Greetings, welcome to CVD Equipment's 2019 first quarter results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 Len Rosenbaum, President and CEO, and Tom McNeill, 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'd like to remind you that many of the comments made on today's call are 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, 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 our 10-K for the year ended December 31st, 2018. Actual results may differ materially from those described during this call. In addition, all forward-looking statements are made as of today, we undertake no obligation to update any forward-looking statements based on new circumstances or revised expectations. I would like to turn the call over to Len.
Good afternoon, everyone, thank you for joining our earnings call. As previously mentioned, 2018 was a difficult year for CVD. In the first quarter of 2019, we reported decreased revenue and a net loss of $2.2 million as a result of the second half of 2018 low order levels. The first quarter of 2019, however, has started off with receipt of new orders amounting to approximately $6.5 million, we anticipate improvement in order flow during the remainder of the year as compared to 2018. Further, the company has accelerated its focus on the materials business now that the opening of the materials facility is in sight. In 2017, the company purchased the building for $14 million to house CVD Materials.
During 2018, the company invested $2.5 million in building improvements and machinery, an additional $400,000 in the first quarter of 2019, as well as other materials-related expenses. With the operations at our new materials facility coming online during the third quarter of 2019 and our continued investment in CVD Materials, we are enhancing our marketing efforts and have started to showcase the materials operations to new and existing customers. Additionally, we are underway and expect to complete the move of our MesoScribe operations from California to the new materials facility in New York, with integration to be completed in July 2019. The consolidating of MesoScribe operations into our materials facility enhances our ability to execute on operational improvements and reduce costs. During the first quarter, MesoScribe received 2 Phase I Small Business Innovation Research awards from the U.S. Air Force.
The first award is related to the development of advanced temperature and heat flux sensors to support hypersonic flight system testing. The second award is for development of a direct-write printing system utilizing MesoScribe's proprietary aperture system to deposit metallic and ceramic coatings for aero-engine applications and eliminate the need for part masking during deposition. The materials operations enhance our abilities to provide, one, corrosion-resistant coatings through our Tantaline subsidiary for medical, pharma, oil, and gas applications. Two, sensors through our MesoScribe subsidiary for defense, aerospace, and turbine applications. Three, through our CVD Materials subsidiary for carbon composite materials, medical coatings, electronic substrate materials, and further expansion into other coatings for defense, aerospace, medical, and industrial applications.
The strategy CVD embarked on over two years ago to develop a materials business using CVD's technology and equipment manufacturing capability expands our product offerings, grows our revenue, and diversifies our customer base. We are tapping into high-margin growth markets in corrosion resistant, medical, aerospace, and defense coatings to reduce risk and flatten the uneven levels of our results. We are committed to returning to profitable quarterly results by Q1 2020. With that, I would like to turn the call over to our CFO, Tom McNeill.
Thank you, Len. In the first quarter, our revenue was $3.5 million as compared to $9.2 million in 2018, a decrease of $5.7 million or 62%. Our net loss was $2.2 million or $0.33 per share diluted as compared to net income of $600,000 or $0.09 per diluted share in 2018. Our revenue decrease during the quarter was primarily attributable to the completion of large aerospace equipment orders received, which now represented $800,000, or approximately 22% of our revenue this quarter, as compared to $4.4 million, or approximately 47.5% of our revenue in 2018. During the first quarter, we received new orders of approximately $6.5 million, and our order backlog at March 31, 2019, is approximately $6 million.
The level of new orders received from customers in the second half of 2018, however, will continue to affect our revenue levels in the next one to two quarters. Our return to profitability depends upon, among other things, the continued receipt of higher levels of new equipment orders, the ramp-up of the materials business, and managing our planned expenditures and operating expenses. With respect to our liquidity, cash and cash equivalents were $11.3 million at March 31, 2019, as compared to $11.4 million at December 31st, 2018, essentially unchanged. Working capital was $12.6 million at March 31, 2019 as compared to working capital of $15.4 million at December 31st, 2018, a decrease of $2.8 million.
This decrease was primarily attributable to overall reduced sales and the resultant operating loss, $400,000 of capital invested in the quarter in March 31, 2019, primarily related to building improvements in machinery for the CVD Materials operation, and debt service payments of approximately $300,000, which includes payments on our investment in the CVD Materials building. With respect to our accounts receivable, the decrease of approximately $2 million from $4.1 million at December 31, 2018 to $2.1 million at March 31, 2019, was a result of normal collections and decreased revenue during the quarter. While our cash is expected to decrease during the next quarter, we believe our continued cost containment measures to align expenses to order rates will reduce our operating losses and net cash usage while positioning the company to a return to profitability by Q1 2020.
We believe our cash and cash equivalent positions, cash flow from operations, will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months. I'll now turn the call back to the operator for your questions.
Thank you. At this time, we will be conducting the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that 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 poll for questions. Thank you. Our first question comes from the line of Brett Rice with Janney Montgomery Scott. Please proceed with your question.
Hi, Len. Hi, Tom. How you doing?
Good afternoon. Hi, how are you?
I've got a number of questions. Can I ask a couple of them, and then will I be able to come back in the queue out of respect for other callers? Would that work for you guys?
It works for us.
Great. On the materials business, the key decision makers of your customers, can you give me some sense of the lead times that you expect it's gonna take these engineering teams or key opinion leaders to look at, kick the tires in what you have, and then ultimately give us orders that put money in our pockets?
Some have already kicked the tires. They're waiting for the new facility to get online, okay. We do have some orders.
Okay. You said the new facility is in sight. You've said prior you're shooting for the third quarter of 2019. When are we in there and up and running?
We're moving equipment in as we speak. The gases were brought in, I think, the past week. We expect to be testing equipment in there during the latter part of this quarter and start operations sometime in the third quarter.
The lease-up of the new space. Can you give us a progress report on that?
We have the proper permits for that, we've been showing it, and hopefully we'll report something positive shortly.
If you accomplish what you want to accomplish with the lease-up of the new space, can you give us some sense of what the economics are gonna look like? Will the rent from the lease-up more than cover your mortgage payments? What does that look like when things are up and running?
Well, the rents are at market rate, okay, that we're looking at. We expected to be accretive to our needs in the new building. Beyond that, I'd really rather not comment.
Okay. The $400,000 in the first quarter that you spent on CapEx for the new building on top of the $2.5 from 2018, is that the end of what you need to spend on the new building?
Hopefully not. Okay. I hope to be spending a lot more over the next three, four, five years as the building gets further expanded for the needs of the sales by Tantaline, MesoScribe, and CVD Materials.
Okay. The large aerospace customer, is that absolutely any recurring business for them? Is that dead in the water?
I've always used the words cautiously optimistic.
Can I probe that a little bit more? The equipment that you've sold them to handle the aircraft composite engine flow, to your knowledge, was that enough to cover the volumes that are coming out of the facilities for this large aircraft manufacturer?
Long term, I don't believe it is for them. That's something that they would have to answer.
Right. The machines you did sell them, what's the useful or shelf life of these machines?
With proper maintenance and repair, et cetera, they'll be 20, 30 years.
Okay. To your knowledge, have they ordered comparable equipment from any other vendor?
Not to my direct knowledge, no.
Okay. I have other questions, out of respect for other callers, I'm going to drop back. Thank you so far.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. Please hold while we poll for additional questions. Thank you. We do have a follow-up question coming from the line of Brett Rice with Janney Montgomery Scott. Please proceed with your question.
Well, gentlemen, looks like you're stuck with me here. Yep. On April 16th, this order of FirstNano Systems to TAG Heuer, can you give us some sense of the size, scope, and potential business that could flow from that relationship?
Well, it's not an order. It was an announcement of actual operation of the equipment at the customer site.
Okay. With respect to the MesoScribe order with the Air Force, can you give us some color on what that is and what the potential magnitude of business of that might be?
Yes. Can you repeat the question, Brett, please?
Yeah. The April 30th announcement of the order that MesoScribe got from the Air Force.
You mean the two SBIR contracts?
Yes.
Actually, we got three. There was a third one, I believe, in the fourth quarter of last year, that we announced also. What you're seeing is the technology that MesoScribe is capable of starting to work its way through some of the beginnings of what may become production contracts later on. Right now, it's proving feasibility, capability. They were already producing certain materials for the aerospace and defense market. This is just a further continuation of new capabilities.
Okay. Could you give us an update. You filed for a patent for the novel fluid reactors.
How's that going?
It's going very well in the lab. We expect that over the next year, two years to move further forward with it. It's a very new technology. We're looking for a potential partner with somebody in the medical industry, to help move it further forward.
Okay. I was going to ask you, any update on your intentions for the membrane oxygenator cartridge?
Well, that is the fluid reactor.
Okay. All right. A number of the board members in January made some non-open market purchases of CVD stock at $3.99. Are you at liberty to say who was the seller?
I'm not cognizant of this, Brett. I can look into it further.
Okay.
I think you might be referring to a grant of restricted stock as part of board compensation.
Okay. All right.
If you look at that, I think that's what you'll find.
It would be nice to see, with the stock down here, some insider buying, to kind of give shareholders comfort that we all have confidence in what's going on here. That's not a question, just a gratuitous comment. What was the cash burn this quarter, and what do you think it'll be for the coming year, Tom?
Brett, for the quarter compared to December, cash for Q1 was down about $100,000. Basically, the operating loss, the cash operating loss, was offset by the collections of receivables. About $2 million in change, cash operating loss, and that's about what our receivables were reduced by.
Right.
For the quarter, cash was flat. With the continued impacts of our cost containment measures, with improvement in order flow, we are working towards positioning the company to be profitable by Q1 2020. There's obviously a variety of factors in play, but we're working towards that.
Will you reach cash flow breakeven prior to Q1 2020 when you look at your internal budgets?
I think what we could say is based on continued progression of the order flows, we'll see progression towards that, when the results come out, we'll let those stand for themselves.
Right.
I think the key is just the focus on driving the company towards profitability in 2020.
Right. Now, on order flows, when you announced the year-end figures on April 1st, you had said at that time you had $6 million of new orders. Now you have $6.5 million. In basically April and the first week of May, we've gotten another half million dollars in orders?
No. I think the end of the year, we had talked to orders of approximately $6 million in Q1. When we completed the execution of those orders, again, within the quarter, January to March 31st, the final number came in at just about $6.5 million.
Right.
It's just an adjustment to that approximate number.
Okay. Before we got involved with this large industrial aerospace customer, the old legacy businesses, the run rate was around $6 million a quarter, $24 million for the year. That legacy business seems to have just fallen off a cliff. I know, Len, you say it's always been lumpy, but is it lumpy or it's just not what it used to be? Can you talk to that a little bit?
Well, basically, it is lumpy. It's not where it fell off a cliff. It takes a little bit of time to get back to where we were. I think the first quarter sort of helps show that it's capable of being done, and we suspect that the rest of the year will be in that magnitude.
Right. All right, gentlemen. Thank you for answering all my questions. I appreciate it.
You're welcome.
Thank you. Our next question comes from the line of Howard Morton, a private investor. Please proceed with your question.
Hi, can you hear me?
Yes, we can.
Okay. Several years ago, you had hopes that you would outgrow the building that you bought, not for Tantaline, but just for the regular business. What I'm trying to figure out is sort of what Brett Rice was talking about. Why the old business, which we thought had a lot of growth potential in different areas, not just the aerospace, what happened? Is it also cyclical? We were hoping to do $100 million by this time without even knowing about Tantaline. That's the mystery to me. Where did the dream fade? Thank you.
Well, it's still there. The issue was that we got sidetracked significantly by the large aerospace company, which ordered a lot of equipment, which took a while to eat through it. It was more than we expected at one time. It's had its own issues now with the drop-off. We will get the equipment business back up over a period of time.
Well, my follow-on comment is that for years, you didn't have to sell. People came to you because you were so expert at this or that. As the aerospace company came to you because you were good at something. Now, apparently, it seems you have to sell. Do you have that capability?
Well, we always sold. It's just that we sold in a different fashion than just going out and knocking on doors. Okay. We still do that. They still come to us. It's every day.
Well, let's hope your future is a lot brighter than your current. Needless to say, you wish yourself luck, and I do, too. Carry on.
Thank you.
Once again, ladies and gentlemen, to ask a question at this time, please press star one on your telephone keypad. Please hold while we poll for additional questions. Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the floor back over to Mr. Rosenbaum for any additional concluding comments.
Thank you for joining our conference call. I look forward to speaking with you at the next call. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.