Q2 2023 CVD Equipment Corporation Earnings Call

Greetings. Thank you for standing by welcome to CVD equipment Corporation second quarter fiscal year, 2020 three earnings call. As a reminder, this call 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 Luckiest, President and CEO and member of the C V D Board of directors, and Richard Catalano, Executive Vice President and Chief Financial Officer.

We have posted an earnings press release and call replay information to the Investor Relations section of our website at Www Dot C V D equipment dotcom.

Before I begin I would like to remind you that many of the comments made on todays call contain forward looking statements, including those related to future financial performance market growth total available market demand for our product 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 then our filings with the S E C, including but not limited to the risk factors section of the company's 10-K for the year ended December 31st 2022.

Actual results may differ materially from those described during this call. In addition, all four vocally looking statements are made as of today and we undertake no obligation to update any forward looking statement based on the new circumstances or revised expectations.

I would now like to turn the call over to Emmanuel Lucky US. Please go ahead Sir.

Thank you very much and good afternoon, everyone. Thank you all for joining us to discuss our second quarter 2023 financial results and other important company developments and the pertinent information related to our business. Yeah thoughts are always important to us and we look forward to your questions in our question and answer session.

As previously communicated or order and revenue levels have historically, historically fluctuated, which is often typical in the highly cyclical process equipment industry as such we while we experienced a year over year decline in second quarter revenue. We are pleased that our first half.

2023 revenue of $13 $8 million was 31% higher than the corresponding period in the prior fiscal year.

In addition, we have made significant progress divesting and winding down noncore business entities. This fall or this will allow our team to focus on our equipment product lines and pipeline of potential customer opportunities.

Key strategic markets of high power electronics battery materials energy storage and aerospace and defense.

During the second quarter, we sold our Tampa line subsidiary and on August eight 2023, the company entered into a purchase and license agreement with a third party to sell certain assets and to license certain intellectual property of our metro scribe business in exchange for approximately 900000.

The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones.

Orders for the second quarter were $12 9 million driven by demand in two of our three strategic markets.

Orders for the first quarter of 2023 were $2 9 million.

This continues to show the variability quarter to quarter of our business.

Second quarter include the second quarter orders included aerospace market opportunities and the amount of $8 $7 million for multiple system orders.

Each will ship over the next 12 months second quarter order bookings included a battery nano materials production systems of approximately $1 $8 million to one D Battery Sciences as we previously had announced.

In the high power electronics market, while we have not received pvt, $1 50 orders to date for 2023, we are continuing our marketing efforts. These marketing efforts include support of our installed base.

Direct outreach to multiple potential customers product evaluations and presence at key silicon carbide trade shows and conferences.

<unk> of our pvt, $1 50 M. P. B T 200 marketing efforts are dependent on the performance of our equipment in the field overall market conditions, our customers ability to qualify their end product with their customers and their ability to obtain funding required to purchase our equipment.

As stated previously our order and revenue levels have historically fluctuated.

Finally, we anticipate that our orders received from customers and revenue recognized as a receipt of these orders will continue to show fluctuation from quarter to quarter. We remain committed to stay the course of our strategy to achieve consistent long term profitability growth and return on investment.

I would like to turn the call over to our CFO Rich <unk>, who will provide an overview of our second quarter results.

You Manny and good afternoon all.

Our revenue for the second quarter of 2023 was $5 1 million as compared to $5 8 million for the second quarter of 'twenty. Two this represents a decrease of <unk> 7 million or 12, 7%. The decrease in our revenue was primarily attributable to lower revenue in our CVD equipment segment of approximately <unk>.

$7 million related in part to lower PBT of 150 revenues lower revenue in our CBD materials segment of approximately 500000 as an outcome of the sale of our <unk> subsidiary on May 26, 2023.

Declines were partially offset by an increase of approximately 400000 in revenue from our S. D C segment.

It should be noted.

Based on the terms of the aerospace orders that Manny just mentioned revenue under these contracts that we received in the second quarter will be recognized at the point in time when the control of the equipment is transferred to the customer rather than the overtime method, which we use for the company's other system sales.

Our operating loss for the second quarter of 2023 was one 2 million. This was higher by <unk> 5 million that are operating loss of <unk> 7 million in the second quarter of 'twenty two the increase in the operating loss was due to the two non recurring charges one related to channel line for 162.

Dollars on disposal and then we had a small impairment on certain meso scribe fixed assets of 111000.

In addition, our operating expenses increased by approximately 200000.

Our gross margin percentage was 27, 4% in the current quarter as compared to $24 eight in the prior year quarter. This improvement in gross profit percentage from the prior year was primarily the result of improved product and contract mix.

The increase in the second quarter operating expenses from the prior year quarter is due to higher employee related costs to support the growth of our business additional selling expenses and also additional professional fees.

After non operating other income and that consists principally of interest income our net loss for the second quarter was $1 1 million or <unk> 16 per share for both basic and diluted.

This compares to a net loss in the second quarter of $22 8 million or 12 cents loss per share for both basic and diluted.

Now turning to our backlog our backlog at June 30 of 2023 was $18 8 million as compared to $17 8 million as of December 31, 2022, our orders.

During the six month period ended June 32023 exceeded our revenues by approximately $2 million.

However, our reported backlog at June 30 has been reduced by half a million dollars related to the sale of Tampa.

On May 26, <unk> 23, and also a <unk> 6 million related to our decision to wind down the operations of Medicine described.

Working capital at June 30 of 2020.

2023 was $16 6 million. This compares to $15 5 million at December 31, 2022, our cash and cash equivalents at June 30 of 2023 was $13 million as compared to $14 4 million at December 31, 2022 in early July 2023, right. After our June .

30th close we did collect $1 $5 million receivable for employee retention credits from the IRS.

As to our future results we are on.

Unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of our operations and cash flows.

Our return to consistent profitability is dependent upon among among other things the receipt of new equipment orders and our ability to mitigate the impact of supply chain disruptions and inflationary pressures as well as managing capital expenditures and our operating expenses.

After considering all these factors, we believe our cash and cash equivalents and our projected cash flows 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 we will take actions as necessary to maintain our operating cash to support.

Our working capital needs.

Now I'll turn it back to Manny.

Rich. Thank you for the presentation in summary, the second quarter results of 2023 reflect our efforts to continue to focus on our strategic markets and products overall, our focus remains on our customers our employees, our shareholders and the pursuit of growth and return to consistent profitability, we look forward to.

Are you continuing to build on this success in the year ahead and continue to be cautiously again optimistic comments or questions are important to us with the close of the formal presentation I would like to open the floor up to your questions.

Thank you if he 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 he would like to remove your question from the queue and for participants using speaker equipment may be necessary to pick up your handset before pressing the star.

Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed.

Yeah.

Hi, Manny Hi, rich.

Hey, Brad how are you a great afternoon.

I'm good I'm good.

Could you give the people on the call.

Just some flavor on the.

The sales process, but like the P V T 150, and the next journey.

You know 200.

Yeah of course, well I appreciate the question I think thats a great lead in.

And typically when we developed it and again, we we had slight we had discussed that we many years ago had ship tools into that space.

And that activity was dormant for a period of time and we re initiated that in 2021 mid year.

By identifying silicon carbide is an opportunity and we closed an order for what we termed to be our alpha.

<unk> Alpha systems from our first customer and to date, our only customer per se recently.

And then we received the betas. So you know it's a formal process that we went to we wanted to first determine the performance of the product in the field before we did a broader launch of that product in and we did that in January of 2023, and the end of December to the beginning of January we started to discuss.

The pvt, $1 50 product with other customers potential customers and since then.

<unk> continued to stay to that it's my personal objective to close on two more.

In the near term in the next six months herself.

And so we go through the Alpha and the betas and then we do a broader launch to the to the marketplace by introducing the product to a larger group of potential customers. We had we attended trade shows we hired a marketing manager at the end of 2022, we hired a.

Dedicated sales manager in in March of 2023.

We've attended several trade shows in that period of time, and we've engaged with the list of who's who in silicon carbide bull or silicon carbide device level manufacturing over the last several months I would say that we're engaged in.

Some level of a stage of engagement, whether it's an introduction nondisclosure agreement disc.

A discussion of technical specifications.

Bake off as far as a technical bake off discussions on potential commercial contracts.

At some stage of that with several customers as we speak of today.

And it's a process, it's a running game, it's not a hail Mary when somebody buys your equipment for this process, they're not making a decision to buy.

Our stove or oven or some type of equipment from one supplier and then they'll buy from somewhere else. They really are getting into bed for you with you. Let me say and really it's a it's a longer term relationship and that just takes a bit of time to to close out so that.

We're really where we are today, where we're because the next question is where are we in the process. We're engaged with many different potential customers at different stages of the process.

Can I just follow up on that.

So, it's it's really kind of <unk>.

Word of mouth by the engineering team I'm sure, it's a kind of a small world.

People that.

Our experts in this niche area. So it's it's it's just kind of word of mouth no not per se. It is unlike the Oh the historic.

Develop a product and they'll come in and buy your product I mean, we obviously don't operate that we have converted to an outreach program for our sales and marketing. We've attended the major trade shows and conferences.

We were at one last week were at another one this week will be in in Italy for the largest silicon carbide show in September I'll be there we have two days of meetings with high level management at several different accounts.

It is not a word of mouth. It is an active sales and marketing activity. We have had advertisement we've had booth presence.

We've had in.

In the booths of specifications.

We have collateral material that we sent out we've done use glass, it's a bit more active.

Active than a word of mouth.

Yeah, Okay I appreciate that now and in your opening comments.

The price of the device.

Is an impediment to some customers.

Purchasing it.

Would you explore you know some sort of financing or lease arrangement to take you know for to make it yeah more available for yeah. So until a couple of things on that you know my my my my initial monologue of sorts in our.

Script today was that we have weighed all customers to be able to fund some of this equipment. Some of our customers are very early stage startups are theirs are late stage startups. Other are established companies that need to raise working cap that need to raise working capital others are very well funded.

Companies that require capital budgets for the year. So there is a different level of financing required depending on the character of the company itself.

As far as us leasing and becoming a you know we really have not entertained that that that we don't think that that would be helpful. They're not looking to buy initially they can buy 125 10 of these tools to do develop maintain and characterization, but long term there.

We're going to buy.

It would need to buy <unk> and hundreds of these systems, that's not something that we would entertain being able to finance.

You know and they would have to be you know pretty serious companies to be able to do that.

Well one I appreciate that one last one.

There were items in the paper talks.

Talking about the water levels of the Panama Canal being so low.

That might complicate supply chain issues in the near to intermediate term future or is that something that.

No CBD is concerned about.

No no that's not something that's going to affect us.

The supply of raw materials continues on we've seen and that's one of the reasons, we don't talk about supply chain issues from the standpoint of metals at this point, we've seen a recovery in that space most of our electronics.

Supply any supply chain issues are really associated with components used in the semiconductor industry, where there is just a high demand for those components.

No we don't see.

We don't see that you know that and by the way I've missed that news report on the canal, but no I would not anticipate.

Great. Thank you for taking my questions drop back in queue. Thank you.

Thank you we are now having technical difficulties, we will resume the conference momentarily.

Once again, thank you for your patience, we'll resume the conference momentarily.

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Yes, Hello. This is Manny Lackey Olson rich Kendall I know again, we're sorry about that we somehow dropped off the call Brett. Thank you for your questions and giving me an opportunity to shed some light on the subjects.

If it doesn't seem like there are any more questions.

So operator against thank you.

And thank you all for dialing in today, we appreciate the attendance on the call and your support.

And of course, the loyalty of our shareholders and also some of our employees who are also on the call.

If you have any further questions feel free you can contact myself or Richard any time and this concludes our second quarter call. Thank you very much.

Thank you. This will conclude today's conference you may disconnect at this time and thank you again for your participation.

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