Earnings call: CVD Equipment Corporation reports Q1 fiscal year 2024 results

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Earnings call: CVD Equipment Corporation reports Q1 fiscal year 2024 results
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CVD Equipment Corporation (CVD), a leading provider of chemical vapor deposition systems, announced its financial results for the first quarter of the fiscal year 2024. The company reported a significant decrease in revenue compared to the same period last year, with first-quarter revenue coming in at $4.9 million, down 43% from $8.7 million in the first quarter of 2023. Despite the decline, the company secured several key orders, including a strategic order for its PVT200 system and a $10 million multi-system order for its silicon carbide CVD coating system. This resulted in an increase in backlog from $18.4 million at year-end to $27.1 million at the end of March 2024.

Key Takeaways

  • Q1 2024 revenue was $4.9 million, a 43% decrease from Q1 2023.
  • The company received strategic orders, including a new PVT200 system order and a $10 million multi-system silicon carbide CVD coating system order.
  • Backlog increased to $27.1 million, up from $18.4 million at the end of the previous year.
  • Gross profit margin decreased to 17.5%, down from 28% in Q1 2023.
  • Operating loss increased to $1.6 million, compared to a loss of $0.2 million in the same period last year.
  • Net loss for the quarter was $1.5 million or $0.22 per share.

Company Outlook

  • CVD anticipates the strategic order wins to contribute positively to future revenues.
  • The company remains focused on achieving profitability and managing costs effectively.
  • CVD is cautiously optimistic about building on its success and returning to consistent profitability.

Bearish Highlights

  • Revenue and gross profit both saw significant declines from the same period in the previous year.
  • Operating and net losses increased, reflecting challenges in maintaining profitability.

Bullish Highlights

  • The company secured significant new orders, indicating potential future revenue streams.
  • The increase in backlog suggests growing demand for CVD's products.

Misses

  • Revenue fell short of the previous year's figures.
  • Gross profit margin and overall profitability declined.

Q&A Highlights

  • The $10 million order will be recognized over time, with revenue expected to be realized in late 2024 into 2025.
  • PVT200 revenue recognition will occur upon shipment, expected later in 2024.
  • The company reduced SG&A expenses and plans to maintain current levels.
  • R&D spending remains a priority, with significant investment continuing despite the soft quarter.

CVD Equipment Corporation's management team expressed their commitment to navigating the current economic and geopolitical uncertainties while focusing on strategic growth and profitability. They remain attentive to operational adjustments as needed to support the company's financial health. The company's ticker symbol was not provided in the summary.

InvestingPro Insights

CVD Equipment Corporation's (CVD) first-quarter results for 2024 have demonstrated some financial challenges, with a notable decrease in revenue and profitability. The InvestingPro platform provides additional insights that could help investors understand the company's current financial health and potential future performance.

InvestingPro Data shows a market capitalization of $30.03 million, reflecting the company's valuation in the market. Despite securing key orders, the company's stock has experienced a significant downturn, with a 1-week price total return of -8.9%. This could be indicative of investor sentiment following the reported decline in revenue and profitability metrics.

An InvestingPro Tip worth mentioning is that CVD holds more cash than debt on its balance sheet, which is a positive sign of the company's liquidity and financial stability. Additionally, the company's liquid assets exceed its short-term obligations, suggesting that it has the capacity to meet its immediate financial commitments.

However, challenges are evident as the company is not profitable over the last twelve months, with a negative P/E ratio of -5.92 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at -5.58. The gross profit margin stands at 17.19%, reinforcing the figures reported in the article and highlighting the company's struggle with profitability.

Investors looking for a deeper dive into CVD's financials and additional strategic insights can find more InvestingPro Tips on the platform. With the use of the exclusive coupon code PRONEWS24, investors can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a total of 6 InvestingPro Tips for CVD Equipment Corporation, which could potentially guide investment decisions.

Full transcript - CVD Equipment Corp (CVV) Q1 2024:

Operator: Greetings, and thank you for standing by. And welcome to CVD's 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 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 sections of the company's 10-K for the year ending 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'd like to turn the call over to Emmanuel Lakios.

Emmanuel Lakios: 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 the same prior year period, as our business continues to experience fluctuations in revenue given the nature of the emerging growth end 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 cost 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 PVT200 system from a new customer, marking an important milestone for our silicon carbide crystal growth system. The PVT200 customer plans to evaluate our equipment for potential additional orders. In addition, we received a multisystem 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 31, 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: 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 PVT150 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 ‘23 due to increased demand for SDC’s gas and chemical delivery systems. Gross profit for the three months ended March 31, 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 31, 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 ‘23. 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 31, 2024, was $11.9 million, as compared to $14 million at December 31, 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 noncash items of $0.4 million, principally depreciation as well as stock-based compensation. Our working capital at March 31, 2024 is $13.1 million. This compares to $14.3 million at December 31, 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: 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 who are the -- 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: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brett Reiss with Janney Montgomery Scott. Please proceed with your question.

Brett Reiss: Hi, Manny. Hi, Richard. How are you guys doing?

Emmanuel Lakios: Hi, Brett. How are you?

Richard Catalano: Hi, Brett.

Brett Reiss: Good. Backlog increased very nice. The $10 million silicon carbide protective coating order and even the $3.6 million new PVT200 order, I assume you used 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: First, Brett, I think an adjustment to the discussion. The question on the $10 million multisystem 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: Okay, okay. So that's [Technical Difficulty] dollar, yes?

Richard Catalano: 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 products, 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 which we refer to as point-in-time revenue recognition.

Emmanuel Lakios: And we anticipate that this year.

Richard Catalano: And that will be this year going forward. So we have not recognized any peak revenue on that PVT200 order. That will be recognized later on in 2024.

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

Emmanuel Lakios: So we had a healthy SDC quarter as well as -- and 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: Okay. That's great. The SG&A, you reduced it from $1.6 million to $1.3 million this quarter. Is that a good run rate going forward?

Richard Catalano: Yes, 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'd expect going forward. And we've got 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.

Emmanuel Lakios: Yes. And it's also subject to the business situation and as we get more orders or as our order rate fluctuates.

Brett Reiss: Right. And I see, despite the 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: We have not affected our -- at all our engineering programs and quite a bit is going -- of our engineering effort is going into satisfying the large silicon carbide coating systems as well as the launch, the final launch and delivery, of our alpha beta PVT200 system.

Brett Reiss: Right, right. How many employees did you have to kind of let go to bring all that down to our new current reality?

Emmanuel Lakios: Yes. We don't have a tendency to release that information. We find that to be a competitive advantage.

Brett Reiss: Okay. Got it. All right. I'm going to drop back in queue. Thank you very much in the backlog. You know, very encouraging.

Emmanuel Lakios: Thank you.

Richard Catalano: Thank you, Brett.

Operator: 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: Thank you, operator, and thanks, 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, and this concludes our first quarter call. Thank you.

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

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