Q3 2022 CVD Equipment Corp Earnings Call
Ladies and gentlemen, thank you for your patience. Please remain on your conference call will begin momentarily. Thank you.
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Greetings and welcome to the CBB equipment Corporation 2022 third quarter results Conference call.
As a reminder, this conference is being recorded.
We will begin with some prepared remarks, followed by a question and answer session.
On the call today will be Emmanuel Raphael, President and CEO and member of the CBB Board of directors, and Richard Catalano, 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 CBB equipment Dot com.
Before I begin I'd like to remind you that many of the comments made on today's call contain forward looking statements, including those related to future financial performance market growth total available market demand for our products and general business conditions and outlook.
These forward looking statements are based on certain assumptions expectations and projections and are subject to a number of risks and uncertainties described in our press release and in our filings with the S E C, including but not limited to the risk factors section of our 10-K for the year.
In late 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 Emmanuel <unk>.
Thank you.
Welcome to our CVD equipment corporations quarterly conference call. My name is Emmanuel <unk> CEO and president.
I am pleased to be presenting to you today regarding our third quarter 2022 performance an important company developing information.
Information relating to our business.
Talks are important to us and we look forward to your questions in our Q&A session.
Before discussing the results of the third quarter I would like to first provide you with an update on our sale and leaseback transaction in September we announced that we had entered into an agreement to sell our main facility in central Islip and lease it back for a period of 10 years with two five year renewal options.
The potential purchaser has 30 days to complete the due diligence.
During which time they retained the ability to cancel the agreement on November 34th we amended the agreement with the potential purchaser to extend the due diligence period to last Friday November 11th.
On November 11, 2022, the potential.
<unk> notified the company that it was terminating the purchase agreement in its entirety, each party will bear its own cost and expenses in connection with the foregoing.
Neither party will pay a termination fee with respect to the termination of the purchase agreement.
While we are disappointed we are that we are unable to complete the sale and leaseback transaction, we may explore a sale leaseback of or other transaction in the future.
Now back to our third quarter and year to date results.
First I'm pleased to report that we achieved an operating profit of about $122275 for the third quarter and net income of 63538, while our revenue and profitability will continue to fluctuate due to the timing of orders and shipments. We believe that we are on the right.
Track to achieve consistent long term profitability over the years ahead.
First nine months of 2022 had been an exciting period for all the stakeholders of CVD equipment, a year to date water rates for 2022 lends further support that our our belief that we are on the right path.
Of course strategy, which includes focusing on markets that support the electrification of everything is fueling our present growth. This market segment continues.
<unk>.
Electric vehicle battery technology, as well as high power electronics for power charging and transformation.
Our Q3, 2022 orders were $7 $3 million.
Compared to $6 1 million in Q3 of the prior year.
Through the first nine months of 2022, we have received orders exceeding $15 $5 million for our CVD systems and services segment.
As compared to approximately $8 $3 million for the same period of 2021. This is an 86% year over year increase in orders for the equipment group.
These orders primarily consisted of 22 first nano CVD systems compared to 23 orders for the entire 2021 year of.
Of the 2020 of the 22 system orders 14 of arm, where for our newly launched <unk> hundred 50 system that addresses.
And silicon carbide relevant processing to work for superconducting tape applications and the remainder of the system orders are for battery nano materials, both R&D and production.
As well as advanced carbon based capacitors and of course for our legacy advanced R&D personnel system.
We announced recently that we have selected and received an order in the fourth quarter from a major aircraft engine manufacturer specifically the order is for production chemical vapor infiltration system valued at approximately $3 7 million as.
As I stated earlier the system will be used to manufacturers ceramic matrix composite materials for aerospace gas turbine engines.
We believe the disorder is a tangible sign of the beginning of the aerospace market recovery.
Which traditionally has been a significant part of the CBD equate to cooperation business. We are also continuing to engage in market or CBI systems to other gas turbine engine manufacturers.
We continue to receive orders for consumables and spare parts that serve our installed base in the aerospace market. While we believe that this new order rate is a sign that the aerospace market is beginning to recover we do not expect it to fully recover for at least.
So the latter part of 2023.
Yeah.
Yes.
Our SBC segment had increased sales over prior year of 23, 1%.
And the increased orders in the third quarter that reflects a higher demand for our gas and liquids control system products.
Our camera lineup.
And Nashville scribe product lines continue to be profitable.
Supply chain issues sell continue to negatively impact our revenue timing of profitability for all the segments of the company the lingering pandemic and geopolitical instability has impacted most global supply chains and efforts. The negative effect has been felt by all companies with increases in commodity.
And product material cost as well as in delayed product deliveries.
We continue our drive towards increased operational self reliance we received and installed additional machine centers in our central Islip facility to offset the supply chain issues related to machine parts. In addition, we are working closely with our OEM suppliers.
To mitigate as much as possible the delivery delays and the increases in prices.
And components of the materials.
I would like to turn our call over to our CFO Rich <unk>, who will provide our third quarter and year to date 2022 financial summary, rich. Thank you Manny and good.
Afternoon.
Our revenue for the third quarter of 2022 was $8 1 billion. This compares to $4 3 million for the third quarter of 2021 that represents an increase of $3 8 million or 88, 4%.
Net income for the third quarter was 63538.
<unk> <unk> per basic and diluted share. This compares to net income of $6 million per year were <unk> 89 per basic and diluted share in the third quarter of 2021. However, keep in mind that the 2021 quarter included a $6 9 million non operating gain on the sale of one of our buildings.
Operating income for the third quarter of 2022 was 122275. This represents an improvement of $1 million from both the operating losses of $9 million that we reported in both the second quarter of this year 2022, and also the third quarter of 2021.
This improvement in operating results from the prior year quarter was an increase related to increased revenue of $3 8 million and this resulted in increased gross profit of $1 6 million. This was offset by an increased operating expenses of about a half about <unk> 5.500 million the increase in gross profit.
It was primarily the result of leveraging our fixed cost on higher sales levels as well as an improved product mix. This offset increases that we had in certain material components and compensation costs.
The increase in our operating expenses is due to higher employee related costs to support the growth of our business, including additional marketing and engineering efforts as well as we incurred an employee severance charge during the quarter for.
For the nine months ended September 32022, our revenue was $18 6 million as compared to $11 7 million for the same period. In 2021. This is an increase of $6 9 million or 58, 4%.
Net loss for the nine months ended September 32022 was $1 8 million or <unk> 26 cents per basic and diluted share. This compares to net income of $5 9 million or <unk> 89 per basic and diluted share in the same period of 2021. However, you should note that in the nine months ended Sept.
Timber 32021. It included two non operating gains that totaled $9 3 million, we had the $6 9 million gain on the sale of the building and a $2 $4 million gain on debt extinguishment from the forgiveness of the Companys PPP loan.
For the nine months ended September 32022 are operating was decreased by $2 million to $1 6 million as compared to the operating loss that we had in the same period in 2021.
This improvement was the result of the increased revenue of $6 9 million that resulted in an additional gross profit of $2 3 million. This was offset by increased operating expenses of <unk> 3 billion similar to the results for the quarter of quarter three the increase in gross profit was primarily the result of our leveraging our fixed cost.
Our higher sales levels as well as an improved mix. This has been asked but this has been offset by higher material component cost and higher compensation costs. Our operating expenses did increase over the prior year due to higher employee related costs as we focus on growing our business and so we had additional marketing and engineering.
Cost for R&D. This increase was offset by lower building costs. However, we did consolidate our central Islip operations in 2021, and we also benefited from lower professional fees as compared to the prior year.
Now turning to our backlog our backlog at September 30th 2022 was $15 7 million as compared to $10 4 million at the beginning of the year.
731, 2021, this represents an increase of $5 3 million or 59%.
Our cash and cash equivalents at September 30 was $11 9 billion.
This compares to $16 7 million at December 31, 2021.
This is a decrease of $4 8 million and this was primarily the result of a satisfaction of our mortgage debt on our central Islip facility earlier in the year, but that was for $1 8 million, we have our net loss as adjusted for noncash items of $2 3 million and we also are investing in our capital our PPA of <unk>.
Proximately $6 million.
Our working capital at September 30 was $15 million and this compares to $16 7 million at December 31 2021.
We continue to be unable to predict the extent of the lingering impact of the pandemic and the current geopolitical uncertainties will have on our financial position and results of operations for the balance of 2022 and of course going forward into 2023 and beyond.
The various uncertainties regarding our supply chain disruptions rising cost.
Impact on the aerospace sector.
That impacted the company over the past couple of years, and but the impact can be materially in the future periods, whether indirectly or directly again longer term impacts from the pandemic and the geopolitical uncertainties are still uncertain.
We cannot ultimately be predictive.
A return to consistent profitability is dependent among other things on the receipt of new equipment orders and our ability to mitigate the impact of supply chain disruptions and the inflationary pressures as well as managing planned capital expenditures and operating expenses.
In addition, our revenues and orders have historically fluctuated based on changes in order rates as well as other factors in our manufacturing process that impacts the timing of our revenue recognition. Accordingly orders received from customers and revenue recognized may fluctuate from quarter to quarter. After considering all these factors we.
Believe our cash and cash equivalent positions and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 to 18 months should the current economic environment continue longer or even worsen we will continue to assess our operations and take.
Actions anticipated to maintain our operating cash to support our working capital needs.
I'll now turn the call back over to Manny rich.
Rich thank you for your presentation.
In summary, the third quarter and year to date results of 2020 to reflect the actions. We took since 2021 to reorganize focus on everything we do and those who we actually served.
Focus remains on our customer markets, our employees our shareholders and.
The pursuit of growth and return to consistent profitability.
We look forward to continuing to build on our success in the year ahead and continue to be cautiously optimistic comments or questions are important to us with the close of our presentation I would like to open the floor to your questions.
Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time questions will be taken in the order they were received.
Any time Youre question has been answered you can remove yourself from the queue are pressing one again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time.
Yes.
Our first question comes from.
Okay.
Brett Reiss with Janney Montgomery. Please state your question.
Okay.
Thank you, operator, Hi, Manny Hi, rich.
Brad how are you.
Good good good first congrats on a profitable quarter, it's nice to say and welcome aboard two.
Rich.
Hi, Brett.
First question.
The battery type orders, if we go into a.
A recession do you think that part of the business will be somewhat recession resistant.
C.
So when you when you speak about the batteries.
The batteries exclusively or if its charging of the batteries and the batteries and nano material used in the battery because they do go hand in hand.
The as far as being recession proof, but to the extent that on a macro scale.
It's possible I can't really comment on that I can comment to that there is a lot of funding going into <unk>.
Silicon carbide for power electronics used for converge and also.
In the automobile and also into the.
In the charging station in transmission.
As well as new battery material.
We have seen an increase more so than the demand for silicon carbide growth systems today.
To date, then that the evolutionary new nano materials for battery. So it is a recession proof.
We can't I can't say.
But I can say, though that there are plans to continue to.
Two expanded in our market research says that over the next and it's available to the public of course.
Is that the silicon carbide market over the next several years will continue to expand.
So we.
We hope to partake in that.
Okay.
The did this seller.
The potential purchaser of the.
Property sale that fell through.
Did they share with you why they took a pass on purchasing it.
Was it because interest rates moved up.
And they of course, yeah clear.
Clearly from the time, we started the discussion.
We received the initial offer.
And.
And more recently this past Friday.
The interest rates have gone up by several points.
And as you can imagine that has.
That's affected most real estate in most real estate transactions.
Sure.
Aye.
I'm confident that that played a role in their decision as well.
If rates move back down could be.
Buyer.
Come back or he is he's gone.
Yes.
Would they come back.
I think the VAT.
I can't I can't speculate on whether or not they particularly would come back or not.
I do think that the.
The building was fairly.
Fairly priced initially.
And I think that the real estate market is cyclical so.
Probably all I can really say on that okay, and one last one the margin you're enjoying on the <unk>.
$3 7 million dollar aerospace order.
You are happy with the margins.
Yes.
Yes.
Okay.
Yes.
Once again.
Fantastic on the profitable quarter, and I will drop back in queue.
Thanks, Brett.
Okay.
Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad at this time, please hold while we poll for questions.
Got it.
Okay.
Okay.
Hello, She is totally.
Yeah.
And it doesn't look like we have any questions coming in.
Okay.
One just came in we have one that just came in from.
George Foreign shot please state your question.
Okay.
Alright, Thanks for taking my question.
I want to go back to Silicon carbide.
So the other gentlemen.
Yes.
That.
I'm an investor in many companies that are really taking advantage of the boom in silicon carbide.
I've listened and read many.
References to talk about.
For quite many years to come that.
Demand is exceeding supply.
So.
That's one of your markets correct.
It is one of our markets, yes correct.
So.
Can you talk about your customers.
I referred to your <unk>.
Uh huh.
Reports due to identify or any of these customers are more than 10% of your revenue at this point.
Sure.
As customers.
Under NDA, we don't list our customers specifically that we launched our pvt, $1 50 system, which is a silicon carbide boule growth system.
We launched it.
We received orders in December of 2021, net new we shipped the first launch in Q2 early Q3.
We've reported and and mentioned in this report to that.
<unk>.
14 this year.
And we announced in our Q4 results that we received six so that's a total of $26.
Upon the launch of that product so we.
We see this electrification of everything which is we play both ends of the silicon carbide global growth as well as in the.
Additive does silicon additive to carbon anode nano materials.
Okay.
I'm focused on our boule growth.
So the systems that you talked about the 14.
2000 total.
<unk> 'twenty total.
Okay.
I'll throw some company names out there you've got.
Used to be two six now it's coherent.
Scott on semi who bought GT advanced.
<unk> got.
We will speed won't speed announced theyre going to be.
Opening up another facility.
In North Carolina, I think it was.
I mean, there's just it's just booming so it seems like there is a huge opportunity for you guys. If you can execute.
It's wolf speed as we said many times that it's very very difficult I mean, you guys have expertise.
I am a relatively new investor to your company.
It seems like.
From everything I've read in the companies that are invested in and watching closely that there's a huge opportunity here.
It's a huge demand for this.
If the forecast for electric vehicles are right.
You can argue.
10 years down the road, what's going to happen, whether the grid is going to keep up and all of that government policy and how all that's going to factor in but right now in the near future that the demand is just.
Out there, it's booming and everyone from on semi to Wolf speed to Infineon in every major player in silicon carbide, saying that.
They just can't keep up.
You can imagine George would be what I can tell you can imagine that there are new players also that are more on the merchant side of the silicon carbide wafer.
You listed it will speed and semi which are both captive houses.
For the most part the ROE of the silicon carbide for their own consumption and devices.
Total.
We would we would conservatively <unk> agree with you.
And again, we just recently within the last nine months to 10 months to launch the product.
Delivering the first ones in the beginning of Q3.
So.
Sure.
And on this side of the table, but again thats, probably I cant mentioned, who are our customers because we are under NDA.
But you listed a large number of the very big houses for Silicon carbide.
Yes, I did and I know that there are many others.
Alright, well I wish you guys well in the <unk>.
Only shareholders, including myself Ken.
Can benefit.
Yes.
Thank you.
Thank you Sir.
Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad. Please hold while we poll.
Yes.
Okay.
Good morning.
And it doesn't look like we have any questions coming in.
Okay.
So.
With that both of the questions question and answer session I want to thank everybody for their participation.
And also for the.
The loyalty expressed by our shareholders customers and of course our employees.
Hum.
I'm, a long way over the last year and a half to two years.
But we still have a way to go.
And we look forward to speaking to you again in a quarter. Thank you.
Thank you. This concludes today's conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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Sure.