Q1 2024 CVD Equipment Corp Earnings Call

Participants

Emmanuel Lakios; President, Chief Executive Officer, Director; CVD Equipment Corp

Richard Catalano; Chief Financial Officer, Vice President, Company Secretary; CVD Equipment Corp

Brett Reiss; Analyst; Janney Montgomery Scott LLC

Presentation

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. (Operator Instructions) 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 I begin, I'd like to remind you that many of the comments made on today's call contain forward-looking statements, including those related to future financial performance, market growth, total available market, demand for our products, and general business conditions and outlook.
These forward-looking statements are based on certain assumptions, expectations, and projections and are subject to a number of risks and uncertainties described in our press release and in our filing with the SEC included, 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 obligations 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 important 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 and 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 costs and cash flow while simultaneously focusing on growth and return on investments.
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 quarter 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 multi-system 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, $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 that 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 to our balance sheet, our cash and cash equivalents at March 31, 2023 -- 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 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, thanks to the presentation. In summary, the first quarter results of 2023 reflect our efforts to continue to focus on everything we do 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 (technical difficulty) 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 question.

Question and Answer Session

Operator

(Operator Instructions)
Brett Reiss, Janney Montgomery Scott.

Brett Reiss

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

Emmanuel Lakios

Hi, how are you?

Richard Catalano

Hi, Brett

Brett Reiss

Good. Backlog increase very nice. The $10 million silicon carbide protective coating order and even the $3.6 million new PVT200 order, I assume you use 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 multi-system order for the silicon carbide protective industrial coating system 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. So let's take, (multiple speakers) --

Richard Catalano

Just to answer your question, Brett, on the accounting, the $10 million order will be recognized over time. We've just got that award recently, and that will be recognized towards the latter part of this year and 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 second customer, our accounting position on revenue recognition will be based on when we ship the product to the end customer or what's referred to as point-in-time revenue recognition. And that will be this year going forward. So we have not recognized any revenue on that PVT200 order; that will be recognized later on in 2024.

Brett Reiss

All right. What I did is you backlog kind of $13.6 million. I took the $10 million and I just assume 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

Yeah, 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 what we would expect going forward. And it [reject] other things that might pop off for example, as far as any other business activities that might require additional fees, for example, which we can't predict.

Emmanuel Lakios

Yeah. And it's also subject to the business situation and as we get more orders, 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 at all our engineering programs and quite a bit is going -- our engineering effort is going into satisfying the large silicon carbide coating system.

Brett Reiss

Great.

Emmanuel Lakios

As well as the final launch and delivery of our alpha, beta PVT200 system.

Brett Reiss

Right. How many employees did you have to kind of let go to bring overhead down to our new current reality?

Emmanuel Lakios

We don't have a tendency to release that information. We find that to be a competitive advantage (multiple speakers) --

Brett Reiss

Okay. Got you. All right. I'm going to drop back in queue. Thank you very much. And the backlog, 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 were 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.