CVD Equipment - Q1 2024

Transcript

Operator (participant)

Greetings and thank you for standing by, and welcome to CVD Equipment Corporation's First Quarter Fiscal Year 2024 Earnings Conference 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, 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, 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 markets, 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 filing with the SEC, included but not limited to risk factors sections of the company's 10-K for the year ending December 31st, 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 obligations to update any forward-looking statements based on new circumstances or revised expectations. Now I'd like to turn the call over to Emmanuel Lakios.

Emmanuel Lakios (President and CEO)

Operator, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our first quarter 2024 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 the Q&A session. First quarter 2024 revenue was $4.9 million, down significantly versus same prior year period, as our business continues to experience fluctuations in revenue given the nature of the emerging growth and markets we serve. While we are disappointed with our first quarter performance, we'll stay the course on strategic efforts to achieve profitability, carefully managing our costs and cash flow while simultaneously focusing on growth and return on investment. As we mentioned in our year-end press release, we started off 2024 with several key order wins during the first quarter.

Specifically, this included a strategic order for our PVT-200 system from a new customer, marking an important milestone for our silicon carbide crystal growth system. The PVT-200 customer plans to evaluate our equipment for potential additional orders. In addition, we received a multi-system order for our industrial market silicon carbide CVD coating system for approximately $10 million. The order performance of the first quarter resulted in an increase in backlog from $18.4 million at year-end to $27.1 million at March 31st, 2024. We are encouraged by these orders as we continue to fund both research, development, sales, marketing activities, including direct engagement with multiple potential customers, highly focused on penetrating key market opportunities. I would like to turn the call over to our CFO, Rich Catalano, who will provide an overview of our first quarter financial results.

Richard Catalano (EVP and CFO)

Thank you, Manny, and good afternoon. Our revenue for the first quarter was $4.9 million. This compares to $8.7 million for the first quarter of 2023. This is a decrease of $3.8 million, or 43%. The decrease in revenue versus the prior year period was primarily attributable to lower revenue of $2.9 million from our CVD equipment segment, a $0.4 million decrease in revenue from our SDC segment, and a $0.6 million decrease from the CVD materials segment due to the disposition of Tantaline in May 2023 and the wind-down of MesoScribe's operations. The decrease in CVD equipment revenue in the period was principally the result of the revenue associated with our PVT-150 systems in the prior period as compared to no such revenue in the current period.

While our SDC segment revenues were 16% lower than the first quarter of 2023, it was $0.6 million, or 44%, higher than the fourth quarter of 2023 due to increased demand for SDC's gas and chemical delivery systems. Gross profit for the three months ended March 31st, 2024, was $0.9 million, with a gross profit margin of 17.5%. This compares to a gross profit of $2.4 million and a gross profit margin of 28% for the three months ended March 31st, 2023. The decrease in gross profit of $1.6 million was primarily the result of lower gross profit margins on contracts currently in progress as compared to the first quarter of 2023, which benefited from contracts with higher gross margins. The operating loss for the first quarter of 2024 was $1.6 million as compared to an operating loss of $0.2 million in the first quarter of 2023.

This increase in the operating loss was due to the lower gross profit margin of $1.6 million that was partially offset by lower personnel costs from a reduction in our workforce in January 2024 and also lower bonus accruals. After net income, which consists principally of interest income, our net loss for the first quarter was $1.5 million, or $0.22 per share for both basic and diluted. This compares to a net loss for the first quarter of 2023 of $40,000, or $0.01 per share for both basic and diluted. As for our balance sheet, our cash and cash equivalents at March 31st, 2024, was $11.9 million as compared to $14 million at December 31st, 2023.

This decrease in cash was principally due to the net loss of $1.5 million, an increase in contract assets of $1.1 million, an increase in accounts receivable of $1.1 million, as well as an increase in inventories of $0.5 million. These were offset by an increase in contract liabilities of $1.1 million, and also we have non-cash items of $0.4 million, principally depreciation as well as stock-based compensation. Our working capital at March 31st, 2024, is $13.1 million. This compares to $14.3 million at December 31st, 2023. We are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of operations and cash flows.

Our return to profitability is dependent upon, 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. 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 evaluate the demand for our products, assess our operations, and 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 (President and CEO)

Rich, thank you for your presentation. In summary, the first quarter results of 2023 reflect our efforts to continue to focus on everything we do and those who we serve. Our focus remains on our customer markets, our employees, our shareholders, 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 presentation, I would like to open the floor to your questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you 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 you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Brett Reiss with Janney Montgomery Scott. Please proceed with your question.

Brett Reiss (SVP and Investment Financial Advisor)

Hi, Manny. Hi, Richard. How are you guys doing?

Emmanuel Lakios (President and CEO)

Hi, Brett. How are you?

Richard Catalano (EVP and CFO)

Hi, Brent.

Brett Reiss (SVP and Investment Financial Advisor)

Good. Backlog increase, very nice. The $10 million silicon carbide protective coating order and even the $3.6 million new PVT-200 order, I assume you use some sort of percentage of completion method of recognizing revenue. Do you know kind of what the cadence of recognition will be of the revenues from those two orders, the balance of the year?

Emmanuel Lakios (President and CEO)

First, Brett, I think an adjustment to the discussion. The question on the $10 million multi-system order for the silicon carbide protective industrial coating system, it is accurate. The PVT system was for a single PVT. I think you stated that it was $3.6 million or $3.7 million. That's not accurate.

Brett Reiss (SVP and Investment Financial Advisor)

Okay. Okay. So let's unbundle it.

Emmanuel Lakios (President and CEO)

But I didn't ask your question.

Brett Reiss (SVP and Investment Financial Advisor)

$10, yeah?

Richard Catalano (EVP and CFO)

Yeah. Just to answer your question, Brett, on the accounting, the $10 million order will be recognized over time. We just got that order recently, and that will be recognized toward the latter part of this year, in 2024, into 2025 as we work on the contract. With respect to PVTs, since we have that as one of our standard products that's available for sale, given that we have now a second customer, our accounting position on revenue recognition will be based on when we ship the product to the end customer, or what's referred to as point-in-time revenue recognition.

Emmanuel Lakios (President and CEO)

We anticipate that this year.

Richard Catalano (EVP and CFO)

Yeah. That will be this year going forward. We have not recognized any revenue on that PVT-200 order. That will be recognized later on in 2024.

Brett Reiss (SVP and Investment Financial Advisor)

All right. What I did is your backlog went up $13.6. I took the $10, and I just assumed that the $3.6 was all the new PVT, but it's not. So the backlog came from other products.

Emmanuel Lakios (President and CEO)

Well, we had a healthy SDC quarter as well. In addition to that, spare parts is a portion of our business, and we had an additional system order, which we didn't speak about, which is part of our legacy product line.

Brett Reiss (SVP and Investment Financial Advisor)

Okay. That's great. The SG&A, you reduced it from $1.6 million-$1.3 million this quarter. Is that a good run rate going forward?

Richard Catalano (EVP and CFO)

Yeah. I think it does reflect our current run rate. We did have some reduction in force, as I mentioned. We do have lower bonus accruals as well. So we don't give guidance per se, but that is kind of consistent with what we would expect going forward, subject to other things that might pop up, for example, as far as any other business activities that might require additional fees, for example, which we can't predict, but.

Emmanuel Lakios (President and CEO)

Yeah. It's also subject to the business situation and as we get more orders or as our order rate fluctuates.

Brett Reiss (SVP and Investment Financial Advisor)

Right. And I see, despite this soft quarter, you still are keeping the pedal to the metal on R&D with $746,000 versus $602,000. You plan to continue to kind of do that?

Emmanuel Lakios (President and CEO)

We have not affected at all our engineering programs, and quite a bit of our engineering effort is going into satisfying the large silicon carbide coating systems, as well as the final launch and delivery of our alpha beta PVT-200 system.

Brett Reiss (SVP and Investment Financial Advisor)

Right. Right. How many employees did you have to kind of let go to bring overhead down to our new current reality?

Emmanuel Lakios (President and CEO)

Yeah. We don't have a tendency to release that information. We find that to be a competitive advantage.

Brett Reiss (SVP and Investment Financial Advisor)

Got it. All right. I'm going to drop back in queue. Thank you very much. The backlog, very encouraging.

Emmanuel Lakios (President and CEO)

Thank you. Thank you, Brett.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to pass the call back over to Emmanuel for closing comments.

Emmanuel Lakios (President and CEO)

Okay. Thank you, operator. Thanks to everyone for dialing in today. We appreciate the attendance on the call and your support, as well as the loyalty from all our shareholders and some of the employees who are actually on the call today. We appreciate that. If you have any further questions, please reach out to me directly or with Rich. This concludes our first quarter call. Thank you.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.