Q4 2022 CVD Equipment Corp Earnings Call
Greetings and welcome to the CVD equipment Corporation, 2023 fourth quarter and full fiscal 2022 results conference call.
Minder This conference is being recorded.
I'll begin with some prepared remarks, followed by a question and answer session presenting on the call today will be a manual lock Yost president and CEO and member of the C V D Board of directors.
Richard Curdle, Lento, Vice President and Chief Financial Officer.
We have posted our earnings release and call replay information for the Investor Relations section of our website at Www Dot D V D 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.
<unk> 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 that 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 the company's 10-K for the year ended.
Number 31 2022.
<unk> results may differ materially from those described during the call.
All forward looking statements are made as of today.
We undertake no obligation to update any forward looking statements based on new circumstances or revised expectations now I would like to turn the call over to Emmanuel lock years.
Thank you Paul and welcome to CVD equipment Cooperations quarterly conference call. My name is Emmanuel lack yossi on president and I am pleased to be presenting to you today regarding our fourth quarter 2022, and our full fiscal year 2022 performance, an important company developments and pertinent information related.
To our business.
Your thoughts are important to us and we look forward to your questions in our Q&A session.
Now for our fourth quarter and 2022 results. We are pleased to be reporting a strong revenue growth for fiscal 2022, an increase of 57% over prior fiscal year, the fourth quarter revenue, while lower than our third quarter 2022 was 53% higher than our fourth quarter.
<unk> 2021.
During the fourth quarter 2020 to be recognized net income of $1 5 million for the full fiscal year 2022, we recognized a net loss of 224000.
Both periods include the recognition of other income of $1 5 million for a federal employee retention credit.
The 2022 and fourth quarter operating performance is aligned with our strategy of business focus revenue growth and return to profitability.
The timing of the demand of our products its dependent on many factors such as our customers market conditions, the acceptance of our products by our customers and the general economic conditions.
While our revenue and profitability, we will continue to fluctuate due to this timing of orders and shipments. We believe that we are on the right track to achieve consistent long term profitability in the years ahead.
2022 was an exciting period for all the stakeholders of CVD equipment. The order rates for 2022 lends further support to our belief that we are on the right path for our core strategy, which includes focusing on markets that support the electrification of everything specifically silicon carbide is fueling our PRASM.
Growth the market segment focuses on high power electronics, which are used in the growing electric vehicle market.
The end use applications are electric motor power converters power charging and transformation.
For 2022, we have received orders exceeding $33 million for our CVD systems and services segment as compared to approximately 31 million for the same period 2021. This is a 52% year on year increase in orders for the CBD segment, our Q4 'twenty 'twenty.
Two orders were $9 2 million.
The 2022 orders included 24 additional units of our recently launched Pvt, $1 50 system for Silicon Carbide Crystal growth All unit orders were from our initial alpha beta customer.
And the product and amounted to approximately $8 8 million.
10 of the 24 Pvt, $1 50 systems were ordered in the fourth quarter. The pvt, $1 50 system is utilized to grow silicon carbide crystals, which are so sequentially.
I appreciate it into silicon carbide wafers.
In the fourth quarter, we had the initial launch of the PBT of 150 to the broader base of Silicon carbide crystal growth customers.
And look in the fourth quarter, we were selected and received.
A system from a major aircraft engine manufacturer specifically the order was for a production chemical vapor infiltration systems valued at approximately $3 7 million.
As I stated earlier this system will be used to manufacture ceramic matrix composite materials for aerospace gas turbine engine components.
We believe that disorder is a tangible sign of the beginning of the aerospace market recovery, which traditionally has been a significant part of the CVD equipment Corporation's business.
The remainder of the 2022 waters, where for our legacy advanced R&D.
And.
First natural system S.
D C division products as well as our non core segments.
Our SBC segment had increased sales over prior year of approximately 35% that reflects a higher demand for our gas and liquid control system products STC is both an enabling captive supplier to the CVD equipment group as well as a merchant supplier to the microelectronics and industrial markets.
Our Tampa line, and meso scribe, which we deem as noncore product lines were profitable in 2022.
Supply chain issues relative to both inflation and lead times continue to negatively impact our revenue timing in profitability for all of our segments of the company.
In 2022, we installed additional machine centers and added capacity to our central Islip facility to increase our system I'll put it to continue to drive towards increased operational self reliance.
Management of our product lead times, along with the precise control of our equipment has been in a competitive advantage for us.
I would like to turn the call over to our CFO Rich <unk>, who will provide you our fourth quarter and 2022 financial summary.
Thank you Manny and good afternoon or.
Our revenue for the fourth quarter of 2022 was $7 2 million. This compares to $4 7 million in the prior year fourth quarter that represents an increase of $2 5 million or 53%. This increase in our revenue was primarily attributable to our <unk> 50 product lines, which represented.
It's approximately $2 2 million or 30% of our revenues in the fourth quarter as compared to no such revenues in the prior year fourth quarter, our operating loss for the fourth quarter was $221000. This was an improvement over the prior year an improvement of approximately $800000.
Does this improvement in our operating results was driven by the increased revenue of $2 5 million that resulted in increased gross profit of $1 2 million that was offset somewhat by an increase in operating expenses of approximately $24 million or gross profit percentage was 28% in the fourth quarter.
As in this fourth quarter as compared to 16% in the prior year fourth quarter.
This improvement in our gross profit was primarily the result of leveraging our fixed cost over higher sales levels as well as an improved product mix.
These benefits were offset somewhat by increased material costs and material components as well as compensation costs.
The increase in our operating expenses, principally due to certain higher employee related costs to support the growth of our business, that's including in marketing as well as some general increase in our personnel cost overall.
As Manny mentioned in the fourth quarter of 'twenty, two we completed our analysis of whether the company was entitled to an employee retention credits and we determined that for two quarters. In 2021, we were entitled to a credit of $1 5 million and that was recorded as a non operating income item in the fourth quarter are based on.
The recognition of that ERC credits, our net income was $1 5 million or about 23 23 cents per share for both basic and diluted.
Our fourth quarter of this year also benefited from interest income of 88000, and a foreign exchange gain on our intercompany loan with our Denmark subsidiary of about 155000.
Overall, our net loss for the quarter.
It was $1 2 million.
Net income for the net loss for the fourth cross 0.1, I shouldn't say it was $1 2 million or 18 cents per share just turning to the full year of 2022 briefly the revenue was $25 8 million. This compares to $16 seven in the same period of 2021.
It's an increase of $9 4 million or 57%.
Similar to the fourth quarter. This increase in revenue was attributable to our pvt, 150 product line, which represented approximately $7 5 million or 29% of our revenue in 2022 again, we had no such revenues in 'twenty one.
The operating loss for fiscal 'twenty two overall for the full year was $1 8 million. This represents an improvement of $2 8 million when we compare it to the loss we experienced in 2021 at $4 7 million.
These improvements in operating results of <unk>.
Principally related of course to the increased revenue of 57% or $9 4 million and that that resulted in increased gross profit of $3 6 million. We also had an offsetting operating expense increase of approximately $700000 or gross profit for the full fiscal year was 26%. This compares.
219% again the improvement is related.
Two the fact that we have much higher sales levels and allowed us to spread our overhead cost.
We also had some increased our revenue operating expenses, we did have some like I mentioned for the quarter. We had some increases as we grew the business, including marketing and general increases in personnel costs. We did have a onetime severance charge of approximately $134000.
These increases were offset we did have some reductions that were favorable in July 2021, we did sell our building. Another building we have here in central Islip the.
The reduction in the operating cost for that building benefited operating expenses by approximately 600000, and we also have lower professional fees of $3 300000 for the full year.
As previously mentioned.
<unk> also benefited from the recognition of the employee retention credit.
I would mentioned that in the prior year, we just have to one time benefits, we had a benefit of $6 nine months from the sale of a building and we had $2 4 million from forgiveness of our PPP loans are that obviously helps the bottom line. So overall for the net income.
For 2022 was 200 net loss I should say for 2022 it was 224000 or three three per share the loss.
That includes the $1 5 million net income for the prior year was $4 8 million or <unk> 71 cents earnings per share, but keep in mind. They were those two non operating gains totaled $9 3 million.
Now turning to our backlog our backlog at December 31st 2022 was $17 8 million. This compares to $10 four at the beginning of the year.
And this represents an increase of 7.4, our backlog consists principally of remaining performance obligations that we have on our contracts in progress now about $16 2 million and the balance of $1 six represent unfulfilled purchase orders that we've received.
Now turning to our balance sheet, our cash and cash equivalents at December 31 was $14 4 million as.
As compared to $16 seven in the prior year.
This was a decrease of $2 3 million for very little very little movement from operations, but that $2 3 million was principally the pay off of our mortgage on our central Islip facility and also we had capital expenditures of about $700000. Our working capital at the end of this year is $15 five in this.
This compares to $16 seven at December 31, 2021.
Just some closing notes we are unable to predict the impact of the current economic and geopolitical uncertainties that will have on our financial position or our future results of operations and cash flows are returned to consistent profitability will be dependent upon all the things the receipt of new equipment orders are ability to me.
Again, the impact of supply chain disruptions and the inflationary pressures as we as we manage as well as managing our planned capital expenditures and operating expenses in.
In addition, our revenues and orders have historically fluctuated based on changes in order rates as well as 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.
After considering all these factors and we believe our cash and cash equivalents and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months, we will continue to assess our operations and take actions anticipated to maintain our operating cash to support our working capital needs.
Yes.
I'll now turn it back over to Manny rich. Thank you for your presentation.
So in summary, the fourth quarter and full fiscal year results for 2020 to reflect the actions. We took back since 2021 to reorganize focus on everything we do and those who we serve are focused remembers remains on our customer markets, our employees and our shareholders.
And the pursuit of growth and return to consistent profitability.
We continue to look to we look forward to continue 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 we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
One moment, please while we poll for questions.
Yeah.
Thank you. Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed with your question.
Hi, Manny Hi, rich.
Brad how are you good to hear from good.
Good good another a good respectable quarter.
Okay.
The cash from the third quarter to fourth quarter was up two and a half million I you know half of it was a reduction in working capital. The other half was was that you know positive cash flow generation.
Hi, Brett.
Yeah, I think for all of our cash flow.
Does fluctuate depending on as we complete contracts there'll be payments towards the end of the contract also upon the receipt of contracts, we typically receive a down payment for a certain percentage of the contract price. So you will see some fluctuations in our cash balance from period to period.
Right.
Now the whole.
Bob.
You know potential credit contraction that may unfold with the banks, it's it's basically.
Non event for us because we really are not drawing on any bank lines of credit and you know we're in a commanding.
Commanding cash position does that is that a fair statement.
You know I'd say at this point you know we don't have we have very little debt, we paid off our mortgage loan last during.
During the year during this year I should say in 2022, we just took out one small equipment loan for about $400000 in as at this point, we know we're not relying on our credit lines and the like we're.
We're working with the working capital and the cash balances that we have.
Right.
And.
The supply chain.
Issues, they seem to be abating.
Well, they're being managed Brad we still have a day to day hand to hand combat with with some of our suppliers, but we've been able to manage through that process. In 2022, So I can't say that it's abated, but we've put taken actions too.
To reduce the impact of bolt on inflationary and.
And supply chain delays doesn't mean that you know will continue is either I think we all know there's quite a bit of inflationary pressure out there.
Right.
I'll drop back in queue. Thank you.
Thank you Brad.
Okay.
Okay.
Thank you. Our next question is from Jon Gruber private Investor. Please proceed with your question.
Good afternoon, yes on the P. D T 150 <unk>.
Yeah.
What's the outlook and what's the gross margin profile of that product versus.
You know the corporate average.
Yeah, well that's right.
Oh of course.
Hey, John how are you I'm glad you're on the call.
This is manny.
Firstly, the 150 <unk>. The difference is one of the major differences on the 150, the PBT of $1 50 versus some of the more what we were trying to be legacy products is that the <unk>.
150 is a make to order versus a design make to order so bye.
By DNA that the gross margins are improved greatly on the pvt 150 products in that you are not engineering, each and every one of the tools and charged to cost of goods sold line with that engineering costs.
So you you will inherently see better gross margins on the make a make to orders versus the design make to order.
With that said, we typically don't give out.
Specifically for our customers sake, or our gross margins are.
But we would anticipate that the contribution margin on increased sales on that should be 50% plus as.
As we increase the D C.
The.
Order rates for the PBT of one <unk>.
So 50% plus that'd be that'd be good.
And where we're at.
Where do we stand on getting new class new orders new.
Nameplates for us for the P V T 150, and in and what's your.
What progress have you made with the with the Big Boys in you know in the Bull there's in the Silicon carbide business sure. So you know you've been doing this for a while and so to answer your question. As you know we follow a pretty regimented plc process product lifecycle. So we developed a product.
The first one back in 2011, we product Ais data starting in December of 2021 and we started shipping in July of 2022, typically you ship, one or two of damage Alpha and beta as well we ended up shipping 20 of them last year Alpha and beta is.
That I think are performing well in the installed base and as we said we have one customer for the alphas and betas. We subsequently received an order for 10 more production tools and the only differences on those are documentation control reduction in our in our workflows in the manufacturing shop.
And we just turned on alphas betas and production systems, you really can't tell the difference by looking at them.
We launched the product.
<unk>.
<unk> this quarter.
And we started to engage on the different segments of the vertical integration changed and what I mean by that is you have the ball manufacturer a bull wafer manufacturers, that's all they do sell wafers.
And they're our first entre into that space and there are a couple of emerging ones and there's one establish and then you have the folks that make their own equipment and make their own bulls and make their own wafers.
And then you'll have the fully integrated and fully integrated would be the on semi the wolf speeds.
S Ts.
<unk> they for the most part make their own equipment grow their bulls make their wafers and also make devices.
So our primary attack was with our first customer on the ball wafer we launched the product literally in the January February timeframe, and we've been going to conferences and we're starting now to be recognized.
As a provider of equipment to the crystal ball growth folks.
It's going to take a bit of time for us to get some some traction and adoption.
And so we're I would say with that is we're providing quotations and presentations now.
To several potential customers.
So at year end.
At year end of this year.
Calendar year end, how many new customers do you think you could add.
Into the.
Oh for the B V T product.
The motherboard.
In addition to serving the existing customer because all customers are okay.
We our objective in sales hasn't been objected to penetrate two additional accounts.
Thank you Jim.
Thank you there are no further questions at this time I'd like to hand, the floor back over to management for any closing comments.
Well, we appreciate the attendance on the call and the support and the loyalty from our shareholders and in some of our employees who are also on the call. We again are cautiously optimistic.
We have come from a position where we have grown the as a team since 2021 grown the bookings revenue improve the gross margin line operating profit line.
And have shored up the balance sheet in that period of time, we continue to be.
Cautiously optimistic and conservative as we move forward, we look forward to a successful 2023.
And again, we appreciate your attendance and support thank you.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.