just sort of level of clarification and thank you Bret yeah. There was a lot of questions in that one question. There. So first of all the <unk>.
All of our product technology, you cannot you can imagine they're at different.
Different levels of.
Product development and launch product adoption and technology.
G adoption.
The silicon carbide growth systems and associated other processes.
Those are further along than the nano battery materials.
Because they are and we are serving a an existing market granted larger substrates, but an existing market.
The nano battery materials are a evolutionary not revolutionary, but an evolutionary technology, where they add additional capacity and capability to the existing carbon used in carbon powder used in and battery.
Implications.
The.
Carbon nano fiber that would be used in capacitors that is on the that is still in the technology adoption phase of it.
Its marketplace. So I would not suggest that you see.
You see that as an immediate growth market.
Now with that said, we continue to support our aerospace marketplace. We can see we continue to send out some quotations.
Albeit not at the same level as our other markets for this.
For this period of time, but you can imagine that we're not going to turn away aerospace orders ever we have a very strong footprint footprint in that.
And also commitment to our customers and we supply them with spare parts and services are presently so we would be more than pleased to continue to supply them with equipment and but you are accurate that would be in addition to our non aerospace business that we've enjoyed over the last couple of quarters.
Yeah.
Hmm.
One last one you have in house.
The engineering talent to support.
All of these initiatives and growing markets you know because you read about when.
Ploy shortages in labor shortages.
But what's the status there well we live in the same world. There are labor shortages, our attrition rate is it's extremely low.
We P value and treat our employees very fairly.
We are we are hiring additional staff and we will continue to do that.
Over the next quarters.
As we continue to strengthen and we believe that there will be additional products in 2023 plan that will want to develop.
And we still have our 2022 product development to complete so we.
We will continue it is a risk factor and it's noted in our and our reports.
We have a we've hired a.
A new HR manager that started at the turn of the year.
And she has done an exceptional job on coordinating the acquisition of talent.
And the programs to both incentivize and motivate and communicate to our employee base.
Oh great.
It's.
It's not easy, but theres a paas.
To navigate these waters at this point.
Great I'm glad you're feeling better thank you and Tom for answering my questions.
Thank you.
You've heard the chicken soup by the way.
Our next question comes from the line of Martin Howard a private Investor. Please proceed with your question.
Hi, I'm very disappointed to hear alright.
Cannot foresee the future.
We'll take what we get.
That's the brakes.
I'm delighted to companies on its way to the survival.
But for a while it was a dream a boy about the product at Stony Brook saves.
Save the world better oxygen.
Dream of worried about graphene.
Product material of the future.
It sounds like you are involved with some gross stuff. So the company will grow and be okay.
Cause you a dream of glory in your product line or a potential product line that could take the stock from.
Where it is now to Paas voids 18, 2030 Bucks I'm not asking you to comment on the stock market is there anything that would justify a significantly.
Dreamy higher price.
This is Mike.
That I guess.
Legal counsel is on my on my call in.
[laughter] Strangle me and I can't speak to that but I can tell you that we are focused on not.
Let me say bleeding edge technology.
We do some we will sell to universities in our legacy products will sell people devices for carbon nanotubes infiltrated to do all sorts of different quote unquote cool technologies, a rocket science of sorts.
And in those.
Something will come out of X number of those whether that's 710 20 of those opportunities, but where we wanted to focus the company is on growth markets and properly positioning ourselves in that growth market. We've we've received an order of 20.
Systems for Silicon carbide growth in processing.
Yeah.
There's there's a lot of risks that we will win the next orders into next sponge and I.
And we're up to two mitigating that risk in getting those orders, but I I think as you may know, there's silicon carbide, it's been around for a while and there are thousands of tools out there not saying, we're going to get thousands of tools I'm not saying, we're going to get hundreds of tools, but we've already received.
Before we've shipped the first one of these we received up to we've received 20 units.
The order.
So our the demand is there.
We command at over 37 years, we've developed them to command that technology.
And that truly is a validated relative segment. The battery none of us are going to argue that batteries are the biggest challenge in a electric vehicle.
In home storage in in Green energy production.
Uh huh.
And.
The technology is not there whether it's we today serve evolutionary not revolutionary we sells to we.
We sell to some universities, which we've announced that.
We will sell them off.
Hi capability high Tech development system for developing these materials are both on the cathode and anode side of the battery, but that's not something that I would say youre going to see.
Large order rates in 2022 'twenty, possibly even not even 2023 more likely something in 2024 and beyond by the time that technology gets adopted.
Hum.
The graph carbon in batteries is he's going to be with us for a period of time, but the evolutionary element of improving the capability of that carbon powder.
That's here today and that's what people are working on.
You know I'll be able to tell you more about.
The adoption. After these tools are in the field to prove themselves and we get the next series of orders.
So there's a there's a product lifecycle theres a product development cycle, where you have a launch you have adoption you and we will continue to evaluate our position, but these areas. So far has proven to be multiple waters to multiple customers and we're pleased with that.
Okay. Thank you very much.
Thank you Sir.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Well, we appreciate everybody's participation your your loyalty and your support of the company we are.
Bumps into.
The second quarter.
Giving you some insight on the first quarter some insight into the first month of the second quarter and.
And we look forward to our next communication and again, we thank you and we.
We just hope you all stay safe.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yeah.