CVD Equipment Corporation Price & Performance (CVV)

Addition, all forward looking statements are made of as today, and we undertake no obligation to update any forward looking statements based on the new circumstances or revised expectations. Now, I would like to turn the call over to Emmanuel Lacios.

Operator, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our fourth quarter and fiscal year twenty twenty four 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 twenty twenty four revenue was 7,400,000.0 That represents an 80.3% increase from prior year fourth quarter while it was lower than [indiscernible] $8,200,000 we reported for the third quarter of twenty twenty four. Our revenue for the year 2024 was 26,900,000.0 eleven point five percent higher than prior year. As previously discussed, we launched and shipped a PVT-two hundred system to a new account for our PBT product line during second quarter of twenty twenty four. As we stated on our last call, this was a strategic order for a silicon carbide 200 millimeter crystal ball growth. The customer for our first PBT-two hundred system is continuing to evaluate the performance of our system for possible additional orders. We do continue to support our installed base of PVT-one 50 systems and pursue additional PBT -one 5,200. And PBT 200 orders.

However, 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 $7,100,000 driven customer demand in both our CVD and SDC segments. During 2024, we continue to see an ongoing recovery of our aerospace and defense market. Our previously announced in early November, we received a $3,500,000 follow on order for our CVICVD 3500 from an existing aerospace customer. Orders for the full year of 2024 were 28,100,000.0 as compared to 25,800,000.0 for the fiscal year 2023, an increase of 8.9%. As a reminder, during the first quarter of twenty twenty four, we did receive a $10,000,000 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 [indiscernible] [indiscernible] 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 12/31/2024 was 19,400,000.0 which is 4.9% higher than our $20.23 year end backlog of $18,400,000 While our fourth quarter represents 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 end markets that we serve.

Addition, the current geopolitical environment includes inclusive of the possible imposition of tariffs may affect our supply chain and increased costs of components and materials. This will present us with new challenges in fiscal twenty twenty five and 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 off call over to our CFO, Richard Catalano. Who will provide an overview of our fourth quarter and 2024 results. Thank you, Manny, and good afternoon. As Manny mentioned, our revenue for the fourth quarter was $7,400,000 as compared compared to $4,100,000 in the prior year fourth quarter. This represents an increase of $3,300,000 or 80.3%. This increase in revenue versus the prior year quarter was primarily attributable to an increase in revenue of 2,800,000.0 from our CVD equipment segment, and an increase of $500,000 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 was 28.8% higher than the fourth quarter twenty twenty three, as demand for SDC's gas delivery system systems remains strong. During the fourth quarter, we did record an additional non cash to reduce the net realizable value of our PBT-one 50 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 $1,000,000 charge we recorded in the third quarter resulting in a total charge of $1,300,000 for the 2024 fiscal year. Our gross profit for the fourth quarter was $2,000,000 representing a gross profit margin of 27.3% as compared to negative gross profit of $348,000 for the fourth quarter of twenty twenty three. 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 twenty twenty three 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 $2,500,000 the fourth quarter of twenty twenty.

Three. After other income consisting principally of interest income, our net income for the fourth quarter was $132,000 or $02 per share for both basic and diluted. This compares to a net loss for the fourth quarter of twenty twenty three of 2,300,000.0 or $0.33 per share. Turning to our results for the full fiscal year. Our revenue was 26,900,000.0 That's an increase of $2,800,000 or 11.5% from fiscal twenty twenty three. This increase was primarily attributable to higher revenue of 1,900,000.0 from our CVD equipment [indiscernible] and $1,300,000 increase from our SD [indiscernible] [indiscernible] This was offset by lower canthalene 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 $1,300,000 was primarily to higher revenues improved margin on CVD equipment contracts and the final MesoScribe sales that and these positives were partially offset by the $1,300,000 non cash charge to reduce certain PBT inventory to their net realizable value. During fiscal twenty twenty four, we did recognize gains on the sales of equipment of $717,000 This was principally from our MesoScribe segment, which ceased operations as of 09/30/2024.

Our operating loss for the fiscal year was 2,400,000.0 as compared to an operating loss in the prior year of $4,900,000 After non operating income, net loss for the year was $1900000.0.00 $28 per share. This compares to a net loss of 2023 of $4,200,000 or $0.62 per share. Turning to our balance sheet. Our working capital at 12/31/2024 was 13,900,000.0 This compares to $14,300,000 in the prior year end. Our cash and cash equivalents balance was $12,600,000 as of 12/31/2024. 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 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. 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 capital and capital expenditure requirements for the next twelve 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 support our working capital needs.

Rich, thank you for your presentation.

Our focus remains on our customer markets, R and employees, our shareholders and the pursuit of growth and return to consistent profitability We look forward to continuing to build on our on our success in the year ahead. Your comments or questions are important to us, but the close of this presentation, I would like to open [indiscernible] questions.

Thank you.

We will now be conducting a question and answer session. [indiscernible] comes from the line of Brett Reiss with Janney Montgomery Scott. Please proceed.

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

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

Hi, Brent. How are you?

Great. If you can just educate me and anybody else that's on the call the that large $10,000,000 silicon carbide protecting coating order you got in February of twenty twenty four.

I mean that's a 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 [indiscernible] Yes. Let me take the operating element of that, Brett. Thank you. We had developed the the large volume silicon carbide CMC system for aerospace. And we and as you remember we had originally received an order combined two orders for four systems in in total. Subsequently, we also now have received a fifth system which we are in the process of fulfilling in 2024. But 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 And then obviously that was a need from this other customer in [indiscernible] in the industrial market. So it's a combination of their need, They saw our advertisement and came to us. Okay. Now, you're probably almost finished. Completing the order because at the time I think it was a one to one year to eighteen months time lag on doing that.

The orders are staggered. On that $10,000,000 order, there are three tools. Those are staggered in time. To allow both the build and then the install installation and there'll be a slight digestion of on the But we have all three slated over several quarters. So those will extend out into delivery into, I the first or so quarter in twenty twenty six. Are there other entities similarly situated to this customer that would need also what you've done to this customer and can you piggyback on on the successful completion for this customer to get other similar type orders?

Because we're all frustrated.

We'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 and yet we just like to see a greater level of sales Yes. So yes, the answer to your a couple of questions and and a voice of frustration, I understand and accept. But 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 depositing the silicon carbide coated or on OEM components, as I said earlier. These serve marketplaces such as the crystal growth for silicon carbide wafers. Taking OEMs OEM graphite or components and coating them with a protective coating. Which is the silicon carbide. It's also used in LED market, It's used in other applications. The driver for this is going to be market growth in those particular areas. So it's a it's not an adoption of technology because it's a mature technology. It is an expansion of capacity in that space Today, the PBT space, as we know, for power electronics for crystal growth for power electronics, as we know, is is not overly healthy and that's due to the overcapacity of in China of wafers and [indiscernible] drop in price of those wafers.

So 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. But it's going to be conditional on expansion of of demand.

Okay. Now kind of unfair competition from China on the PBT 150s kind of not the wind out of our sales there. Do we still get recurring income on the $30,000,000 30 units of installed base [indiscernible] what I mean we're not maybe going to get 30 new orders for PVT 200s, but could we get over the next couple of years five new orders, 10 What do you think the prospects are there? 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 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. So I really we need to allow the 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.

Okay.

This is a question from some of the people that talk to me on CVD.

We have relationships with two of the leading aerospace engine manufacturers How many major ones are there [indiscernible] is it possible for us to get orders and begin relationships with some of the others in the industry.

So I think that's a fair question. And I think you're probably asking a lot of questions that else wants. You're a spokesperson for the shareholders. Clearly. The there are several. There are five that we speak to that we speak to them that we're aware of. And they're old household names. One of them is a joint venture of of two of them. So we'll take them out of the equation. So there's really four that are in guest turbine engine component manufacturing that would be interested in our class of products, which are the ceramics and ceramic matrix composite materials to be to be exact.

And those four that are remaining 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 code system to a third a third site, which is presently being installed. So we have relationships and installed base at three of the four. Accounts. There are many different applications. They have some incumbents for certain processes in these applications. But we have our foot in the door at three of four accounts that we would target at this point.

Now that's in the gas turbine engine side. Then you also have the defense side, which are materials in our advanced research materials for hypersonics and as such. And those at this point in time are very application and custom specific. Okay. I do have other questions.

But I will drop back in queue to add the courtesy to anyone else that wants to ask questions.

Thank you.

Our next question comes from the line of David Haim a private investor. Please proceed. David?

Hey guys, can you hear me?

Yes, we can David. How are you?

Hi David.

Good. How are you Manny?

How are you doing?

Good.

Thank you. Good to hear your voice. So my first question is the original aerospace customer purchased 30,000,000 of toe coating equipment, I believe, back in 2016. And there were significant spare parts orders that came in after that. It appears that those spare part orders haven't come in since COVID. So should we assume as investors that the company who made the $30,000,000 purchase of Tow Coating Systems has found another solution Do you think they may be in need of additional spare parts and you may even get large follow-up orders for similar systems? In the future as they expand.

Okay. So you I believe you asked two opposing questions. The first is where we have an installed base of toe code systems you are absolutely accurate. We enjoyed and we supported them properly with 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, 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. And so 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.

Okay, great.

And then moving on to the battery materials. Part of the business. You have one opportunity that you cashed in on with 1D. Do you have a list of many other target companies who might benefit from a similar system? Or are you pretty much relying on 1D for that part of the business at at this moment? [indiscernible] an exceptional portfolio, a very deep and broad portfolio of IP for silicon nanowire growth on carbon. And we're pleased to have received the orders from 1D and provided them the systems. As you know that there are many different ways to add silicon, which improves [indiscernible] 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, and I believe that that horse race on which is the best mousetrap is going to continue for 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, So 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 1D does.

And that space is much more heavily with competitors of we again are in the early stage.

So you do think there might be potential opportunities to sell to other companies in that space? Sure. Similar type system, but typically and likely not silicon nanowires. That's based 1D has done a great job in in planting a lot of IP in that that arena.

Okay, great. And then there was a second customer for a PBT 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 PVT-two hundred. And any feedback you might have received And at what point will we know if you guys have won the I think you called it a bake off last year. What time would you know if you won the bake off?

Okay. Good. All good questions. First, I can't say who the customer is that That would be a 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, have started to grow what I would term process development for the sake of improving our equipment boules on our own. So we we know we can grow a a pool, it's not a quality electronic grade pool, but we can grow bulls. That's not quite our business to grow electronic grade. We want to compete with our customers of course.

But the tools meeting the specification, the question is going to be all ships rise with the current comes in and all ships go down when the current goes out. So I would anticipate that all U. S. Manufacturers of wafers and silicon carbide crystals are impacted by the the geopolitical price cutting and overcapacity that we've seen from China. So there's 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. So and we only have one system. The location. So by the time it can only get possibly 10% to 15 runs a quarter, may not be enough to one quarter may not be enough 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 in the PV not just PVT, but the wafer portion of the business will determine the demand in The U. S. Okay. Thanks for that. And then the last question I have is you it seems that operating margins, if you take out the one time markdown of the PBT 150 system, which was, think, $300,000 markdown? Your margins would have been over 30% or your operating margins would have been over 30%. And 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, or two from what you can tell? [indiscernible] think originally you had a hard time producing the first larger system earlier in the year but now you have more practice fulfilling these orders, you think you'll become more efficient and operating margins will improve?

And I've said it before. Thank you, David. That and I think you tied the pieces together. Earlier in 2024, [indiscernible] in fulfilling the first contract, [indiscernible] to ship 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 of goods sold line. So you see all of the the cost of developing a product on these first articles again, in the gross margin line. So 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 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 we ported it into the industrial order that we received. Those three systems.

So a lot of that learning went into subsequent similar class products.

Okay, great. That's Go ahead.

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

Okay. And you expect margins to continue north of 30% over the next let's say, or two? It will depend on absorption of our overhead. If we keep the volume at that level, [indiscernible] we control any missteps on the first article of first article costs. [indiscernible] would that's our objective.

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

Thank you, David. Okay. Thank you.

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

Great. Can you hear me again? I'm sorry. Yes. No, of course, Brett. Thank you.

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 [indiscernible] 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. [indiscernible] [indiscernible] I think Elon will probably hire any good engineers. First. But interestingly, Greg, we think we believe we've properly sized the organization for our engineering development programs as well as our capacity with our operating engineers. So at this point in time, not looking at a any hiring in the short term.

Okay.

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

So tariffs, we've seen the impact of tariffs. We were not buying 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 And just as we did during the COVID period, a time with supply chain basically disassembling on us, we went out and bought some periods of safety stock of components. And we continue to look at that and do that in intelligently I think SDC. On the CVD side of things, [indiscernible] we identified some suppliers and that 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 there was a 45% total tariff [indiscernible] think I'm right. About 45% tariff on that product product group And it was still almost half of what we would have bought it from a U. S. Distributor. So on that job, we actually reduced our material content But to report to you, yes, we're seeing tariffs on products from China. But for us, that should not impact us severely other than indirect [indiscernible] When one of our suppliers buys a lot of product from China, that's when it will impact us.

But at this point in time, it's early. We have not seen that effect. But it is a risk. And that's 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 in into The U. S. Great.

Thank you for taking my questions and if I don't speak to you again, have a good summer.

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

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.

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

Thank you.

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