CVD Equipment Corp
NASDAQ:CVV
Earnings Call Analysis
Q4-2023 Analysis
CVD Equipment Corp
CVD Equipment Corporation's fiscal year and its fourth quarter both fell short of expectations, with fourth-quarter revenue plummeting to $4.1 million—a stark decline from the previous year. The company's leadership expressed their disappointment with the performance, citing fluctuations common in markets focused on emerging growth.
Despite the revenue downturn, CVD Equipment is positioning itself for a rebound by expanding into attractive, high-growth sectors such as high-power electronics and battery materials. The company announced the launch of a new system designed to produce silicon carbide crystals, a promising development marked by a significant $10 million multi-system order from the industrial sector—signs of potential stability and growth on the horizon.
For fiscal year 2023, CVD Equipment saw revenue fall to $24.1 million, a 7% decrease attributed to divestitures and lower system sales. The gross profit margin also took a hit, dropping from the prior year's 26% to 21%, reflecting the financial challenges from transitions and cost overruns.
The year's operational challenges translated into notable losses—$4.9 million in operating losses, a steep decline from $1.8 million the year before. As the company grappled with various economic pressures, the net loss expanded to $4.2 million, significantly higher than the prior year's $224,000 deficit.
The fourth quarter underscored ongoing struggles with revenue declining by 43% compared to the equivalent quarter of the prior year, along with a negative gross margin of 8.5%. This decrease was largely due to reduced revenues from the CVD segment and the impact of overruns on significant contracts.
The company's backlog saw an uptick to $18.4 million, a modest increase from the previous year, which suggests a reservoir of pending orders that could help stabilize the business. Working capital remained fairly resilient at $14.3 million, providing some cushion against the year's tough financial climate.
Looking ahead, CVD Equipment faces economic and geopolitical uncertainties, which make future results hard to predict. Nevertheless, the company believes its cash reserves and operating cash flow projections will cover working capital and capital expenditures for the coming 12 months, hinting at cautious optimism for the near-term future.
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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've 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 our filings with the SEC, including, but not limited to, the 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.
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 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 will -- we were -- 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 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 PVT200 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 customers' needs. Second, we received a $10 million multi-system 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?
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 PVT150 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 PVT150 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. At the nonoperating 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 '22 was offset by $1.5 million of other income related to the recognition of employee retention credits of 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 the an overrun that we had on that aforementioned launch 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 Materials revenue, 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 '22 of $1.5 million or $0.23 per share. But keep in mind that quarter ahead 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, '23 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.
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 Instructions] Our first question today is coming from Brett Reiss from Janney Montgomery Scott.
The cost overrun, do you think whatever caused it was a one-off and whatever you had to do to kind of make sure it doesn't happen again, protocols have been put in place?
Correct. If that's the end of the first question, Brett. Yes, we do understand where the cost overrun had occurred. And there are different flavors that contributed to that, which I can't go on the call right now, but we do understand what those were. We have put in some corrective actions to mitigate that going forward.
Right, right. Now the backlog would be the reported $18.4 million? And then can I add the $10 million from the multisystem SiC plus whatever the cost of the new PVT200 is. So the backlog is $28 million plus?
Minus whatever we ship and any minor adjustments that may come up whatever we ship in the first quarter, correct?
Right. All right. That's good. It's been now like about a year with no new PVT150 orders, why do you think that is?
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 to -- the inflection point has been pushed out quite a bit. The customers we dealt with and that we have in our installed base, continue on and utilize our equipment. But again, the slowdown in the marketplace clearly has affected all of the ships in the harbor -- to these -- from the start-ups up to the very vertically integrated household name. So that's one. It's a marketplace slowdown.
In addition to that, it takes a certain period of time to give birth and 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, that level of technical performance has [ garnished ] us a PVT200 order, which is a 200-millimeter system from our second customer, and we plan to execute on that contract. And our plan is to be successful.
But again, it takes a certain period of time to do the evaluation, et cetera. So -- but I think the important thing is the -- is having that second account and also the successful launch with this first order of our 200-millimeter system.
Right. Right. Now since things have kind of slowed down with people's enthusiasm with electric vehicles. Are there other areas in your business that can maybe take up the slack and you're going to allocate more attention and corporate resources to?
Yes, I understand your point is well taken. We do have 4 markets or 4 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 PVT150 and then 200 serve from a crystal growth perspective, that market, clearly, I think we all read the analyst reports and the -- 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 on buying EVs. But the benefit as we've seen 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, carbides, 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, on technology and adoption. And those multiple markets, again, help us tread water and until a more substantive application such as silicon carbide, actually that way it comes through. So I think we're -- from a marketplace perspective, we're in 4 markets that have various degrees of health.
Great. That's it for me. I wish you both a holiday, and thank you for taking my question.
Thank you.
Thank you, Brett.
[Operator Instructions] We reached the end of our question-and-answer session. I'd like to turn the floor back over to Manny for any further or closing comments.
Kevin, thank you. And I want to thank all of you for dialing in today. I want to 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.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.