Q4 2023 CVD Equipment Corp Earnings Call

None: [music].

Operator: www.cdc.gov.au Greetings, and thank you for standing by. Welcome to the CVD Equipment Corporation's fourth quarter and fiscal year 2023 earnings call. As a reminder, this conference is being recorded. We will begin with some prepared remarks followed by a question and answer session.

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

None: I'll begin with some prepared remarks, followed by a question and answer session.

Operator: Presenting on the call today will be Emmanuel Lakios, President and CEO and member of the CVD Board of Directors, and Richard Catalano, Executive Vice President and Chief Financial Officer. We posted our earnings press release and call replay information in the investor relations section of our website. 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, the 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 SEC, including but not limited to the risk factor section of the company's 10-K for the year ended December 31, 2023. However, 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 new circumstances or revised expectations. Kevin, thank you. And good afternoon, everyone.

Presenting on the call today will be a man, who will walk us president and CEO and member of the C. V D Board of directors and Rich, Colorado, Executive Vice President and Chief Financial Officer.

None: We've posted our earnings press release.

None: Replay information on the Investor Relations section of our website.

None: Before I begin I'd 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 products and general business conditions and outlook. These forward looking statements are based on certain assumptions expectations and projections are subject to a number of risks and uncertainties.

None: Described in our press release, and our filings with the SEC, including but not limited to risk factors section of the company's 10-K for the year ended December 31 2023.

None: 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 new circumstances or revised expectations now I will turn the call over to Emmanuel Archeus. Please go ahead Sir.

Emmanuel N. Lakios: Kevin Thank you and good afternoon, everyone. Thank you all for joining us today to discuss our fourth quarter and fiscal 2023 financial results and other important company develops.

Emmanuel N. Lakios: Thank you all for joining us today to discuss our fourth quarter of fiscal 2023 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. Fourth quarter 2023 revenue was $4.1 million, down significantly versus the prior year period. As our business continues to experience fluctuations in revenue, given the nature of our emerging growth and the Markets we serve. We were and are disappointed with both the fourth quarter and full year performance. We will stay the course of our strategy to return to consistent profitability with a focus on growth and return on investment. Our primary goal is to expand the present of our equipment solutions into high-power electronics, battery materials, aerospace, and industrial applications. To this end, I am very pleased to announce that we started off 2024 with several key new order wins. First of all, he successfully penetrated a second PVT customer with an evaluation unit for a newly launched PBT 200 system used to grow 200 millimeter silicon carbide crystals.

Emmanuel N. Lakios: <unk> made some pertinent information related to our business.

Kevin: Oh, I'm, sorry are important to us and we look forward to your questions in our Q&A session.

Kevin: Fourth quarter 2023 revenue was $4 1 million down significantly versus the prior year period as our business continues to experience fluctuations in revenue given the nature of our emerging growth and markets. We serve we will we were we.

Kevin: We're and I are disappointed.

Kevin: Disappointed with both our fourth quarter and full year performance.

We will stay the course of our strategy to return to consistent profitability with a focus on growth and return on investments.

Kevin: Our primary goal is to expand president penetration of our equipment solutions into high power electronics battery materials aerospace and industrial applications.

Kevin: To this and I am very pleased to announce that we started off 2024 with several key new order wins first of all he successfully penetrated a second pvt equipment customer with an evaluation unit for our newly launched Pvt 200 system.

Kevin: Used to grow 200 millimeter silicon carbide crystals.

Emmanuel N. Lakios: This represents an important milestone for CVD. Potential follow-on production orders should our equipment effectively meet the customer's needs. Second, we received a $10 million multi-system order for our silicon carbide CVD coating reactors from an industrial customer. Tools will be used to deposit a silicon carbide protective coating on OEM components.

Kevin: This represents an important milestone for CVD.

Kevin: With potential follow on production orders should our equipment.

Kevin: Actively meet the customers' needs.

Kevin: Okay.

Kevin: We received a 10 million dollar multi system order for our silicon carbide CVD coding reactors.

Kevin: From an industrial customer.

Kevin: The tools will be used to deposit a silicon carbide protective coating on OEM components.

Kevin: We are encouraged by these orders.

Emmanuel N. Lakios: We are encouraged by these orders, as we continue to make investments in both research, development, and sales marketing, which includes direct engagement with multiple potential customers, all focused on our key market. I will turn over our call to our CFO, Rich Catalano, who will provide you an overview of our fourth quarter and fiscal 2023 results. Thank you, Manny, and good afternoon.

Kevin: As we continue to make investments in both research and development and sales and marketing, which includes direct engagement with multiple potential customers all focused on our key markets.

Speaker Change: I will turn over our call to our CFO rich catalog. So we'll provide you an overview of our fourth quarter and fiscal 2023 results rich. Thank you Manny and good afternoon.

Richard A. Catalano: Our revenue for fiscal 2023 was $24.1 million, a decrease of $1.7 million, or about 7%. The decrease was primarily attributable to lower revenue in our CVD equipment segment of approximately $0.4 million related to lower PVT-150 system revenues that were offset by higher aerospace revenues. Our CVD Materials business was decreased by $2 million. This is due to the sale of our Caneline subsidiary in May 2023 and the announced wind-down of our Mesoscribe operation. These decreases were offset by an increase of.6 million in our SDC segment due to higher demand. Our gross profit margin was 21% in 2023. This is compared to 26% in the prior year. The decrease in gross profit of 1.6 million was primarily due to a significant cost overrun on one large contract in 2023 and also lower PBT 150 and CBD materials revenues as compared to 2022. Our increase in operating expenses from the prior year is due to higher employee-related costs to support our planned growth in our business, additional selling expenditures, and higher professional fees. However, these costs were offset by lower bonus costs and lower expenses for CVD materials due to the disposition of tantalizing.

Richard A. Catalano: Our revenue for fiscal 2023 was $24 1 million a decrease of $1 7 million or about 7%. The decrease was primarily attributable to lower revenue in our CVD equipment segment of approximately <unk> 4 million related to lower Pvt, 150 system revenues that was off.

Richard A. Catalano: Set by higher aerospace revenue, our CBD materials business was lower by $2 million. This is due to the sale of our <unk> subsidiary in May 2023, and the announced wind down of our mezzo scribe operations.

Richard A. Catalano: These decreases were offset by an increase of <unk> 6 million and our S.

Richard A. Catalano: S D C segment due to higher demands.

Our gross profit margin was 21% in 2023 this is compared to 26% in the prior year. The decrease in gross profit of $1 6 million was primarily due to a significant cost overrun on one large contract in 2023 and also lower pvt 150.

Richard A. Catalano: <unk> and CVD materials revenues as compared to 2022.

Richard A. Catalano: Our increase in operating expenses from the prior year is due to higher employee related cost to support our planned growth in our business additional selling expenditures and higher professional fees. These costs were offset by lower bonus costs and lower expenses for CVD materials due to the disposition of chance of line.

Our operating loss for the fiscal year was $4 9 million as compared to an operating loss of $1 8 million in 2022.

Richard A. Catalano: Our operating loss for the fiscal year was $4.9 million, as compared to an operating loss of $1.8 million in 2022. After non-operating income, consisting principally of interest income, our net loss for the year was $4.2 million, or $0.62 per share, basic and diluted. This compares to a net loss of $224,000, or $0.03 a share, in 2022. The net loss in 2022 was offset by $1.5 million of other income related to the recognition of employee retention credits, that being related to fiscal 2021. Now turning to the fourth quarter of 2023, our revenue for the quarter was $4.1 million, a decrease of $3.1 million, or approximately 43%. This decrease was primarily attributable to lower revenue in our CVD segment of $1.8 million, and this was related to lower PVT system revenues as compared to the prior year. Our system revenues for the fourth quarter were also impacted by an overrun that we had on that aforementioned large contract. Our CVD material revenues were lowered by about $1 million based on the sale and the wind down. Our gross profit margin for the quarter was a negative 8.5% as compared to 28% in the prior year quarter.

Richard A. Catalano: After nonoperating income consisting consisting principally of interest income our net loss for the year was $4 2 million or <unk> 62 cents per share basic and diluted this compares to a net loss of 224000 or three cents a share in 2022, the net loss in 'twenty two was offset.

Richard A. Catalano: <unk> by $1 5 million of other income related to the recognition of employee retention credits.

Richard A. Catalano: It has been related to fiscal 2021 now turning to the fourth quarter of 2023, our revenue for the quarter was $4 1 million a decrease of $3 1 billion approximately 43%. This decrease was primarily attributable to lower revenue in our CVD segment of $1.8 million in there.

Richard A. Catalano: This was.

Richard A. Catalano: The latest lower pvt system revenues as compared to the prior year our system revenues for the fourth quarter was also impacted by the overrun that we had on that before mentioned large contract. Our CBD material revenues were lower by about $1 million based on the sale and the wind down.

Richard A. Catalano: Our gross profit margin for the quarter was a negative eight 5% as compared to 28% in the prior year quarter. The negative gross margin in the quarter and the decrease in gross profit of $2 3 million was primarily due to the cost overruns on the contract that I mentioned as well as lower pvt, and CVT revenues.

Richard A. Catalano: The negative gross margin in the quarter and the decrease in gross profit of $2.3 million were primarily due to the cost overruns on the contract that I mentioned, as well as lower PBT and CBT revenues. CVD material revenues, I should say. The decrease in operating expenses of 0.1 million during the quarter as compared to the prior year was due to lower bonus costs and lower expenses for CVD materials. However, this was partially offset by some of our higher employee-related costs. Our operating loss for the quarter was $2.5 million, as compared to an operating loss of $221,000 in the prior fourth quarter. After interest income, our net loss for the quarter was $2.3 million, or $0.33 per share.

Richard A. Catalano: <unk> CVD material revenues I should say the decrease in operating expenses of <unk> 1 million during the quarter as compared to the prior year was due to lower bonus costs and lower expenses for CBD materials.

Richard A. Catalano: And again this was partially offset by some of our higher employee related costs.

Our operating loss for the quarter was $2 5 million as compared to an operating loss of 221000 in the prior year fourth quarter after.

Richard A. Catalano: After interest income our net loss for the quarter was $2 3 million or 33 per share. This compares to net income of the fourth quarter of 'twenty two of $1 5 million or 23 per share, but keep in mind that quarter had that $1.5 million special item related to the employee retention credit.

Richard A. Catalano: This compares to net income in the fourth quarter, $0.22 of $1.5 million, or $0.23 per share. But keep in mind that quarter had that $1.5 million special item related to the employee retention credit. Moving to our backlog, our backlog increased slightly from the prior year. It was $18.4 million as compared to $17.8 million as of last year.

Richard A. Catalano: Yes.

Moving to our backlog our backlog increased slightly from the prior year. It was $18 4 million as compared to $17 8 million as of last year.

Richard A. Catalano: Our working capital was $14.3 million at December 31st, 2023. This compares to $15.5 million at December 31st, 2022. Our cash and cash equivalents at December 31st, 2023 were $14 million, down slightly from the prior year, where it was at $14.4 million.

Richard A. Catalano: Working capital was $14 3 million at December 31, 2023. This compares to $15 5 million at December 31, 2022, our cash and cash and cash equivalents at December 31, 23 was $14 million down slightly from the prior year.

Richard A. Catalano: It was up $14 4 million.

Richard A. Catalano: As for our future results, we are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position or on future results of our operations and cash flows. Our return to consistent profitability depends, 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. 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 sufficient levels of operating cash.

Richard A. Catalano: As for our future results, we are 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 are returned to consistent profitability is dependent among other things the receipt of new equipment orders and our ability to mitigate the impact of some.

Richard A. Catalano: Fly chain disruptions and inflationary pressures as well as managing plans 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.

Richard A. Catalano: We will continue to assess our operations and we will take actions as necessary to maintain sufficient levels of operating cash.

Emmanuel N. Lakios: At this point, I'll turn it back to you. Thank you for your presentation. In summary, our focus remains on our customers, our employees, and our shareholders, of Growth and Return to Consistent Profitability. We do look forward to continuing to build on our recent wins and remain cautiously optimistic. Your comments and questions are important to us. At the close of the 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'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Manny: At this point I'll turn it back to Manny rich.

Rich. Thank you for your presentation in summary, our focus remains on our customers our employees, our shareholders and the pursuit of growth and return to consistent profitability.

Emmanuel N. Lakios: We do look forward to continuing to build on our recent wins and remain cautiously optimistic.

Emmanuel N. Lakios: Comments and questions are important to us with the close of the presentation I would like to open the floor up to your questions.

None: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. 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 like to move it from the queue.

Operator: You may press star 2 if you'd like to remove or come from the queue. Once again, that's star one to be placed into question Q. One moment, please, while we poll for questions. Our first question today is coming from Brett Reiss from Janney, Montgomery. Scott, your line is now live. Hi Manny, Hi Brett. How are you?

None: Once again Thats star one to be placed into question Q1 moment. Please while we poll for questions. Our first question today is coming from Brett Reiss from Janney Montgomery Scott. Your line is now live.

Hi, Manny Hi, Rich Hi, Brad how are you hi, Brad I'm good I'm good.

Brett Reiss: Hi Brett. I'm good. I'm good. The cost overrun, do you think whatever caused it was a one-off and whatever you had to do to kind of make sure it didn't happen again, you know, protocols have been put in place? Correct, if that's the end of the first question, Brett, yes, we do understand where the cluster overruns occurred, and there are different flavors that contributed to that, which I can't go into on the call right now, but we do understand what those were, and we have put in some corrective actions to mitigate that going forward.

Brett Reiss: The cost overrun.

Brett Reiss: Do you think whatever caused that was a one off and what have you had to do to kind of make sure that it didn't happen again, you know protocols have been put in place.

None: Yeah, you are correct if that if that.

Brad: It's the end of the first question Brett, Yes, we do understand where the cost for all of her onto third and there are different flavors that contributed to that which I can't go on the on the call right now, but we do understand what those where we have put in some corrective actions to mitigate that going forward.

Emmanuel N. Lakios: Great, great. Now, the backlog would be, you know, the reported $18.4 million, and then can I add the, you know, the $10 million from the multi-system SIC plus whatever the cost of the new PBT 200 is, so the backlog is $28 million plus? Minus whatever we ship and any minor adjustments that may come up, whatever we ship in the first quarter, correct? Right, alright, that's good. You know, it's been now about a year with no new PVT 150 orders. Um... Why do you think that is?

Brad: Right right.

Brad: Now the backlog would be a you know the reported $818 4 million and then can I add the $10 million from the multi system S. I C plus whatever the cost of the new Yeah P V.

<unk> 2200 days, so the backlog is 28 million plus.

Brad: Minus whatever we ship in any minor adjustments that may come up but whatever we ship in the first quarter correct.

None: Right Alright, that's that's that's good.

None: You know it's been not now like that about a year with with no new P. V T 150 orders.

None:

None: Why why do you think that is.

Emmanuel N. Lakios: Well, I think first and foremost, the demand for silicon carbide devices has... has been adjusted over the next couple of years and has been pushed out to the inflection point has been pushed out quite a bit... the customers we've dealt with, and that we have our installed base, continue on and utilize our equipment uh... but again, this slowdown in the marketplace has clearly affected all of the ships in the harbor, from the startups up to the So that's one; it's a marketplace slowdown. In addition to that, it takes a certain period of time to give birth, it takes a certain period of time to get qualified wafers and customers, etc. We can say our tools perform on a 150 basis, and that level of technical performance has won us a PVT 200 order, which is a 200 millimeter system, from our second customer.

None: Well I think first first and foremost the the demand for silicon carbide devices has.

None: It has been adjusted over the next couple of years and it's been pushed out to the the inflection point has been pushed out quite a bit the customers, we doubt with and that we have our own install base continue on and utilize our equipment.

None: But again this is this the slowdown in the marketplace I'm you know clearly has affected all of the ships in the harbor.

None:

None: To the east from the startups up to the very vertically integrated a household name. So that's one that's a marketplace slowdown. In addition to that you. It takes a certain period of time to give birth and it takes a certain period of time to get qualified our wafers and customers et cetera.

None: We can say our tools perform hum on the 150 basis and that that level of technical performance has garnished US a pvt, 200 order, which is a 200 millimeter system.

None: From our second customer Orissa, and we we are we planned it to us.

Emmanuel N. Lakios: And we planned to execute on that contract. You know, our plan is to be successful, but again, it takes a certain period of time to do the evaluation, etc. But I think the important thing is having that second account and also the successful launch of this first order R-VAR 200mm. Right, right. Now, things have kind of slowed down with people's enthusiasm for, you know, electric vehicles.

None: To execute on that are on that contract and.

None: Our plan is to be successful, but again it takes a certain period of time to do the evaluation et cetera, So but I think the important thing is the is having that second account.

None: And also the successful launch with this first daughter, our bar 200 millimeter system.

None: Right right now since things have kind of slowed down with People's enthusiasm with you know.

None: Electric vehicles.

Brett Reiss: Are there other areas in your business, you know, that can maybe, you know, take up some slack, and you're going to allocate more attention and corporate resources to? Yeah, I understand your point is well taken.

None: Are there other areas in your business.

None: You know that can maybe take up.

None: Slack in Ghana.

Yeah, allocate more attention and corporate resources to.

None: Yeah, Yeah, I understand your point is well taken we do have four markets for end use applications that we target.

Emmanuel N. Lakios: We do have four markets, or four end-use applications that we target. The good news on the demand side and the orders and now the backlog is the fact that, in addition to the power electronics, which the PBT 150 and then 200 serve from a crystal growth perspective, that market clearly, I think we all read the analyst reports and the..., and speak to the end users, that market is waiting for further adoption of its biggest market, which is electric vehicles. There's not much we can do to influence the outcome short of going out and buying EVs.

None: The good news in on the demand side and the orders and now the backlog is the fact that in addition to the power electronics, which the PBT of $1 50, and then 200 serve from a crystal growth perspective that market clearly I think.

None: We all read the analyst reports and the Oh.

None: And speak to our to the end users that market is waiting for further adoption of its biggest market, which is electric vehicles. There's not much we can do to influence shored up going on buying evs.

Emmanuel N. Lakios: But the benefit, as we've seen and that we announced in our press release, was that we also serve other marketplaces. We do serve the aerospace defense market, everything from ceramic matrix composite applications to high-temperature carbides, hypersonics type of applications.

None: But the benefit as we've seen and that we announced in our press release was that we also serve other marketplaces, we do serve the aerospace defense market.

None: Everything from ceramic matrix composite applications to high temperature carbides hypersonic type of applications and also with this recent order.

Emmanuel N. Lakios: And also with this recent order, a repurposing of that reactor technology for more industrial applications in the case of a silicon carbide component coating deposition system, which again we received, equated to approximately $10 million. So. The good news is we're in multiple, and we also have the battery application, which is, as I've said earlier, a technology in adoption. And those multiple markets.., again, help us tread water. And until a more substantive application, such as silicon carbide, actually, that way it comes through.

None: A repurposing of that reactor technology for more industrial applications in the case of a silicon carbide component.

None: Coding deposition system, which again, we received a multi system order in it equated to approximately a $10 million.

None: No.

None: The good news is women multiple and we also have the battery application, which is as I've said earlier on technology and adoption.

None: And as those multiple markets again help us tread water.

None: And until a more subsidy of application such as silicon carbide.

None: Actually that wave comes through so I think we're from a marketplace perspective, we're in for for markets that have various.

Brett Reiss: So I think we're, from a marketplace perspective, in four markets that have various degrees of health. Great. That's it for me. I wish you both a nice holiday, and thank you for taking my questions. Thank you. Thank you, Brett.

None: Degrees of house.

None: Great.

None: That's it for me Yeah, I wish you both.

Holiday and and thank you for taking my questions.

None: Thank you Brad you as well.

Operator: You as well. Thank you. As a reminder, that's Star One to be placed into question, Q.

None: As a reminder, that star one to be placed in the question queue. One moment. Please while we poll for further questions.

Operator: One moment, please, while we pull for further questions. We've reached the end of our question and answer session. I'd like to turn the floor back over to Manny for any further or closing comments.

None: We reached end of our question and answer session I'd like to turn the floor back over to Manny for any further or closing comments.

Emmanuel N. Lakios: Kevin Thank you.

Emmanuel N. Lakios: Kevin, thank you. And I want to thank all of you for dialing in today. I want to wish you all a pleasant weekend and happy holidays. We appreciate your attendance on this call, your support, and the loyalty of our shareholders, our employees, and all of you who are on the call today. If there are further questions, please reach out to myself or Rich directly. And this concludes our call. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Emmanuel N. Lakios: And I want to thank all of you for dialing in today I want to wish you all a pleasant weekend happy holidays. We appreciate your attendance on this call and your support and the loyalty of our shareholders our employees and all of you who are on the call today.

None: If there are further questions. Please reach out to myself or rich directly and this concludes our call. Thank you.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.

None: Yeah.