CVD Equipment - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue was $7.41M (+80.3% y/y) with second consecutive positive net income ($0.13M, $0.02 EPS); sequentially, revenue declined vs Q3 ($8.19M) while gross margin improved to 27.3% as mix normalized and despite a $0.3M non‑cash PVT150 inventory write‑down.
• Aerospace/Defense continued to recover; orders were $7.1M in Q4 driven by aerospace and SDC gas delivery, including a $3.5M CVI follow‑on order announced in November; year‑end backlog was $19.4M (vs $18.4M in 2023), stable vs $19.8M at 9/30.
• Silicon carbide (SiC) remains a headwind: customer evaluation of first PVT200 continues, but market is challenged by wafer overcapacity and price declines; management recorded $1.3M total FY24 PVT150 write‑downs.
• Management flagged 2025 risks from potential tariffs and supply chain costs; cash ended the year at $12.6M (vs $14.0M prior year), and liquidity is expected to cover needs for the next 12 months.
• Street consensus (S&P Global) for Q4 was not available; results should be evaluated vs internal expectations and order/backlog trajectory rather than consensus beats/misses (S&P Global consensus unavailable).

What Went Well and What Went Wrong

• What Went Well

  • Sequential margin execution: gross margin reached 27.3% in Q4 (vs 22.4% in Q3) aided by contract mix; operating swung to +$0.04M from a $(2.47)M loss in Q4’23, with net income of $0.13M vs $(2.27)M y/y.
  • Aerospace momentum: orders of $7.1M in Q4, including a $3.5M CVI system for gas turbine engine materials; backlog $19.4M at year‑end and management cites continued recovery in aerospace/defense.
  • Strategic product progress: first PVT200 shipped and is meeting/exceeding internal performance specs at the evaluation customer, supporting the long‑term SiC roadmap despite market softness (“meeting or exceeding our performance specification”).

• What Went Wrong

  • SiC end‑market weakness: global overcapacity and wafer price declines (from ~$1,000 to < $300 per wafer) pressured PVT150 demand, driving a $0.3M Q4 and $1.3M FY24 non‑cash inventory write‑down; near‑term demand visibility limited.
  • Sequential top‑line downtick: revenue declined from $8.19M in Q3 to $7.41M in Q4 as orders/revenue remain inherently lumpy in emerging markets; EPS stepped down to $0.02 from $0.03.
  • Tariff/supply chain risk: management highlighted potential 2025 challenges from tariffs and higher component costs (though some mitigation through stocking and sourcing has helped to date).

Transcript

Operator (participant)

Greetings and thank you for standing by. Welcome to CVD Equipment Corporation's Fourth Quarter and Fiscal Year 2024 Financial Results 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 this 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 at www.cvdequipment.com. Before I begin, I would 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, and 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 ending December 31, 2024. 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 revise expectations. Now, I would like to turn the call over to Emmanuel Lakios.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Operator, thank you. Good afternoon, everyone. Thank you all for joining us today to discuss our fourth quarter and fiscal year 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 our question-and-answer session. Our fourth quarter 2024 revenue was $7.4 million. That represents an 80.3% increase from prior year fourth quarter, while it was lower than the $8.2 million we reported for the third quarter of 2024. Our revenue for the year 2024 was $26.9 million, 11.5% higher than prior year. As previously discussed, we launched and shipped a PVT200 system to a new account for our PVT product line during the second quarter of 2024. As we stated on our last call, this was a strategic order for silicon carbide 200-millimeter crystal boule growth.

The customer for our first PVT200 system is continuing to evaluate the performance of our system for possible additional orders. We do continue to support our installed base of PVT150 systems and pursue additional PVT150 and PVT200 orders. However, the silicon carbide market has remained challenging due to the global overcapacity of wafers and a decline in wafer prices. Our orders in the fourth quarter were $7.1 million, driven by customer demand in both our CVD and SDC segments. During 2024, we continue to see an ongoing recovery of our aerospace and defense market. As previously announced in early November, we received a $3.5 million follow-on order for our CVI/CVD3500 from an existing aerospace customer. Orders for the full year of 2024 were $28.1 million as compared to $25.8 million for the fiscal year 2023, an increase of 8.9%.

As a reminder, during the first quarter of 2024, we did receive a $10 million multi-system order in our industrial market from a company in the business of coating OEM components with silicon carbide. We continue to be focused on four key strategic segments: aerospace defense, microelectronics, including high-power electronics, energy storage, including battery materials, and industrial. We also, on a selective basis, continue to support some legacy applications. In 2024, we completed the end-of-life for our MesoScribe product line, which will allow us to focus on our core CVD and SDC product lines. We are encouraged that our backlog on December 31, 2024, was $19.4 million, which is 4.9% higher than our 2023 year-end backlog of $18.4 million.

While our fourth quarter represents the second consecutive quarter of positive net income, we continue to expect our orders and revenue levels to continue to fluctuate given the nature of our emerging growth and markets that we serve. In addition, the current geopolitical environment, inclusive of the possible imposition of tariffs, may affect our supply chain and increase the cost of components and materials. This will present us with new challenges in fiscal 2025 and beyond. We are staying the course of our strategic efforts to build critical customer relationships in the markets we serve, while carefully managing our expenses and operations in order to achieve our goal of long-term profitability and positive cash flow, all this while simultaneously focusing on growth and return on investment.

I would like to turn the call over to our CFO, Richard Catalano, who will provide an overview of our fourth quarter and 2024 results.

Richard Catalano (EVP and CFO)

Thank you, Manny, and good afternoon. As Manny mentioned, our revenue for the fourth quarter was $7.4 million as compared to $4.1 million in the prior year fourth quarter. This represents an increase of $3.3 million or 80.3%. This increase in revenue versus the prior year quarter was primarily attributable to an increase in revenue of $2.8 million from our CVD Equipment segment and an increase of $0.5 million in revenue from our SDC segment. The increase in CVD Equipment revenues resulted principally from increases in revenues from aerospace and industrial contracts in progress. The prior year fourth quarter was negatively impacted by a significant cost overrun on one of our contracts.

Our SDC segment revenues were 28.8% higher than the fourth quarter of 2023, as demand for SDC's gas delivery systems remained strong. During the fourth quarter, we did record an additional non-cash charge to reduce the net realizable value of our PVT150 inventory by approximately $300,000. This was based on our further assessment of the current market for silicon carbide equipment for 150-millimeter systems. This charge is in addition to the $1 million charge we recorded in the third quarter, resulting in a total charge of $1.3 million for the 2024 fiscal year. Our gross profit for the fourth quarter was $2 million, representing a gross profit margin of 27.3% as compared to negative gross profit of $348,000 for the fourth quarter of 2023. Our gross profit margin percentage improved due to changes in contract mix, but this was offset by the inventory charge of $300,000.

The gross profit in the fourth quarter of 2023 was also negatively impacted by that significant cost overrun on that particular contract. Operating income for the fourth quarter was $35,000. This compares to an operating loss of $2.5 million in the fourth quarter of 2023. After other income consisting principally of interest income, our net income for the fourth quarter was $132,000 or $0.02 per share for both basic and diluted. This compares to a net loss for the fourth quarter of 2023 of $2.3 million or $0.33 per share. Turning to our results for the full fiscal year, our revenue was $26.9 million. That's an increase of $2.8 million or 11.5% from fiscal 2023. This increase was primarily attributable to higher revenue of $1.9 million from our CVD Equipment segment and a $1.3 million increase from our SDC segment.

This was offset by lower Tantaline revenues of $500,000 as a result of the sale of Tantaline in May 2023. Our gross profit margin was 23.6% in 2024 as compared to 21% in the prior year. The increase in gross profit of $1.3 million was primarily attributable to higher revenues, improved margin on CVD Equipment contracts, and the final MesoScribe sales. These positives were partially offset by the $1.3 million non-cash charge to reduce certain PVT inventory to their net realizable value. During fiscal 2024, we did recognize gains on the sales of equipment of $717,000. This was principally from our MesoScribe segment, which ceased operations as of September 30, 2024. Our operating loss for the fiscal year was $2.4 million as compared to an operating loss in the prior year of $4.9 million.

After non-operating income, our net loss for the year was $1.9 million or $0.28 per share. This compares to a net loss in 2023 of $4.2 million or $0.62 per share. Turning to our balance sheet, our working capital at December 31, 2024, was $13.9 million. This compares to $14.3 million in the prior year-end. Our cash and cash equivalents balance was $12.6 million as of December 31, 2024. Our return to consistent profitability is dependent upon, among other things, the receipt of new equipment orders, our ability to mitigate the impact of inflationary pressures, as well as managing our operating expenses and capital expenditures. 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 impact 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 anticipated to maintain our operating cash to support our working capital needs.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Rich, thank you for your presentation. 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. Your comments and questions are important to us. With the close of this presentation, I would like to open up the floor to questions.

Operator (participant)

Thank you. You 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 a line of Brett Reiss with Janney Montgomery Scott. Please proceed.

Brett Reiss (SVP and Investment Financial Advisor)

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

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

We're well. Thank you, Brett. Good to hear you're on the call.

Richard Catalano (EVP and CFO)

Hey, Brett. How are you?

Brett Reiss (SVP and Investment Financial Advisor)

Great. If you can just educate me and anybody else that's on the call, that large $10 million silicon carbide protecting coating order you got in February of 2024, I mean, that's a big order. How did that come about? Did the customer come to you and ask you to come up with a solution to enhance the hardness and prevent the corrosion on whatever their products are? Your engineering staff came up with a solution, and then we got the business. Just tell us about that.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Yeah. Let me take the operating element of that, Brett. Thank you. We had developed the large volume silicon carbide CMC system for aerospace. As you remember, we had originally received an order, combined two orders for four systems in total. Subsequently, we also now have received a fifth system, which we are in the process of fulfilling in 2024. When we developed that tool through advertising of that system, it does deposit silicon carbide among one of many different materials for the aerospace and defense market. Obviously, that was a need from this other customer in the industrial market. It is a combination of their need. They saw our advertisement and came to us.

Brett Reiss (SVP and Investment Financial Advisor)

Okay. Now, you've probably almost finished completing the order because at the time, I think it was a one-year-18-month time lag on doing that.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

The orders are staggered. On that $10 million order, there are three tools. Those are staggered in time to allow both the build and then the installation. There will be a slight digestion on the performance. We have all three slated over several quarters. Those will extend out into delivery into, I believe, the first or so quarter in 2026.

Brett Reiss (SVP and Investment Financial Advisor)

Are there other entities similarly situated to this customer that would need also what you've done for this customer? Can you piggyback on the successful completion for this customer to get other similar type orders? Because we're all frustrated. You've got a good engineering team, good niche business. You've done a fantastic job turning this company around from the prior Chief Executive Officer. Yet, we'd just like to see a greater level of sales.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Yes. Yes. The answer to a couple of questions and a voice of frustration, which I understand and accept. Let me go to your questions. Can it be applicable to other customers in the industrial space? The answer to that is yes. The question is capacity. Many of these customers are depositing the silicon carbide coatings on OEM components, as I said earlier. These serve marketplaces such as the crystal growth for silicon carbide wafers, taking OEM graphite or components and coating them with a protective coating, which is the silicon carbide. It is also used in LED markets. It is used in other applications. The driver for this is going to be market growth in those particular areas. It is not an adoption of technology because it is a mature technology. It is an expansion of capacity in that space.

Today, the PVT space, as we know, for power electronics, for crystal growth for power electronics, as we know, is not overly healthy. That is due to the overcapacity in China of wafers and the drop in price of those wafers. The answer to your question in short, yes, it is applicable to other customers in the same space that do similar, if not the same thing. It is going to be conditional on expansion of demand.

Brett Reiss (SVP and Investment Financial Advisor)

Okay. Now, the kind of unfair competition from China on the PVT150s kind of knocked the wind out of our sails there. Do we still get recurring income on the $30 million units of installed base? I mean, we're not maybe going to get 30 new orders for PVT200s, but could we get over the next couple of years five new orders, 10? What do you think the prospects are there?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

There is. I would like to say yes, but I can't. The reasoning for that is there's so much uncertainty right now on the overcapacity, the undercutting of price. Wafers that we're selling for $1,000, many of us on this call know that they're now selling for under $300, which is less than what I anticipate U.S. manufacturers can make them for. The geopolitical and tariffs, how they play into the supply of wafers to the United States, I think anybody on this call's guess is probably as good, if possibly not better than mine. I really we need to allow the next quarter to two quarters to pass to understand where are we with wafer demand and where are we with pricing of wafers in the United States and in Europe.

Brett Reiss (SVP and Investment Financial Advisor)

Okay. This is a question from some of the people that talked to me on CVD. We have relationships with two of the leading aerospace engine manufacturers. How many major ones are there? Is it possible for us to get orders and begin relationships with some of the others in the industry?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Okay. I think that's a fair question. I think you're probably asking a lot of questions that everybody else wants. You're a spokesperson for the shareholders, clearly. There are several. There are five that we speak to that we're aware of. They're old household names. One of them is a joint venture of two of them. We'll take them out of the equation. There's really four that are in gas turbine engine component manufacturing that would be interested in our class of products, which are the ceramics and ceramic matrix composite materials, to be exact. Those four that are remaining, I don't like correcting you, but I will, there are three that we have now sold product to. We announced that we had sold a silicon bond coat system to a third site, which is presently being installed.

We have relationships and installed base at three of the four accounts. There are many different applications. They have some incumbency for certain processes in these applications. We have our foot in the door at three of four accounts that we would target at this point. That is in the gas turbine engine side. You also have the defense side, which are materials in our advanced research materials for hypersonics and such. Those at this point in time are very application and custom specific.

Brett Reiss (SVP and Investment Financial Advisor)

Okay. I do have other questions, but I will drop back in queue to have a courtesy to anyone else that wants to ask questions.

Operator (participant)

Thank you. Our next question comes from the line of David Hinn, a private investor. Please proceed.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Oh, David.

David Hinn (Private Investor)

Hey, guys. Can you hear me?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Yes, we can, David. How are you?

Richard Catalano (EVP and CFO)

Hi, David.

David Hinn (Private Investor)

Oh, good. How are you, Manny? How you doing?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Good. Thank you. Good to hear your voice.

David Hinn (Private Investor)

My first question is, the original aerospace customer purchased $30 million of tow coating equipment, I believe, back in 2016. There were significant spare parts orders that came in after that. It appears that those spare part orders have not come in since COVID. Should we assume as investors that the company who made the $30 million purchase of tow coating systems has found another solution? Do you think they may be in need of additional spare parts? You may even get large follow-up orders for similar systems in the future as they expand?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Okay. I believe you asked two opposing questions. The first is where we have an installed base of tow coating systems. You are absolutely accurate. We enjoyed and we supported them properly with spare parts, quality spare parts, and quartz. When COVID hit and long-haul travel stopped, obviously, the demand for airplanes, gas turbine engines, I think everybody knows this, and then obviously CMC components and then equipment, that stalled. So did spare parts. If you're not making the components, you don't need spare parts for those tools. I have to say that we have started to see an increase in spare parts and some consumables. We will continue to support that particular customer, both on spare parts and consumables, as well as continue to bid on contracts going forward for additional capacity.

David Hinn (Private Investor)

Okay. Great. Moving on to the battery materials part of the business, you have one opportunity that you've cashed in on with OneD. Do you have a list of many other target companies who might benefit from a similar system? Are you pretty much relying on OneD for that part of the business at this moment?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

OneD has an exceptional portfolio, a very deep and broad portfolio of IP for silicon nanowire growth on carbon. We're pleased to have received the orders from OneD and provided them the systems. As you know, there are many different ways to add silicon, which improves the performance of the anode material to the graphite. There are many established ways, whether it's just adding silicon in powder form, whether it's coating it, whether it's taking carbon and coating silicon. There are many different ways. I believe that that horse race on which is the best mousetrap is going to continue for a period of time. We have proven that our tools work for that process. We also have grown silicon nanowires for other applications in medical. We understand the growth process as well.

We've evaluated and we continue to reach out to others that do add silicon in a CVD process differently than OneD does. That space is much more heavily populated with competitors, but we, again, are in the early stages.

David Hinn (Private Investor)

Do you think there might be potential opportunities to sell to other companies in that space?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Sure. A similar type system, but typically and likely not silicon nanowires. That space, OneD has done a great job in planting a lot of IP in that arena.

David Hinn (Private Investor)

Okay. Great. There was a second customer for a PVT system. You said they've been testing and evaluating it over the current year or the last half of this year. Can you provide any insight into its ongoing operation in the field, the PVT200, and any feedback you might have received? At what point will we know if you guys have won the I think you called it a bake-off last year. What time will you know if you won the bake-off?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Okay. Good. All good questions. First, I can't obviously say who the customer is. That would be bad. I can say that our tool is either meeting or exceeding our performance specification as we sold the system. And we have used here in the factory, we have started to grow what I would term process development for the sake of improving our equipment, boules on our own. So we know we can grow a boule. It's not a quality electronic-grade boule, but we can grow boules. That's not quite our business to grow electronic-grade. We don't want to compete with our customers, of course. But the tool's meeting the specification. The question is going to be all ships rise when the current comes in, and all ships go down when the current goes out. I would anticipate that all U.S.

Manufacturers of wafers and silicon carbide crystals are impacted by the geopolitical price cutting and overcapacity that we've seen from China. There are two steps. One is a design in where we are technically, we check off the box, and we're in the process. That may take another quarter or two. Remember, these processes take a week to two weeks to run. We only have one system at the location. By the time you can only get possibly 10-15 runs a quarter. One quarter may not be enough to prove out the process. The second is demand. You're going to need to be able to have the requirement for additional capacity. Again, the next quarter to two quarters, depending on what happens in the PVT, not just PVT, but the wafer portion of the business will determine the demand in the U.S.

David Hinn (Private Investor)

Okay. Thanks for that. The last question I have is, it seems that operating margins, if you take out the one-time markdown of the PVT150 system, which was, I think, a $300,000 markdown, your margins would have been over 30%, or your operating margins would have been over 30%. That's a significant improvement from recent quarters. Is that a trend upwards? Are we going to see continued improved margins above 30% over the next, let's say, year or two from what you can tell?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

No.

David Hinn (Private Investor)

I think originally you had a hard time producing the first larger system earlier in the year. Now you have more practice fulfilling these orders. You think you'll become more efficient and operating margins will improve?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Yeah. I have said it before. Thank you, David. I think you tied the pieces together. Earlier in 2024, in fulfilling the first contract, to shift the product to the level of performance specification, we needed a bit of rework, both in engineering and also in operations. That was the first article. The first article businesses are pretty difficult. We do charge the engineering to the cost goods sold line. You see all of the cost of developing a product on these first articles, again, in the gross margin line. Clearly, when we do a development of a product in this manner, the return on investment is on the first tool. That tool was more painful than any of us would have liked.

The second, third, and fourth system are trailing much favorably to the first system, hence why you've seen an improvement in the gross margins over the last couple of quarters. A lot of the technology that we developed or redeveloped in the first system, we also have ported. We put it on the shelf as technology, and we ported it into the industrial order that we received those three systems. A lot of that learning went into subsequent similar class products.

David Hinn (Private Investor)

Okay. Great. Yeah. Go ahead.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

No, no. I think to answer your question is yes, you understand the storyline pretty well.

David Hinn (Private Investor)

Okay. You expect margins to continue north of 30% over the next, let's say, year or two?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

It'll depend on absorption of our overhead if we keep the volume at that level. We control any missteps on first article to control our first article costs. I would have that's our objective.

David Hinn (Private Investor)

Okay. Thank you so much. I'm going to allow someone else to ask some questions. Thank you so much.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Thank you, David.

David Hinn (Private Investor)

Okay.

Operator (participant)

Thank you. Our next question comes from the line of Brett Reiss with Janney Montgomery Scott. Please proceed.

Brett Reiss (SVP and Investment Financial Advisor)

Great. Can you hear me again? I'm sorry.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Yeah. No, of course, Brett. Thank you.

Brett Reiss (SVP and Investment Financial Advisor)

Great. Great. I've got one or two more questions, but I don't want to be remiss in not telling you how appreciative I am with you and Rich for the continued controlling of costs, your working capital management, and the cash levels are still at very nice, robust levels. We appreciate that. The question with what's going on with this business with Musk and DOGE, is there any potential for you to hire some engineering talent from the government, from people that are looking for employment in the private sector?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Interesting. I think Elon will probably hire any good engineers first, but interesting question. We believe we've properly sized the organization for our engineering development programs as well as our capacity with our operating engineers. At this point in time, we're not looking at any hiring in the short term.

Brett Reiss (SVP and Investment Financial Advisor)

Okay. The tariff stuff, did you inventory some of the things that might be in short supply? Are there preliminary discussions how to apportion extra costs between you and customers? The tariff thing is driving not only you, but I'm sure a lot of other businesses crazy. How are you? Do you have plans?

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Good question. Tariffs, we've seen the impact of tariffs. We were not buying an excessive amount of product from China in our CVD product line in Central Islip. In SDC, there are some components that are purchased in China. Just as we did during the COVID period of time with supply chain basically disassembling on us, we went out and bought some periods of safety stock of components. We continue to look at that and do that intelligently, I think, at SDC. On the CVD side of things, we identified some suppliers, and it actually was through the advent of use of AI, identified some suppliers in China for certain components. The fact of the matter is you can still buy product from China with, I think there was a 45% total tariff, Rich, but I think I'm right, about 45% tariff on that product group.

It was still almost half of what we would have bought it from a U.S. distributor. On that job, we actually reduced our material content. To report to you, yes, we're seeing tariffs on products from China. For us, that should not impact us severely other than indirect. When one of our suppliers buys a lot of product from China, that's when it will impact us. At this point in time, it's early. We have not seen that effect, but it is a risk. Part of my earlier discussion is we'll see the challenges in 2025 due to the tariffs and this whole, at some point in time, I'm hoping that we don't have a restriction of materials coming into the U.S.

Brett Reiss (SVP and Investment Financial Advisor)

Great. Thank you for taking my questions. If I do not speak to you again, have a good summer.

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Thank you, Brett. Thank you. Good to hear your voice.

Operator (participant)

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

Emmanuel Lakios (President, CEO, and Member of the CBD Board of Directors)

Thank you, operator. Thank you for everyone dialing in today and for all the good questions. We appreciate the attendance on the call and your support and the continued loyalty that you have in us and faith, as well as that of our employees. If there are no further questions, please reach out to Rich or myself directly. This concludes our call for today. Thank you.

Operator (participant)

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