CVD Equipment Corporation (NASDAQ:CVV) Q4 2023 Earnings Call Transcript

CVD Equipment Corporation (NASDAQ:CVV) Q4 2023 Earnings Call Transcript March 28, 2024

CVD Equipment Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and thank you for standing by, and 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. Presenting on the call today will be Emmanuel Lakios, President and CEO and a member of the CVD Board of Directors; and Rich Catalano, Executive Vice President and Chief Financial Officer. We posted our earnings press release and call replay information on the Investor Relations section of our website. Before we 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 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 risk factors section of the company’s 10-K for the year ended December 31, 2023. 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’ll turn the call over to Emmanuel Lakios. Please go ahead, sir.

Emmanuel Lakios: 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 developments, 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 markets we serve. We will we were we were and are disappointed with both the fourth quarter and full year performance. We’ll stay the course of our strategy to return to consistent profitability with a focus on growth and return on investments.

Our primary goal is to expand presence of penetration 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, we successfully penetrated a second PVT equipment customer with an evaluation unit for our newly launched PVT 200 system used to grow 200-millimeter silicon carbide crystals. This represents an important milestone for CVD. with potential follow-on production orders, should our equipment effectively meet the customers’ needs. Second, we received a $10 million multi-system order for our silicon carbide CVD. coding reactors from an industrial customer. The tools will be used to deposit a silicon carbide protective coating on OEM component.

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 markets. 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. Rich?

Rich Catalano: Thank you, Manny, and good afternoon. 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 was offset by higher aerospace revenue. Our CVD materials business was lower by $2 million. This is due to the sale of our candle line subsidiary in May 2023, and the announced wind down of our metal scrap operations. These decreases were offset by an increase of $0.6 million in our SDC segment due to higher demand. Our gross profit margin was 21% in 2023 as compared to 26% in the prior year. The decrease in gross profit of $1.6 million was primarily due to significant cost overrun on one large contract in 2023 and also lower PVT 150 and CVD 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. These costs were offset by lower bonus costs and lower expenses for CVD Materials due to the disposition of tangibles. 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 ’22 was offset by $1.5 million of other income related to the recognition of employee retention credits of 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’s 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 was also impacted by an overrun that we had on that before-mentioned launch contract. Our CVD Materials revenues were lower 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. 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 TVT and CVT 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. 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 $221,000 in the prior year fourth quarter. After interest income, our net loss for the quarter was $2.3 million, or $0.33 per share. This compares to net income of the fourth quarter of ’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 credits. 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.

Our 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, where it was up $14.4 million. As to our future results, we are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position or future results of our operations and cash flows. Our return to consistent profitability is dependent among other things, 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.

At this point, I’ll turn it back to Manny, which Thank you for your presentation.

Emmanuel Lakios: In summary, our focus remains on our customers, our employees, our shareholders and the pursuit 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 with the close of the presentation. I would like to open the floor up to your questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question today is coming from Brett Reiss from Janney Montgomery Scott.

Brett Reiss: The cost overrun — do you think whatever caused it, it was a one-off and whatever you had to do to kind of make sure it doesn’t happen again, protocols have been put in place.

Emmanuel Lakios: It’s correct that if that’s the end of the first question, right? Yes, we do understand where the cluster of Mirant’s inferred, um and um, there are different flavors that contributed to that, which I can’t go on the call right now, but we do understand what those were. We have put in some corrective actions to mitigate that going forward.

Brett Reiss: Right. Now the backlog would be the reported $18.4 million. And then can I add the $10 million from the multi-system SIC, plus whatever the what’s the new PBT 200. So the backlog is $28 million-plus?

Emmanuel Lakios: Minus whatever we ship and any minor adjustments that may come off whatever we ship in the first quarter, correct.

Brett Reiss: Right. That’s good. And it’s been now like about a year with no new PVT 150 orders. Why do you think that is?

Emmanuel Lakios: I think, first, some first and foremost, the demand for silicon carbide devices has it has been adjusted over the next couple of years and has been pushed out to the on the inflection point has been pushed out quite a bit on the customers we’ve dealt with and that we have in our installed base of continue on and utilize our equipment on it. But again, this is the slowdown in the marketplace. Some clearly has affected all of the ships in the harbor off to the start from the start-ups up to the very vertically integrated household name. So and 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 of wafers and customers, et cetera on, we can say our tools perform on the 150 basis and that that level of tactical performance has garnish does a PVT 200 order, which is a 200-millimeter system on from our second customer.

And we have we planned it to and to execute on that on that contract and on 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 and also the successful launch with this first order of our 200 millimeter system.

Brett Reiss: Right. Now, since things have kind of slowed down people’s enthusiasm with electric vehicles? And are there other areas in your business and that can maybe take up the slack in your go and can allocate more attention and corporate resources to?

Emmanuel Lakios: Yes, I understand your point is well taken on. We do have some four markets of four end-use applications that we target on 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 150 and then 200 serve from a crystal growth perspective of that market. Clearly, I think we all read the analyst reports and the US and speak to us to the end users of that market is waiting for further adoption of its biggest market, which is electric vehicles. There’s not much we can do the influence on shore up going on buying EVs, 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 on everything from ceramic matrix composite applications, too high temperature carbide, hypersonics type of applications. And also with this recent order, a repurposing of that reactor technology for more industrial applications. In the case of a silicon carbide component, a coating deposition system, which again, we received a multi-system order and it 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 said earlier, a technology and adoption and those multiple markets, again help us on tread water and until a more substantive application such as silicon carbide, actually that wave comes through. So I think we’re from a marketplace perspective.