CVD Equipment - Q4 2023

Transcript

Operator (participant)

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. Presenting on the call today will be Emmanuel Lakios, President and CEO, and 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 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 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 N. Lakios (President and CEO)

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 development, 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 significant 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 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 present 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 customer's needs. Second, we received a $10 million multisystem order for our silicon carbide CVD coating reactors from an industrial customer. The tools will be used to deposit a silicon carbide protective coating on OEM components.

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?

Richard A. Catalano (EVP and CFO)

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 Tantaline subsidiary in May 2023, and the announced wind down of our MesoScribe 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. This is 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 Tantaline. 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, 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 was also impacted by an overrun that we had on that aforementioned large contract.

Our CVD material 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 PVT and CVD 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 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 2022 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. Working capital was $14.3 million at December 31, 2023. This compares to $15.5 million at December 31, 2022.

Our cash and cash equivalents at December 31, 2023, was $14 million, down slightly from the prior year, where it was at $14.4 million. 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 in 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.

Emmanuel N. Lakios (President and CEO)

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. 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.

Operator (participant)

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'd like to remove your company from the queue. Once again, that's star one to be placed into question queue. 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.

Speaker 3

Hi, Manny. Hi, Rich.

Emmanuel N. Lakios (President and CEO)

Hi, Brett. How are you?

Richard A. Catalano (EVP and CFO)

Hi, Brett.

Speaker 3

I'm good. I'm good. The cost overrun, do you think whatever caused it, you know, was a one-off and whatever you had to do to kind of make sure it doesn't happen again, you know, protocols have been put in place?

Emmanuel N. Lakios (President and CEO)

Correct. If that's the end of the first question, Brett, yes, we do understand where the cluster overruns occurred. 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. We have put in some corrective actions to mitigate that going forward.

Speaker 3

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, multisystem SiC, plus whatever the cost of the new, you know, PVT-200 is, so the backlog is $28 million plus?

Emmanuel N. Lakios (President and CEO)

Minus whatever we ship and any minor adjustments that may come up, whatever we ship in the first quarter. Correct.

Speaker 3

Right. All right, that's good. You know, it's been now, like, about a year with no new PVT-150 orders. Why do you think that is?

Emmanuel N. Lakios (President and CEO)

Well, I think first and foremost, the demand for silicon carbide devices has been adjusted over the next couple of years and has been pushed out. The inflection point has been pushed out quite a bit. The customers we've dealt with and that we have in our installed base continue on and utilize our equipment. But again, this slowdown in the marketplace, you know, clearly has affected all of the ships in the harbor, from the startups up to the very vertically integrated household names. So, that's one, it's a marketplace slowdown. In addition to that, it takes, you know, a certain period of time to give birth.

It takes a certain period of time to get qualified wafers and customers, et cetera. We can say our tools perform on the 150 basis, and that level of technical performance has garnered us a PVT-200 order, which is a 200 millimeter system, from our second customer. And we planned to execute on that contract. And you know, our plan is to be successful. But again, it takes a certain period of time to do the evaluation, et cetera. So I think the important thing is having that second account, and also the successful launch with this first order of our 200 millimeter system.

Speaker 3

Right. Right. Now, since things have kind of slowed down with, you know, people's enthusiasm with, you know, electric vehicles, are there other areas in your business, you know, that can maybe, you know, take up the slack and you're gonna, you know, allocate more attention and corporate resources to?

Emmanuel N. Lakios (President and CEO)

Yeah, yeah, I understand. Your point is well taken. 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 PVT-150 and then 200 serve from a crystal growth perspective, that market clearly, I think we all read the analyst reports 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 short of going out and 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. Everything from ceramic matrix composite applications to 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 coating deposition system, which again, we received a multisystem 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've said earlier, a technology in adoption.

And those multiple markets, again, help us, you know, 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, we're, we're in 4, 4 markets that have various degrees of health.

Speaker 3

Great. That's it for me. I wish you both, you know, a nice holiday, and thank you for taking my questions.

Emmanuel N. Lakios (President and CEO)

Thank you.

Speaker 3

Thank you, Greg.

Emmanuel N. Lakios (President and CEO)

You as well.

Operator (participant)

Thank you. As a reminder, that's star one to be placed in the question queue. 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 closing comments.

Emmanuel N. Lakios (President and CEO)

Kevin, thank you. And I wanna thank all of you for dialing in today. I wanna wish you all a pleasant weekend. 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.

Operator (participant)

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