Q2 2022 CVD Equipment Corp Earnings Call
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Greetings and welcome to the CVD equipment 2022 second quarter results conference call.
At this time, all participants are in the 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 Emanuel Lackios, President and CEO and member of the CVD Board of Directors, and Thomas McNeil, Executive Vice President and Chief Financial Officer. 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.cvdequipment.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 within 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, 2021.
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 the new circumstances or revised expectations. Now I would like to turn the call over to Manny.
Thank you, Diego.
Welcome to our CVD Equipment Corporation's quarterly conference call. My name is Manny Lacchio, CEO and President, and I am pleased to be presenting to you today regarding our second quarter 2022 performance and important company developments and pertinent information related to our business. While we will be providing substantive information, your thoughts are important to us, and we look forward to your questions at the end of our conference call in the Q&A session......................
The first half of 2022, as we previously indicated, has been an exciting period for all the stakeholders of CBD equipment. The order rate for the first half lends support to our belief that we are on the path to future profitability and growth.
Our strategy of focusing 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 charging and power transmission.
Our Q2 2022 orders were 12.6 million compared to 5.8 million in Q1 of the prior year. In the first half of 2022, we have received orders exceeding $16 million for our CBD equipment products, as compared to approximately $9.6 million for the same period in 2021.
That is a 72% year-on-year increase in orders for the company.
These orders primarily consisted of 21 first nano CBD systems compared to
23 systems
orders for all of 2021. Of the 21 system orders, 14 are for a recently announced PVT150 system addressing silicon carbide growth and processing.
to work for superconducting tape applications.
and the remainder of the system orders are for battery nanomaterials, both R&D and production.
advanced carbon-based capacitors, and for a legacy advanced R&D, first nano system. The systems are planned for shipment starting in the fourth quarter and into 2023.
We also received orders for consumable and spare parts that serve our installed base in the aerospace market.
We have taken the last year to expand our engagement with additional gas turbine engine manufacturers for systems to produce ceramic matrix composite materials.
This is a sign that the aerospace market is beginning to recover. However, we do not expect it to recover until at least 2023.
Our SDC product line also had an increase in order rate in the second quarter.
Supply chain issues continue to negatively impact our revenue and profitability for all the segments of the company.
The COVID pandemic and geopolitical instability in Russia, Ukraine and Eastern Europe have caused issues in the global supply chain. The negative effects have been felt by all companies with increases in commodity and product material cost as well as in product delivery uncertainty and unpredictability.
We continue to drive towards operational self-reliance. We received and installed additional machine centers in our central ISUP facility to offset supply chain issues related to machine components.
We also...
We're working closely with our OEM supply chain to mitigate as much as possible the delays in price escalations in components and materials.
I would like to now introduce our CFO , Mr. Thomas McNeil, who will provide our second quarter and year-to-date 2022 financial summary.
Thank you, Matti, and good afternoon.
CVD's revenue for the second quarter of 2022 was $5.8 million as compared to $4 million for the second quarter of 2021, an increase of $1.8 million or 44%.
Net loss for the second quarter of 2022 was $0.8 million, or $0.12 per diluted share, as compared to net income of $1.5 million, or $0.22 per diluted share in the second quarter of 2021. However, that quarter included a $2.4 million gain on debt extinguishment from the forgiveness of CVD's PPP loan.
CBD's operating loss for the second quarter of 2022 decreased by 0.2 million to 0.9 million for the second quarter of 2022 as compared to an operating loss of 1.1 million for the second quarter of 2021.
This decrease was a result of increased revenue of $1.8 million and the resultant improvement of gross profit margins of $0.4 million offset by increased operating expenses of $0.2 million.
The increase in gross profit and gross profit margins...
was primarily the result of leveraging fixed costs on higher sales levels and our improved product mix.
which offsets certain component cost increases and compensation costs.
In addition, operating expenses increased due to higher employee related costs to support our greater demand.
in marketing and engineering efforts.
For the six months ended June 30, 2022, revenue was $10.5 million as compared to $7.4 million.
in the same period in 2021.
an increase of 3.1 million or 41.4 percent.
Net loss for the six months ended June 30, 2022 was $1.8 million, or 27 cents per diluted share, as compared to a net loss of $35,125, or 1 cent per diluted share for the same period in 2021.
And again, that...
That small loss of $35,000 in 2021 included a $2.4 million gain on debt extinguishment for the forgiveness of CPD's PPP loss.
For the six months ended June 30, 2022, CVD's operating loss decreased by 0.8 million to 1.9 million as compared to an operating loss of 2.7 million for the same period in 2021.
This improvement was the result of increased revenue of $3.1 million and the resulting improvement of gross profit margins of $0.8 million and decreased operating expenses of $0.1 million.
result of increased revenue of $3.1 million and the result in improvement of gross profit margins of $0.8 million and decreased operating expenses of $0.1 million.
and gross profit margins was primarily the result of leveraging fixed costs on higher sales levels and improved product mix.
which more than offsets certain component cost increases and compensation costs.
Beginning in Q3 2021 and continuing to date, CVD has been impacted by increased costs on certain manufacturing material components as well as delays in supply chain deliveries.
These increases and delays may also impact CBD's ability to recognize revenue and result in reduced gross profit margins in future quarters.
extended manufacturing lead times and reduced manufacturing efficiencies.
CBD is also seeing inflationary effects that have resulted in increased costs for labor materials.
We have placed orders with increased lead times to attempt to mitigate the manufacturing delays and continue to assess other material suppliers in an effort to alleviate the potential cost impacts.
In addition, CBD is utilizing its flexible in-house manufacturing to further mitigate potential delivery delays and material costs increases.
Now turning to our...
Back log.
Our backlog at June 30, 2022 was 16.7 million as compared to 10.4 million at December 31, 2021. An increase of 6.3 million or 60.5%.
This increase is due to the timing of the receipt of new orders for the six months into June 30, 2022 of $16.7 million, reduced by recognized revenue of $10.5 million.
While the negative effects of the COVID-19 pandemic continue to impact the aerospace industry,
Generally, in the form of reduced long distance travel and reduction of turbine engine sales, the reports indicate improvement may begin to occur in the late 2022-2023 timeframe.
Turning to our liquidity, our cash and cash equivalents at June 30, 2022 was 12.2 million as compared to 16.7 million at December 31, 2021.
This decrease of $4.5 million is primarily the result of the satisfaction of our mortgage debt on a 555 facility in the amount of $1.7 million.
as well as our net loss adjusted for non-cash items of $1.3 million.
during the six months ended June 30th and our capital expenses of 0.5 million to improve our manufacturing.
to further mitigate potential delivery delays and reduce costs.
Our working capital was $15 million at June 30 as compared to $16.7 million at December 31, 2021, a decrease of $1.7 million or 10%.
The longer-term impacts from the COVID-19 outbreak are hardly uncertain and cannot be predicted.
especially now with the impacts on a supply chain as we previously discussed.
While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability, there could be no assurance of the ultimate impact in the length of time period that the supply chain factors may impact our business.
Our return to profitability is dependent upon, among other things,
the substantial completion and delivery of existing orders, which include the significant first half.
of 2022 orders of approximately 16.7 million.
the ongoing receipt of new equipment orders and others.
the lessening of the ongoing effects of the COVID-19 pandemic on our business and the aerospace market.
managing through the supply chain issues discussed, and improvement on operational efficiencies.
as well as managing planned capital expenditures 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 of the filing of our Form 10- Q4 more information, visit www.fema.gov
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.
I'll now turn the call back over to May.
Tom, thank you for your presentation.
In summary, the second quarter and first half of 2022 have built on our efforts of 2021.
which were and which was a year of transition, reorganization and focus on everything we do and those who we serve. Our focus remains on our customers, markets, employees, shareholders and the pursuit of growth.
return to profitability.
We look forward to the second half of 2022 and continue to be cautiously optimistic. Your comments and questions are important to us. With the close of our presentation, I'd like to open up the floor to your questions.
Here I go.
Thank you.
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You may press the star key followed by the number two if you would like to remove your question from the queue.
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Once again, to ask a question, press star 1 on your telephone keypad. We'll pause for a moment to pull for questions.
Yeah, let's go for it.
What's that? Brain. Go to breath? No.
Thank you.
And our first question comes from Brett Rice with Janney Montgomery Scott. Please go ahead. So
Hi Manny, hi Tom.
Good afternoon.
Hi, Brad, how are you? Good, good.
Just a headcount question, you know, the amount of employees
this quarter versus last quarter? And are you looking to hire more people? Or is your headcount pretty much where you want it to be?
Clearly, with the order rate as strong as it's been, we've added additional capacity in our manufacturing floor. We've gone to a second shift in our machine shop. Again, that's part of this self-reliance. So we've added folks in the machine shop, in inspection, in welding, assembly, wiring. Those have occurred during this year, as you remember, in 2020.
One, we went through a pruning exercise of and right-sizing the organization for the business level. We continue to right-size the business. We've increased our staffing approximately 15 to 18 personnel there and about during this year.
And were you able to find the people with the proper skill sets, you know, at the right, you know, labor cost? Or is that challenging? The right labor cost? I mean, that is, you know, I would say that's all. There's a lot under that watermark. We are finding we're able to attract talent, both in our engineering and also operations. We're very pleased with the work that we're doing.
that we brought on board this year. And it is in line with our ongoing labor costs here on the island. So I would say yes, it's been positive for us. It's not a slam dunk, but we've also brought on, one of our hires was a new HR director, and she's just done a wonderful job being able to...
to do and conduct talent acquisition over the last several months.
Right, right.
That is good to hear.
things you're doing in-house to mitigate supply chain issues.
If the supply chain issues receded and abated, would you still continue to make the things you've taken?
in-house and with that going forward?
in improved margins.
So, the company has, interesting that you say that, yes it will improve margins because obviously we don't pay somebody else's gross margin. The company has historically been a very vertically integrated house, primarily because it was doing many one-offs and it was more cost effective to do that. What we found is our investment in some capital equip-
Do I see the effect of the supply chain going away in the next three, six, nine months? My crystal ball is as good as anybody else's. I think we've wisely invested. The equipment is installed and all of it will be operational and producing value by the end of this month. So yes, if there is a gross margin benefit, yes, there is a competitive advantage. We can deliver product in much shorter periods.
So, yes, there is an advantage, yes, we'll continue to do that.
Great. Now, one last one. Okay.
in the virtual annual meeting.
you listed
three types of different devices.
that you manufacture
with respect to battery technology.
a carbon 300 machine, a powder code 1100, and then the PBT 150 which you know seems to have...
you know become the crown jewel.
Can you just briefly, you know, to this layperson who's not an engineer, tell me what each of these devices...
do, and that's part of the 300 million total addressable market you mentioned at the annual meeting.
So, it is, and it's the electrification of everything. It's not entirely due to, it's not battery material per se, all three of those applications. The Carbon 300 was launched earlier in the year, and we've gotten multiple orders for that. It was launched in the latter part of 2021, and we, you know, launched being delivered to customer, and we've had multiple orders for those. And that is for advanced...
carbon material used in the anode of batteries.
And the PVT-150 is a product utilized to grow silicon carbon.
silicon carbide bools for silicon carbide wafers used in power electronics, both charging and also for transmission switching. Its referred to as high power electronics.
So each of those are different products, different technologies. Some are carbon based, some are silicon nanowire based and very large production systems. Others are silicon carbide growth systems using different techniques. But all those, and I appreciate you asking the question, all three of those are products that we've launched, standard products that we hope to become standard in the marketplace.
that we've launched over the last several quarters. Now, are there......
how proprietary in nature are these three products and and you know what are the barriers to entry to Competition and is your major competitor?
your customer who might want to do these things in-house?
Our customers manufacture them in house. The world has really gone away from that. When you look at the competitive nature of our products, there is the element of the process capability, the ability to reach temperature, control to temperature, to be able to deposit at certain rates, be able to have a certain capacity, be able to do that in a safe environment and in a safe manner and way.
which goes into much of our environmental health and management elements that go into the design of our products, the control aspects, the production worthiness. And then thatís really from the technical performance of the tool set. On the flip side, you also have cost of ownership, the capital cost, the ability to manufacture these moreóand thatís your previous questionómoreó
efficiently and have a proper gross margin to invest in future products and return for our investors, as well as providing the right value to our customers. That's where we couple all those elements together. That's how we create our battery or the entry against our competition.
Great.
Thank you for answering my questions and both of you enjoy the rest of the summer.
Thank you, Brett, you as well.
Thank you. And just a reminder to everyone, if you'd like to ask a question at this time, simply press star 1 on your telephone keypad. To remove yourself from the queue, press star 2. We'll pause for a moment while we pull for questions.
Thank you. Our next question comes from Shai Dadashti. Please go ahead. Please go ahead.
Hi, good afternoon. First a comment, thank you for hosting this call. Thank you for your transparency and your candor. It all very much is very much appreciated.
So thank you above all else.
Appreciate it. You're welcome. Thank you.
And I have a few questions just to better understand what I think I'm seeing. Could you comment if the growth has been market share gains or it's been industry growth in general?
Quite honestly, it's both. It's demand on new technology for
for both carbon, for silicon nanowires, for the battery material that is, and also for silicon carbide. So from that perspective, it's market expansion. But there are other competitors in the marketplace that we won these orders from. So there is a,
We did carve out more market presence and market share in the last few quarters so it's shy, it's a bit of both.
I've been looking at the 10k to understand who the competition is and I do not believe I'm seeing specific companies named. If it's appropriate to ask and if it's not please don't comment. Are there any competitors who you can name as being peers or being
benchmarks for their growth rates and their margins.
Well, there are companies that we would say are
We want to target our performance, but they're not competitors of ours. They're much larger companies.
as far as our direct competitors, we...
We likely would not want to advertise who those are on this call.
And just I hope this is sort of...
in a different direction, but I noticed an article in the Wall Street Journal published
published October 24th 2016 Germany withdrawals approval of Chinese takeover of a xtron or axtron
I'm wondering if this dynamic exists in America where what you're doing has national security and national security concerns and therefore once you become vertically integrated and made in America, customers might strongly prefer to go to you and not go to someone who's based overseas. So is there some type of national security concern?
security and made in America preference going forward.
That that.
So going back to 2016 and the whole Axtron issue there that they had, sometimes I'm not sure I remember what I had for breakfast, so I can't comment on that one, but I can say that there is clearly an initiative for both battery manufacturing and also for associated electric vehicle and electrification of everything.
preference to be manufactured in the US. And we are a US competitor and supplier, so therefore we would benefit from that.
And if I could just ask at a high level, what's your scarcest resource? What do you wish you had more of? Is it human capital? Is it access to financial capital? What's been holding you back to really unleash the full potential? supply chain issues.
supply chain issues.
our, you know, we
In fact, simple answer, it's having a, and most equipment companies, if not all equipment companies, self-burning with the same.
answer. It's having a, and most equipment companies, if not all equipment companies, self-learning with the same.
Wonderful. Thank you so much.
Thank you.
Thanks.
And our next question comes from Morton Howard. Please go ahead.
Hi, thank you. I remember asking before about the product of the health product in Stonybrook and you said it wasn't that big a deal. It may come and you don't get excited about it. I thank you for downplaying it. Has it gotten any closer to being a potential commercial product?
Martin, thank you again for your question and I greatly appreciate it. Let me say that even though we are not a medical device company, we are an equipment and carbon technology and other process technology company. We do continue to have
applications development such as the device that you're referring to now.
When we say downplay, we don't emphasize it. We try not to downplay much, but we don't emphasize certain things that are not part of our business. But we have received some government funding to continue our carbon technology development, our carbon carbon that is technology development for such devices. So in the background, we continue to do our...
So I asked you before, what is the dream? And it sounds to me like the dream is what you're using this new phrase, the electrification of America. It sounds a little like something Trump might come up with, but be that as it may. It sounds like that's sort of the area.
Go ahead. I'm sorry. It's an expanding. Yes Thank you again. It's an expanding marketplace It's a large market. It's an expanding market. It's it's somewhere where we can clearly carve ourselves a a good a good position a good market share we also have
I mean, we have not, we still support aerospace as I mentioned, and I do believe aerospace will come back. I do like the ASPs on the aerospace products, you know, multimillion dollar tools and, you know, different complexity of course, you know, solid recurring revenue on the production of consumables and...
and spare parts as we add value to them in that area. I believe having our hands in multiple growth markets and large markets is the future of the company.
Well, as a stockholder of 15 years, I've had various amounts of stock and I appreciate the fact that you're not BSing us, you're being realistic and optimistic both and I appreciate it. So I thank you for your thoughts. I appreciate it. Bye.
Yeah.
Thank you.
We have another question coming from Shai Dardashti. Please go ahead.
At a high level as a company becomes profitable at some point going forward, I'd love to appreciate how the company thinks about capital allocation. Do you have any thoughts about repurchasing shares if the price is compelling versus doing strategic M&A? Just how you think about those different buckets?
At a high level as a company becomes profitable at some point going forward I'd love to appreciate how the company thinks about capital allocation. Do you have any thoughts about repurchasing shares of the price is compelling versus doing strategic M&A? Just how you think about those different buckets from your point of view?
I can't say we've spent a lot of time thinking about repurchasing shares. We spent quite a bit of time looking at both organic and inorganic growth for the company. As you clearly stated, as we...
I can't say we've spent a lot of time thinking about repurchasing shares. We spent quite a bit of time looking at both organic and inorganic growth for the company. As you clearly stated, as we continue down the path of...
getting to profitability, I think those become more frequent discussions on how do we grow the company long term, medium to long term.
But for the moment in time we have our organic products and...
We've just launched these products. They're in what I would term the alpha beta phase. And we still have work to do there. And we are, for the first half of this year, excited about the booking rate of $16 million compared to last year, if I remember correctly, which I do. We did approximately $21 million. So...
So far our strategy of focusing on internal growth and profitability works.
And I think I answered the question on the capital nature and repurchase and M&A.
We have nothing to really report on right now.
Thank you.
Thanks, Shay. Good questions.
Thank you. If there are no further questions at this time, I'll hand the floor back over to Mr. Lakios for closing remarks.
I appreciate all the questions. In summary, the second quarter and first half.
2022 have built on our
Again, on our efforts of 21, we greatly appreciate the support of our shareholders, our employees, of course, our board of directors.
and suppliers.
and of course value our customers. We thank you for your attendance today and we look forward to giving you further updates in the next period of time.
Thank you.
Thank you. That concludes today's conference. All parties may disconnect. Have a great evening.