CVD Equipment Corporation Q1 2023 Earnings Call
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Speaker 2: Greetings and thank you for standing by and welcome to CVD Equipment Corporations First Quarter fiscal year 2023 earnings call. As a reminder, this conference is being recorded.
Speaker 2: We will begin with some prepared remarks followed by a question and answer session. Presenting on a call today will be a manual lock-yoz, President and CEO and member of the CVD Board of Directors and Richard Ketelano, Vice President and Chief Financial Officer.
Speaker 2: We have posted our earnings through press release and call reply information to the investor relations section of our website at www.cvdequipment.com.
Speaker 2: 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 in general business conditions and outlook.
Speaker 2: 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.
Speaker 2: including but not limited to risk factor section of the company's 10k for the year ended December 31st 2022.
Speaker 2: Actual results made there for materially from notes described during this call. In addition, all forward-looking statements are made as of today, and we undertake no obligations to update any forward-looking statements based on the new circumstances or revised expectations.
Speaker 2: Now I would like to turn the call over to Emmanuel Lachios. Paul, thank you and good afternoon everyone.
Speaker 3: Thank you all for joining us today to discuss our Q1, 2023 financial results and other 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.
Speaker 3: We are pleased to report strong revenue growth for the first quarter of 2023, an increase of 87% over our first quarter of 2022 and a 20% increase over our fourth quarter of 2022. During the first quarter of 2023, we recognized a net loss of $40,000 or one cent per basic and diluted share. This compares to a net loss of $1 million or 15 cents per basic and diluted share for the same period, 2022. We have in the past noted that we expect fluctuations in the number of
Speaker 3: As our surfed markets recover, develop and grow, we will be able to obtain an increased order level. We will be able to obtain an increased order level.
Speaker 3: As there is a history of market cyclicality, our strategy is to serve a few growing markets. We have narrowed our market focus to three areas, the first being high-growth power electronics market, our emerging battery materials market, and our legacy aerospace and defense market.
Speaker 3: In the power electronics market, we previously announced receiving an order for a total of 30 PVT150 systems. These orders were received in 2021 and 2022 from a customer who uses our system to grow silicon carbide crystals that are subsequently processed into 150 mm silicon carbide wafers.
Speaker 3: We recognize 2.5 million of revenue during the first quarter of 2023 related to these orders and expect to shift the remaining 10 of 30 units before the end of the second quarter.
Speaker 3: We also expanded our marketing efforts during the first quarter with the hire of a dedicated sales manager and broadening our general marketing efforts including attendance in key Silicon Carbide related shows and conferences.
Speaker 3: The success of our efforts is dependent on the performance of our equipment in the field. Overall, market conditions are customers' ability to qualify their end product, as well as the capital markets.
Speaker 3: A recent development in our battery material market occurred in early May.
Speaker 3: And we are excited to have received the repeat order from one D battery solutions for our powder coat 1100 system and components for approximately 1.8 million.
Speaker 3: The system will be used by 1D battery solutions to add nanoscale silicon to.
Speaker 3: Carbon powder for use in the anode section of the battery.
Speaker 3: This addition of silicon enhances the performance of the battery and the application is in line with our focus on markets that electrify everything.
Speaker 3: Related to aerospace and defense, we are a leading manufacturer of a chemical vapor infiltration systems, and also tow coating systems to manufacture ceramic matrix composite materials also referred to as CMC for use in guest turbine engine components.
Speaker 3: CMCs can withstand extreme temperatures or one-third the weight of nickel-based super-alloys.
Speaker 3: This allows jet engines to run hotter thereby consuming less fuel and emitting less pollutants.
Speaker 3: As previously announced, during the fourth quarter of 2022, we received the NOAA Production CVI tool to manufacture CMCs for aerospace gas turbine engines for approximately 3.7 million.
Speaker 3: Our customers now include two of the leading manufacturers of gas turbine engines.
Speaker 3: This order contributed to approximately 300,000 of revenue during the first quarter of 2023. We continue to engage with our aerospace customers on their technology and production capacity requirements for both the short and also long-term.
Speaker 3: The CBD Equipment Corporation's objective remains to be a profitable growth company through a focus on products that serve growth markets, specifically high-parallel electronics, EV battery materials, and aerospace and defense specialty materials.
Speaker 3: We remain committed to stay the course of our strategy to achieve consistent long-term profitability, growth, and return on investment.
Speaker 3: I would like to turn the call over to our CFO , Rich Catalano, who will provide you an overview of our first quarter results.
Speaker 2: Thank you, Manny, and good afternoon. On revenue for the first quarter of 2023 was $8.7 million, as compared to $4.7 million for the first quarter of 2022. That represents an increase of $4 million or 87%. Thank you.
Speaker 2: The increase in our revenue is primarily attributable to our PVT 150 product line, which contributed $2.5 million to the current quarter as compared to $300,000 of such revenue in the first quarter of 2022.
Speaker 2: In addition, our SDC segment had a strong quarter with an increase of $800,000 in revenue over the first quarter of 2022, representing an increase of 59%. Our revenue for the first quarter of 2023 was also 20% higher.
Speaker 2: Then the sum point two million we reported for the fourth quarter of 2022. This increase was due to higher reviews from both our CBD equipment and SDC segments.
Speaker 2: Our operating loss for the first quarter of 2023 was $187,000. This represents an improvement of $783,000 as compared to the first quarter of 2022, and is slightly lower than the $221,000 operating loss.
Speaker 2: we reported in our recent fourth quarter. The improvement in our operating results from the prior year quarter was related to the increased revenue of $4 million, which resulted in an increase in our gross profit of 1.7 million. This was offset in part by increased operating expenses of approximately $900,000.
Speaker 2: Our gross profit margin percentage was 28.0% in the current first quarter as compared to 16.5% in the prior year first quarter and as compared to 27.7% in our recent fourth quarter. The improvement in gross profit from the prior year quarter was primarily the result.
Speaker 2: The increase in our operating expenses for both the parry from the parry year quarter and from our fourth quarter is due to higher employee related costs to support the growth of our businesses.
Speaker 2: as well as, and we also had additional selling expenditures and professional fees. After accounting for non-operating other income, which principally consists of interest income, our net loss for the first quarter was $40,000 for one cent per share for both basic and diluted.
Speaker 2: This compares to a net loss for the first quarter of 22 of 1 million or 15 cents loss per share for basic and diluted.
Speaker 2: Our net income in the fourth quarter of 2022 was 1.5 million or 23 cents earnings per share, basic and diluted. However, as a reminder, the fourth quarter did include the recognition of other income of 1.5 million for an employee retention credit that we recorded after we completed an analysis that determined the company was eligible to receive this credit.
Speaker 2: 2.7 exceeded our bookings of 2.9 million.
Speaker 2: Our backlog at March 31st consists of 10.1 million relating to remaining performance obligation on our contracts in progress, as well as certain contracts that yet not yet started. With the balance of approximately 1.9 million representing other orders received from customers such as spare parts.
Speaker 2: Our cash and cash equivalents at March 31st, 2023, was 11 million as compared to 14.4 million at December 31st, 2022. The decrease of 3.4 million was due to increases in contract assets of 1.5 million.
Speaker 2: and decreases in contract liabilities of 2.8 million as we incurred costs on the contracts that we currently have in progress. Other factors impacting our cash flow during the quarter was a small increase in inventory of about 300,000. A decrease in accrued expenses of approximately 500,000 primarily due to the payment of year end bonuses.
Speaker 2: These changes were partially all set by a reduction in accounts receivable of 1.4 million.
Speaker 2: Our working capital at March 31, 2023 was $15.7 million as compared to $15.5 million at December 31, 2022. As to our future results, we are not able to predict what impact the current economic and geopolitical uncertainties we'll have on our financial position.
Speaker 2: and future results of our operations in cash flows. Our return to consistent profitability is dependent among other things on the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions and inflationary pressures, as well as managing planned capital expenditures and operating expenses. In addition, our revenues and orders have historically fluctuated based on changes.
Speaker 2: requirements for the next 12 months, we will continue to assess our operations and we'll take actions as necessary to maintain our operating cash to support our working capital needs. I'll now turn it back to Manning. Rich, thank you for your presentation and summary, the first quarter results for 2023 reflect.
Speaker 3: our efforts to continue to focus on everything we do and those who will be served, a focus remains on our customers, our employees, our shareholders, of course, 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 out.
Speaker 3: optimistic your comments and questions are important to us with the close of the canned presentation I'd like to open up the floor to your questions.
Speaker 2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands that will be pressed in the start key.
Speaker 2: One moment please while we pull for questions. Thank you. Our first question is from Brett Rice with Janie Montgomery Scott. Please proceed with your question.
Speaker 3: Hi, Manny. Hi, Richard. How are you guys going? We're doing well, Brad, in yourself.
Speaker 4: Good, good, everything's good. The orders in the first quarter being less than anticipated. Why is that? Is it macroeconomic? Sure.
Speaker 3: Well, it's a bit of a but I did mention in the and let me say we didn't lose any orders to any competitors but
Speaker 3: in three markets and it's interesting that each one of those have a different spin to it.
Speaker 3: silicon carbide area or arena for our PVT product line. There it is a bit of waiting for qualification by our customer to take the next step on expansion and us then also getting our order from our second potential customer.
Speaker 3: And there's always capital rates involved with that. So it's a bit of the capital market, but also the qualification process. And it does take a period of time in its encuoters to be able to get a process qualified. On the aerospace side, there is a capital side orders.
Speaker 3: And we continue to talk to both of those about their capital requirements as the aerospace industry, the guest turbine engine, the airline manufacturers start now.
Speaker 3: to talk to both of those about their capital requirements as the aerospace industry, the guest turbine engine, the airline manufacturers start now.
Speaker 3: The airplane manufacturers, Boeing, Airbus, etc. start actually gearing up some more. So there's been some positive news there. And then in the battery side of the business, you know, we were hopeful to have closed our order in the Q1 time frame. That was delayed into Q2 into May. We're very pleased to have received.
Speaker 3: concert with their acknowledgement that we can do such.
Speaker 4: Great, great. Now the margins of the PT150, the power coat
Speaker 4: 1100 and the CVI system. Which have the best margins?
Speaker 3: Yeah, we, they have similar margins obviously the higher volume tools. We get some economy of scale on so you'll see a few margin points or up to several margin points higher and that would be the PBT tool but we believe that we'll continue with getting additional volume. Thank you.
Speaker 3: getting above our present level. Again, it's all volume based on the absorption of our overhead and our factory.
Speaker 3: our present level. Again, it's all volume based on the absorption of our overhead and our factory.
Speaker 4: Now on the PBT150 additional orders will they come from the existing customer that
Speaker 4: has ordered 30 of them and whose appetite might be satiated, or is it going to come from a new list of customers on that particular system?
Speaker 3: Okay, so I'll go with C both.
Speaker 3: Clearly the performance of our tool is such that we anticipate as our initial customer needs additional tools that we will be the selected supplier There's no no reason that I can think of that that wouldn't be the case The and then we also with the launch of our marketing efforts
Speaker 4: thank you for your responses. Can you tell us a little bit about the background of the new dedicated sales manager?
Speaker 3: Yes, he comes from an LED background, so he is very familiar with selling into very large accounts. He previously had worked with one of the top three LED manufacturers heading up a portion of their...
Speaker 3: their sales efforts. I have a prior history with the sales manager as well and have all the faith in him. Great. Great. Thank you very much as always for taking my questions.
Speaker 4: Thank you, Brian . Thank you. Our next question is from Chris Sankard with Cowan and Company. Please proceed with your question. Hi, this is Robert Mertens on for Chris. Thanks for taking my questions. Just really on the backlog. Thanks for providing the prior color.
Speaker 4: So is it fair to say the majority of the difference is probably due to timing and push outs and might be expected to be recovered in later quarters and not as much as to pull back in general demand and then I had a quick follow-up.
Speaker 3: Yeah, I think the orders definitely I think that that would be correct of that You know, if it was all it was pushouts And it's a matter of timing of course, you know that again as I said earlier There are no orders that I know of that we lost that we are anticipating closing in the first course
Speaker 3: And we're still pushing to close those orders, even as we speak. And we've closed actually two of them that equate to about 2.3, 2.4 million already this quarter. So, yeah, it's more a timing event for me than it is an absolute number.
Speaker 4: Okay, I got it. Thank you, that's helpful. And then just could you provide a little more color on what you're seeing in the Silicon or Biden market and what the major growth opportunities are outside of, of course, growing the firm customer account, is there a focus on expanding the customer list or their additional opportunities?
Speaker 4: within the supply chain, whether it's on the wafer or equipment side of the silicon carbide market.
Speaker 3: Yeah, two broad questions. It's great for a good presentation. The first is, do we plan to expand outside as far as the customer base? Yes, we do plan to expand to other U.S. manufacturers and then European manufacturers of...
Speaker 3: wafers, some are wafers and devices, some are devices, wafers slash pools and also equipment. So we have a strategy for each one of those categories. Our primary focus is again the United States and then Europe . We're not putting a lot of focus on...
Speaker 3: account that we have already installed base at. So we were in the selling process. Now as far as after you land in the account, how do you expand in the account, we also announced previously that we were working on a silicon carbide epi system.
Speaker 4: Okay, got it. Thank you for all the clarity that really appreciate it. Thanks for taking my questions.
Speaker 4: continue to be on that on that path and timeline. Okay, got it. Thank you for all the clarity. I really appreciate it. Thanks for taking my questions. Pleasure.
Speaker 5: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is from John Gruber with Gruber McDain. Please proceed with your question. Good afternoon. I'm a little confused on your current customer. They have a huge facility, 400,000 square foot.
Speaker 3: John , how are you? And I can't really speak to any issues that they may be having or that they are ahead or behind on their roadmap. I am aware that there has been, there are 30, 20 tools installed and I have 10 systems on the floor that are shipping starting over the next couple of weeks, next week. So those will be out by the beginning of or middle of June . And they are all shipping, I have 20 installed.
Speaker 3: But I don't know if, you know, I really can't say where the location is, but I believe with the announcement that you're looking at is a facility that has just been closed. We shipped many systems prior to that facility being.
Speaker 3: I really can't say where the location is, but I believe the announcement that you're looking at is a facility that has just been closed. We shipped many systems prior to that facility being closed out on.
Speaker 3: Did I help her? When did you hang up on more units to that customer? I think it's based on they feeling comfortable that they have wafers. I can't really say more than that.
Speaker 5: Okay, second question, man. I'm your new target. When do you expect to...
Speaker 5: Gather orders you get a get initial order from your your new targets the other big players in the industry European or US We have them at different stages we have one going through
Speaker 3: capital funding. We have so it's based on they closing out on their funding. We have that's an if statement of course. And then we have another in a little earlier in the process where it's they're evaluating our technology. Now to answer your question specifically, I thought I was hoping to get orders in Q1 and they...
Speaker 3: The capital market, that's a question mark, and their ability to, and in some cases, the ability to get wafers produced, and that's with our present account. So...knife cannot be Quote Unquote.
Speaker 3: I think the answer to the question, this end of this quarter, next quarter, I would be disappointed if we're not able to get at least evaluation units. Okay, thank you. Thank you, John .
Speaker 5: Thank you. Our next question is from Oren Hirschman with AIGH Investment Partners. Please proceed with your question.
Speaker 6: Thank you. You go back to the, you know, that you're working on the additional EPI tool for silicon carbide, you've had an experimental tool out there. How's that done? And you know obviously it's a much bigger TAM and a much bigger ASP.
Speaker 6: How does your respective secret sauce in terms of let's say temperature control and other things play into that tool? Did they come into play in that well? Well, I don't think thanks. I appreciate the question. I don't think you're asking me how we do it because otherwise it wouldn't be a secret anymore.
Speaker 3: So we shipped our originals silicon fiber FV tool back in 2008 and we clearly have to go through a productization and also a bit of maturing on the heating technologies. We have
Speaker 3: We have demonstrated the ability to control temperatures up to 2,000 degrees with, for long campaigns, days, weeks, with plus minus half a degree, which is fairly exceptional, I would say. Thanks for watching.
Speaker 3: Our ability also to manufacture the product in-house gives us what I anticipate to be a competitive advantage from a price performance perspective.
Speaker 3: I can't really speak to the performance on the silicon carbide tool that we have in the field in that it was really an R&D system. But similar to how we took our PVT tool, which we shipped in 2011, and we productized it and were successful in it.
Speaker 3: We have our internal manufacturing that allows us to cut out the middle man on the machine shop side and some of the other areas. That would give us an advantage I believe in being able to penetrate the market.
Speaker 3: And again, we'll be releasing more information later this year and into the beginning of 2024 with the product release probably in the third quarter of the year.
Speaker 6: The product release in third quarter of 2024. Okay. I mean, do you have someone interested as a lead customer here without naming anybody you can't name?
Speaker 3: Are they interested? Everybody is interested in a proper position cost of ownership silicon carbide tool. Do I have an agreement with a customer? No, I don't have an agreement with a customer right now, but I have a list of customers that we can have discussions with. But I really need to provide them performance data before I can have an intelligent...
Speaker 5: discussion that will be closer to the end of Q1 to beginning of Q2. Okay. Thanks so much. You're welcome. Thank you. Thank you. There are no further questions at this time. I'd like to hand the floor back over to Emmanuel
Speaker 3: Paul, thank you. We appreciate everybody's attendance today on the call. And I want to extend my gratitude to our shareholders and to also our employees for all of their express support and loyalty.
Speaker 5: If you have any questions, be encouraged to please reach out to either Rich or myself directly and this concludes our first quarter call. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.