CVD Equipment Corporation (NASDAQ:CVV) Q1 2023 Earnings Call Transcript May 15, 2023

Operator: Greetings and thank you for standing by and welcome to the CVD Equipment Corporation’s First Quarter Fiscal 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. Presenting on the call today will be Emmanuel Lakios, President and CEO and Member of the CVD Board of Directors; and Richard Catalano, 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.cvdequipment.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, 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 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 December 31st, 2022. 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 the new circumstances or revised expectations. Now, I would like to turn the call over to Emmanuel Lakios.

Emmanuel Lakios: Paul, thank you and good afternoon everyone. 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. 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 2022. During the first quarter 2023, we recognized a net loss of $40,000 or $0.01 per basic and diluted share. This compares to a net loss of $1 million or $0.15 per basic and diluted share for the same period 2022. We have in the past noted that we expect fluctuations in revenue due to the fluctuations in the timing of orders.

Orders for the first quarter of 2023 were $2.9 million, this was lower than anticipated orders for the quarter. This resulted in a decrease in our backlog from $17.8 million at December 31st, 2022, to $12 million at March 31st, 2023. The decrease in order may have a negative impact on our revenues over the next couple of quarters. We continue to be cautiously optimistic as our served markets recover, develop, and grow, we will be able to obtain an increased order level. 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.

In the power electronics market, we previously announced receiving an order for a total of 30 PBT 150 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-millimeter silicon carbide wafers. We recognized $2.5 million of revenue during the first quarter of 2023 related to these orders and expect to ship the remaining 10 of 30 units before the end of the second quarter. 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. The success of our efforts is dependent on the performance of our equipment in the field.

Overall market conditions, our customers’ ability to qualify their end product as well as the capital markets. A recent development in our battery material market occurred in early May and we are excited to have received a repeat order from 1D Battery Solutions for our PowderCoat-1100 system and components for approximately $1.8 million. This system will be used by 1D battery solutions to add nanoscale silicon to carbon powder for use in the anode section of the battery. This addition of silicon enhances the performance of the battery and the application is in line with our focus on markets that electrify everything. 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 gas turbine engine components.

CMCs can withstand extreme temperatures and are one-third the weight of nickel-based super alloys. This allows jet engines to run hotter, thereby consuming less fuel and emitting less pollutants. As previously announced, during the fourth quarter of 2022, we received the production CIV tool to manufacture CMCs for aerospace gas turbine engines for approximately $3.7 million. Our customers now include two of leading manufacturers of gas turbine engines. 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. CVD Equipment Corporation’s objective remains to be a profitable growth company through a focus on products that serve growth markets, specifically hot power electronics, EV battery materials, and aerospace and defense specialty materials.

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 Catalano, who will provide you an overview of our first quarter results.

Richard Catalano: Okay. Thank you, Manny and good afternoon. Our 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%. The increase in our revenue was primarily attributable to our PBT 150 product line, which contributed $2.5 million to the current quarter as compared to revenue in the first quarter of 2022. In addition, our SDC segment had a strong quarter with an increase of $80,000 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 than the $7.2 million for the fourth quarter of 2022. This increase was due to higher revenues from both our CVD equipment and SDC segments.

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 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. 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 of leveraging our fixed costs on higher sales levels as well as an improved product mix.

These benefits offset certain increases in material components as well as compensation costs. The increase in our operating expenses for both from the prior year quarter and from our fourth quarter is due to higher employee-related costs to support the growth of our businesses as well as — and we also had additional selling expenditures and professional fees. After accounting for non-operating other income, which principally consist of interest income, our net loss for the first quarter was $40,000 or $0.01 per share for both basic and diluted. This compares to a net loss for the first quarter of 2022 of $1 million or $0.15 loss per share for basic and diluted. Our net income in the fourth quarter of 2022 was $1.5 million or $0.23 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 employee retention credit that we recorded after we completed an analysis that determined the company was eligible to receive this credit for certain quarters during fiscal 2021. Now, turning to our backlog. Our backlog at March 31st, 2023 was $12 million as compared to $17.8 million as of December 31st, 2022. This does represent a decrease of $5.8 million as our revenue of $8.7 million exceeded our bookings of $2.9 million. Our backlog at March 31st consists of $10.1 million relating to remaining performance obligations on our contracts in progress as well as certain contracts not yet started with the balance of approximately $1.9 million, representing other orders received from customers such as spare parts.

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 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 inventories of about $300,000, a decrease in accrued expenses of approximately $500,000, primarily due to the payment of year end bonuses. These changes were partially offset by a reduction in accounts receivable of $1.4 million. Our working capital at March 31st, 2023, was $15.7 million as compared to $15.5 million at December 31st, 2022.

As to our future results, we are not able 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, 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 in order rate as well as other 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 considering all these factors, 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 will take actions as necessary to maintain our operating cash to support our working capital needs. I’ll now turn it back to Manny.

Emmanuel Lakios: Rich, thank you for your presentation. In summary, the first quarter results for 2023 reflect our efforts to continue to focus on everything we do and those who we serve. Our 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 optimistic. Your comments and questions are important to us. With the close of the canned presentation, I would like to open up the floor to your questions.

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Brett Rice with Jamie Montgomery Scott. Please proceed with your question.

Operator: Thank you. Our next question is from Krish Sankar with Cowen and Company. Please proceed with your question.

Operator: [Operator Instructions] Our next question is from John [Indiscernible]. Please proceed with your question.

Operator: Thank you. Our next question is from Orin Hirschman with AIGH Investment Partners. Please proceed with your question.

Operator: Thank you. There are no further questions at this time. I’d like to hand the floor back over to Emmanuel Lakios for any closing comments.

Emmanuel Lakios: 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. 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.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.