CVD Equipment - Earnings Call - Q3 2019

Transcript

Speaker 0

Greetings, and welcome to the CBD Equipment Corporation Third Quarter twenty nineteen Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Len Rosenbaum.

Please go ahead, sir.

Speaker 1

Good afternoon, everyone, and thank you for joining our earnings call. The company's focus during the third quarter was on getting our materials facility up and running, starting our MesoScribe facility back up after moving from California to New York and three, pursuing additional equipment sales. The company has invested $2,500,000 during 2018 in building improvements, machinery and other expenses related to CVD material and $2,100,000 in the first nine months of 2019. I'm glad to say MesoScribe is now operating and Tantaline is equipment continues to be installed and tested, and we have continued to increase our marketing efforts for equipment and material sales. We are now showcasing our material facility operations and offering material coating services to new and existing customers.

The expanded material operations will enhance our capabilities in providing corrosion resistant coatings through Tantaline for medical, pharma, oil and gas applications, sensors through MesoScribe for defense, aerospace and turbine applications, and through our CVD Materials subsidiary for carbon composite materials, medical coatings, electronic substrate materials and further expansion into other coatings for defense, aerospace and industrial applications. We have continued working on our fluid reactor technology and additional testing will be done this quarter with the Center of Biotechnology at Stony Brook University to further our novel patent pending technology on an improved extracorporeal membrane oxygenation device. We anticipate further collaboration for this promising technology and application. During the fourth quarter, Tantaline manufacturing should start being operational, and we will continue working on further improvement in both equipment and material sales. We anticipate the high margin growth markets in materials for corrosion resistance, medical, aerospace and defense coatings will help flatten the uneven levels of our equipment sales.

We will continue to monitor orders and expenditures, and we remain committed to returning to profitable quarterly results. With that, I would like to turn the call over to our CFO, Tom McNeil.

Speaker 2

Thank you, Lynn. In the third quarter, our revenue was $5,700,000 as compared to $4,000,000 in the third quarter of twenty eighteen, an increase of $1,700,000 or 41.6%. And our net loss was $138,000 or $02 per diluted share, as compared to a net loss of $2,500,000 or $0.39 per diluted share in the third quarter twenty eighteen. Our nine month revenues were $14,100,000 as compared to $19,600,000 in 2018, a decrease of $5,500,000 or 28.1 percent. And our net loss was $3,700,000 or $0.57 per diluted share as compared to a net loss of $3,300,000 or $0.51 per diluted share in the first nine months of twenty eighteen.

Our revenue increase of $1,700,000 in this third quarter as compared to the year ago period was primarily the result of increases in spare parts and equipment sales. For the September, the revenue decrease of $5,500,000 was primarily attributable to the completion of large equipment orders and not being able to replace them in a timely fashion. Our sequential quarterly revenue increased $800,000 in the third quarter to 5,700,000.0, which is an increase of 16%. And was our second sequential quarterly revenue increase of 1,500,000.0, Q2 over Q1 of 1,500,000.0 or 41.8%. With respect to new orders, during the third quarter, we received orders over prior this quarter, as compared to 10% in the 2019 and negative 11% in the first quarter of twenty nineteen.

This is the result of: one, improving operating efficiencies two, mix of product revenue three, increased revenue that improved contribution margins as compared to the two prior quarters in 2019 and lastly, the cost containment measures we have taken. Turning to operating expenses. Our cost containment measures this year have resulted in a sequential decrease of $388,000 in our operating expenses during the third quarter. This decrease includes the effects of a one time $200,000 recovery of the final contingent earn out related to our MesoScribe acquisition. With respect to other income, we recognized $207,000 in rental income in the 2019 related to our CVD materials facility.

Overall, we believe that the progress we made again this quarter has substantially progressed the company toward a return to profitability. With respect to our liquidity, cash and cash equivalents were $6,700,000 at September 3039, as compared to $11,400,000 at December 3138. Working capital was 9,700,000.0 at 09/30/2019 as compared to 15,400,000.0 at 12/31/2018, a decrease of 5,700,000.0. This decrease for the nine months ended September 3039, was primarily attributable to overall reduced revenue and the resultant net loss, 2,100,000 of capital invested that Len talked about before related to our primarily related to our building improvements, machinery for the CVD Materials operation, and debt service payments of approximately $900,000 which includes payments on investment in the CBD Materials building. While our cash is expected to decrease during the next quarter, our fourth quarter, albeit at a much slower rate than the last two quarters.

We believe the improved order flow, cost containment measures and improved gross profit margins provide us sufficient cash to meet our working capital and capital expenditure requirements for the next twelve months. Now I'd like to turn the call back over to the operator for your questions.

Speaker 0

Thank you. We'll now be conducting a question and answer session. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. Once again, that is star one to be placed into question queue.

Our first question today is coming from Brett Reiss from Janney Montgomery Scott. Your line is now live.

Speaker 3

Hi, line hi, Len. Hi, Tom. How are you?

Speaker 4

Good. How are you? Good. Thank

Speaker 3

you. Good. The bookings of 7,900,000.0, is it all legacy business or is there a component of the MesoScribe and the Tantaline new material handling business embedded in that?

Speaker 1

There is some of both embedded in that number.

Speaker 3

Can you share what that is or you don't wanna break that out?

Speaker 2

We I what I can tell you is the the 7.9 is is appreciably equipment sales, parts service, etcetera, SDC. There is a component of it with materials, but primarily, it's it's the core business as we exist today.

Speaker 3

Okay. Now the Tantaline new business, your potential new customers are are in, you know, various sectors of the economy, oil service, medical products. Is the time for these different businesses to make a decision to use tantaline, does it vary from industry to industry?

Speaker 1

I'm sure it'll vary from industry to industry and also from customer to customer. And, you know, I'm not overly concerned. You know, the first six months or a year, we'll be getting out a lot of product to, let's say, existing customers that have used it and also to new customers for them to try it.

Speaker 3

So so when the tantaline operations are fully operational in the new facility in the fourth quarter, order flow for Tantaline can can start, you know, pretty much immediately?

Speaker 1

Well, they won't be fully operational in the fourth quarter. They'll start to be operational in the fourth quarter. You know, it'll take us probably most of the first half of next year to get everything fully operational. We got more than one system going in.

Speaker 3

Right. Right. Right. Now, Len, you know, I, you know, dropped in and I saw, you know, your booth at at the Javits Center, you know, where you were you know, you had the tantaline offerings. And, you know, I observed good traffic.

The people manning the booth, you know, were you know, I'm a salesman. I you know, they very good at what they were doing and interacting with people. But do you get a sense that, you know, these were people that you reached out to at Javits that are just kind of curious and testing the waters? Or do you get a sense, you know, there's gonna be real order flow from from that kind of marketing that you did.

Speaker 1

We wouldn't be investing the way we are if we didn't feel there was a real business behind this. The Jacob Javits Center is only one aspect of how we're trying to get out there and market the product. There are others trade shows we go to. There are samples that we send to customers. There's, you know, sales people out there that are doing the selling for us.

So it's more than one just the Jacob Javits Center. Excuse me.

Speaker 3

Are you finished with all your cost containment? Or is there room for for, you know, further reductions? And can you quantify what that might be?

Speaker 2

Yeah. Brett, I I think we're we're it it never ends. I think it you're always looking at everything from how can we do it better, faster, more efficiently, number one. And then number two, we're constantly looking at our resources as we build out and balance with new orders related to the material side. So we're you know, like like any other company out there, you know, it just it's a never ending process.

You're always looking.

Speaker 3

Right. Right. If if volumes in business, you know, returns at a robust level, the cost cutting that you've done, you know, have you basically, you know, trimmed fat, but, you know, you didn't have to eat into bone that might impact you being able to service the additional revenues that might come in?

Speaker 1

Well, we never look to reduce, you know, personnel that are very beneficial to the company. Hopefully, you will announce additional hirings as the orders keep going up.

Speaker 3

Okay. And I think there was a release that the tenant that you have in, you know, gave back half the space. You know, are you vigorously, you know, attempting to find a, you know, a a replacement tenant?

Speaker 2

Yes. We we you know, the the tenant's out at the end of the year, December 31, and our broker has it. He's pursuing it. And just like we reasonably quickly were able to get both spaces. You can never be quite sure when you're going to get that right tenant to fill it in, but it's a very desirable space, high ceilings.

And again, Brett, this is just a component of the overall picture. It helps lower costs, but it's you know, we have a broker doing it. It's not our focus.

Speaker 0

Thank you. Our next question is coming from Morton Howard, a private investor. Your line is now live.

Speaker 4

Hi. I feel like Moses was in the desert for forty years. We've been in a sort of a quasi desert for two or three. I hope we're getting out of it. And we were hoping one you know, five years ago that we'd be doing a 100,000,000.

Obviously, we're not gonna do that. But a thing that that sounds so sexy when you bought it and the guy came to the annual meeting and talked about it, does that have a potential of being a $5.10, $20,000,000 division, say, in three, four, five years?

Speaker 1

The answer to that is outright yes. Okay. We would not have pursued it otherwise.

Speaker 4

Okay. That's good. Well, when will we see if it's gonna be 5,000,000 or something like that in three or four years, when will we see a number that you can you don't need glasses to see?

Speaker 1

Well, right now, it's merged in with the materials operations, and, hopefully, you'll see the materials numbers going up.

Speaker 0

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments. Actually, in the meantime, if you'd to be excuse me, if you'd to be placed into question queue, please press star one at this point. Please one moment, please, while we pull for further questions.

I will now turn the floor back over to management for any further or closing comments.

Speaker 1

Thank you, everyone, for joining the earnings call, and I look forward to speaking to you next quarter. Thank you.

Speaker 0

That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.