Q3 2023 CVD Equipment Corp Earnings Call

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Greetings and thank you for standing by and welcome to the CVD equipment corporations third quarter fiscal year 2023 earnings call. As a reminder, this conference is being recorded.

We'll begin with some prepared remarks, followed by a question and answer session presenting on the call today will be nanny lack is president and CEO and a member of the C. V. T Board of directors and Rich Kendall I know 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 Dot C V T equipment Dot com before we begin I would 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 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 files.

With the FCC, including but not limited to 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 forward click forward looking statements.

Made as of today and we undertake no obligation to update any forward looking statements based on new circumstances or revised expectation I would now like to turn the call over to Emmanuel Lacteous. Please begin sir.

Sheri. Thank you and good afternoon, everyone. Thank you all for joining us today to discuss our third quarter 2023 financial results and other important company developments and pertinent information related to our business.

Talks are important to us and.

And we look forward to your questions in a Q&A session.

As previously communicated our order and revenue levels have historically fluctuated and we'll continue to do so this is typical for the highly cyclical process equipment industry as such while we experience and a year over year decline in third quarter revenue of approximately $1 nine.

We are pleased that our year to date revenue for the first nine months of 2023 continue continues to be one 4 million or seven six.

6% higher than the prior year.

On the order front during the third quarter, we booked $4 1 million of new orders, principally in our air Aerospace and defense sector.

And the high power electronics market there were no PBT of 150 system orders.

<unk> in the first nine months of 2023, our installed base of PBT of $1 50 systems are meeting our performance expectations and we continue to support our existing pvt customer and their end product development goals.

We have expanded our marketing efforts to include direct outreach to multiple potential customers for our pvt systems as well as attended key silicon carbide trip related trade shows and conferences, including the ice cream conference. This past September.

The engaged customers both include Silicon carbide wafer manufacturers as well as fully integrated wafer and device manufacturers.

The success of our Pvt, $1 50, and our recently launched Pvt 200 systems.

Is dependent on the performance of our equipment in the field overall market conditions, our customers ability to qualify their end product with their customer and their ability to obtain funding required to purchase our equipment.

We continue to make progress divesting and winding down noncore business entities to allow our team to focus on the equipment product lines and pipeline of potential customer opportunities in our key strategic markets of high power electronics.

Battery materials energy storage and aerospace defense.

As previously announced we sold our <unk> subsidiary in May 2023, and in August 23.

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 massive scribe business in exchange for approximately $900000.

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

During the third quarter, we welcome to board members.

Debra Wasser and Doctor Ashraf locks Street.

Both board members, who bring extensive experience to the company in the areas of corporate governance and financial communications for Mrs Wasser, and high power electronics for a doctor lofty.

We remain committed to stay the course of our history of our strategy to achieve consistent long term profitability growth and return on investment.

Our return to profitability is subject to our ability to receive additional system orders and continue our efforts to reduce our overall operating cost.

I would like to turn the call over to our CFO Rich, Colorado, who will provide an overview of our third quarter results.

Thank you Manny and good afternoon all.

Our revenue for the third quarter of 2023 was $6 2 million as compared to $8 1 million for the third quarter of 2022.

This represents a decrease of $1 9 million or 23, 2%.

This decrease in our revenue was primarily attributable to lower revenue in our CVD equipment segment of $1 million.

<unk> related to lower Pvt's system revenues that was partially offset by higher aerospace revenue.

C C.

<unk> materials revenues were lower by <unk> 7 million due to the sale of our <unk> subsidiary in May 2023, and the wind down of our <unk> operations.

There were certain customer contracts, where our revenue was to be recognized at the point of time when the equipment was to be transferred to our customer based on the contractual terms. These contracts were modified during the three months ended September 32023, such that the revenue under these contracts will now be recognized.

Her time using the input method.

Revenue for the three months ended September 32023 includes a 1.8 million of revenues that was deferred at June 30 of 2023 and recognized on the date of the contract modification.

Our operating loss for the third quarter of 2023, it was $1 million as compared to operating income of <unk> 1 million for the third quarter of 'twenty two.

The increase in operating loss was due to lower revenues as well as increased operating costs. Our gross profit margin percentage was 25, 6% in the current third quarter as compared to 29, 8% in the prior year quarter. The decline in gross profit margin from the prior year was primarily due to <unk>.

<unk> and changes in our contract mix.

Increases in certain component cost as well as higher compensation costs as well as lower gross profit due to the sale of again of our <unk> subsidiary and the wind down of our vessels crime operations.

The increase in third quarter operating expenses from the prior quarter is due to higher employee related cost to support the growth of our business additional selling expenditures as well as higher professional fees.

Half the non operating income, which consisted principally of interest income our net loss for the third quarter was 753000 or <unk> 11 per share for both basic and diluted this compares to net income of $63000 last year or one cents per share for basic and diluted our backlog at September <unk>.

<unk> was $16 6 million.

As compared to $17 8 million as at the beginning of the year.

Our orders were slightly less than revenues by approximately $100000. Our reported backlog at September 30 was also reduced however by about a half a million dollars related to Tampa line, and <unk> 6 million related to the planned wind down of a vessel described.

Our working capital at September 30th was $16 2 million. This compares to $15 5 million as at the beginning of the year and our cash and cash equivalents was $14 3 million very similar to the $14 4 million, which started at the beginning.

2023.

In July 2023, we did collect $1 6 million of employee retention credits from the IRS related credits.

Credits related to the fiscal 2021 period.

As for our future operating results, we are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of operations or our cash flows.

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

I will now turn it back to me rich.

Rich. Thank you for your presentation, a summary of the financial resource of 2023 reflects 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.

To build on our success in the years ahead and remain cautiously 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 we will now be conducting a question and answer session. 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 it may be necessary.

To pick up your handset before pressing the star key is.

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

Okay.

Hi, Manny Hi, rich.

Hi, Brad how are you good afternoon, Hi, Brett I'm good I'm good.

The softness in the P. D T. Our borders that means I guess your existing customer you know has decided not to.

Expand them you know what what do you have any idea why that is well yeah I can't I can't speak for for the the customer themselves, but I. What I can say is that the tools are performing as to our expectations and also.

To our specifications they are in.

The normal process of installation.

Installation adoption ramp up and qualification of our of their end product and.

And as I always say, it's a matter of when not if and we continue to be very supportive of them. So I got I can't really say anymore about their particular business.

Okay.

I I recall.

Also with the P V Ts.

That you were in discussions with a second potential.

Potential customer.

Well you know the roadblock, there had been that second potential customer.

I needed to do some sort of capital raise which you know from my end you know that this is a bit of a challenging market.

Market capital raises it it is and and and you know as we say you know and as we commented in the script the or success in all of our products is our ability to perform on our product performance our ability to perform as a company as well as.

The customer's acceptance and qualification in the marketplace and their ability to raise funding.

Back in the in the first quarter of the year, we launched the pvt 150 to the broader community of potential customers and that includes anyone who makes away for both for their own consumption or sell it as a merchant.

Margin and yes, we have had both a startup companies.

And back in in the March timeframe May I also say that we hired our sales manager and we stepped up our game and our presence in many of the Tradeshows and we've gotten good.

What I would call market awareness, we've created our awareness of the CBD brand.

At all of the high power electronics Silicon carbide Crystal growth companies. So that's all a positive.

Today, we're engaged with companies that are fully integrated which means that they they.

Road weight grow crystals make wafers make a power electronics from that down to the startup companies that just grow crystals and make wafers to the established to very large companies that just grow crystals and make wafers.

So we have a broad breadth of opportunities in our sales funnel.

So even though that some of the and particularly one of our potential customers was not able to raise the capital need.

Needed we've added.

Additional accounts.

That fit the bill of what I said and we're at the level of providing quotations and discussion with some of them are on terms and conditions. So.

Again, as I said as I say it is a its a when not a if statement.

The tools perform the market exists.

Venture market is very very soft as you indicate and that both troubles us but you know we also have accounts that are very well funded also potential accounts.

Oh, it's a broad mix and to answer your question, Yes, we're engaged with and having that.

That in depth conversations with other potential accounts as well.

Right right Yeah in prepping for this call I kind of.

<unk> your your web site, which you know I see has been revamped and you know.

It looked very good.

But in poking around your website.

I see you guys are involved with wide bound gap.

Conductors and you know there seems to be a lot of military use.

For wide bound gap semiconductors, with what you know with the state of the world being what it is is that you know potential.

Sure you know business, while you guys.

Well, just a little bit about the the this unfortunate.

Climate that we're in with with two conflicts two major conflict songs.

High power electronics.

R R.

Our large band gap.

With semiconductors gallium nitride is one silicon carbide is another base material for as such.

So we already are in that in the high power electronics area. The other is obviously gallium nitride, which we sell R&D systems to so we in that area, we have not seen a large uptick for military applications.

We have seen interest in some of our other products R&D products that are for aerospace and defense, which are electronic space, but we've seen an end in our and our press release, we noted that we had.

We've had a strong aerospace and defense are market share mix this year.

With the C V I tools for the large.

The large gas turbine engines. We also this past quarter we received.

Two orders for R&D systems from notable names.

Names in the area of ceramic matrix composite materials as well as materials that would be utilized potentially in high speed.

You could almost say hypersonic applications. So that's an area where CVD has had a history in it you know legacies.

And we're glad to that Im pleased with the performance of our aerospace and defense product lines.

Because quite frankly, it is part of our business. It's one of the legs. It helps of course more than pay the bills and it gives us runway as we it allows us a tread water, while our high power electronics Silicon carbide Crystal growth system gets.

It gets adopted and we again as the the wind not the if statement.

Okay.

Also from your website I you know, we're getting out of the <unk>.

Canter line business, but we're still in the tantalum business when it comes to Oh our.

Our initiatives with implants.

Yeah that that is that was there are some applications that we have whether its stance or whether it's actual implant devices, which are.

More volume related.

It's not a large portion of our business, but yes of course, we continue to sell the equipment related to those applications.

Okay, and one last thing I I I didn't see any.

Employment openings at C. V. D does that mean, you're your head count right now for the existing level of business is kind of where you wanted to be and what is the head count These days.

What were you know were north of 130 employees in our in our facility here in Central Islip and.

In upstate New York, and our <unk> site.

And we think we're properly size, we continue to find ways to improve our efficiencies.

And we always continue to look at talent as it may come along as we need the talent.

So we monitored or are both near term and long term order rate and we adjust our our head count accordingly.

Right right. If if interest rates, you know a topping out and start to come down.

And therefore, you know cap rates in real estate, you know come come down do you still have an appetite to sell and lease back your existing facility you know for added working capital.

Yeah.

We have an ample you never have enough.

But we have ample.

Ample working capital to fund, our 2020 for our objectives and business plan.

So it's good but you you never want to raise money when you need it.

We would continue to look at options as they avail themselves, but we're not actively looking now.

Great Great. Thank you for answering my questions and have a good Thanksgiving.

Do you.

Thank you I appreciate it.

As a reminder, just star one on your telephone keypad, if he would like to ask a question. We will just pause for a brief moment to see if there's any final questions.

There are no more questions at this time I would like to turn the conference back over to management for closing comments.

Thank you Shari and thank you to everyone for dialing in today. We appreciate your attendance on the call as well. We appreciate your loyalty and also the loyalty of our employees and suppliers.

If.

If you have any further questions.

Feel free to reach out to myself or rich.

Happy Thanksgiving to all and this concludes our third quarter call.

Thank you for your participation you may now disconnect.

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Okay.

Yes.

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