Greetings. Thank you for standing by, and welcome to CVD Equipment Corporation's first quarter 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 Chief Executive Officer, and Member of the CVD Board of Directors, and Richard Catalano, 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 at 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 filings with the SEC, including, but not limited to, risk factors section of the company's Form 10-K for the year ended December 31, 2022. 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 the new circumstances or revised expectations. Now I would like to turn the call over to Emmanuel Lakios.
Paul, thank you. Good afternoon, everyone. Thank you all for joining us today to discuss our Q1 2023 financial results and other important company developments and pertinent information related to our business. Your thoughts are important to us. We look forward to your questions in our Q&A session. We are pleased to report strong revenue growth for the first quarter of 2023, an increase of 87% over our first quarter of 2022, a 20% increase over our fourth quarter 2022. During the first quarter of 2023, we recognized a net loss of $40,000, or $0.01 per basic and diluted share. This compares to a net loss of $1 million or $0.15 per basic and diluted share for the same period in 2022.
We have in the past noted that we expect fluctuations in revenue due to the fluctuations in the timing of orders. Orders for the first quarter of 2023 were $2.9 million. This was lower than our anticipated orders for the quarter. This resulted in a decrease in our backlog from $17.8 million at December 31st, 2022, to $12 million at March 31st, 2023. The decrease in order may have a negative impact on our revenues over the next couple of quarters. We continue to be cautiously optimistic. As our served markets recover, develop and grow, we will be able to obtain an increased order level. As there is a history of market cyclicality, our strategy is to serve a few growing markets. We have narrowed our market focus to three areas.
The first being high growth power electronics market, our emerging battery materials market, and our legacy aerospace and defense market. In the power electronics market, we previously announced receiving an order for a total of 30 PVT-150 systems. These orders were received in 2021 and 2022 from a customer who uses our system to grow silicon carbide crystals that are subsequently processed into 150 millimeter silicon carbide wafers. We recognized $2.5 million of revenue during the first quarter of 2023 related to these orders, and expect to ship the remaining 10 of 30 units before the end of the second quarter. We also expanded our marketing efforts during the first quarter with the hire of a dedicated sales manager and broadening our general marketing efforts, including attendance in key silicon carbide-related shows and conferences.
The success of our efforts is dependent on the performance of our equipment in the field, overall market conditions, our customers' ability to qualify their end product, as well as the capital markets. A recent development in our battery material market occurred in early May. We are excited to have received a repeat order from OneD Battery Sciences for our PowderCoat-1100 system and components for approximately $1.8 million. The system will be used by OneD Battery Sciences to add nanoscale silicon to carbon powder for use in the anode section of the battery. This addition of silicon enhances the performance of the battery, and the application is in line with our focus on markets that electrify everything.
Related to aerospace and defense, we are a leading manufacturer of chemical vapor infiltration systems and also tow coating systems to manufacture Ceramic Matrix Composite materials, also referred to as CMC, for use in gas turbine engine components. CMCs can withstand extreme temperatures and are one-third the weight of nickel-based superalloys. This allows jet engines to run hotter, thereby consuming less fuel and emitting less pollutants. As previously announced, during the fourth quarter of 2022, we received an all production CVI tool to manufacture CMCs for aerospace gas turbine engines for approximately $3.7 million. Our customers now include two of the leading manufacturers of gas turbine engines. This order contributed to approximately $300,000 of revenue during the first quarter of 2023. We continue to engage with our aerospace customers on their technology and production capacity requirements for both the short and also long term.
CVD Equipment Corporation's objective remains to be a profitable growth company through a focus on products that serve growth markets, specifically high power electronics, EV battery materials, and aerospace and defense specialty materials. We remain committed to stay the course of our strategy to achieve consistent long-term profitability, growth, and return on investment. I would like to turn the call over to our CFO, Rich Catalano, who will provide you an overview of our first quarter results.
Okay. Thank you, Manny. Good afternoon. Our revenue for the first quarter of 2023 was $8.7 million as compared to $4.7 million for the first quarter of 2022. That represents an increase of $4 million or 87%. The increase in our revenue was primarily attributable to our PVT150 product line, which contributed $2.5 million to the current quarter as compared to $300,000 of such revenue in the first quarter of 2022. Our SDC segment had a strong quarter with an increase of $800,000 in revenue over the first quarter of 2022, representing an increase of 59%. Our revenue for the first quarter of 2023 was also 20% higher than the $7.2 million we reported for the fourth quarter of 2022.
This increase was due to higher revenues from both our CVD Equipment and SDC segments. Our operating loss for the first quarter of 2023 was $187,000. This represents an improvement of $783,000 as compared to the first quarter of 2022, and is slightly lower than the $221,000 operating loss we reported in our recent fourth quarter. The improvement in our operating results from the prior year quarter was related to the increased revenue of $4 million, which resulted in an increase in our gross profit of $1.7 million. This was offset in part by increased operating expenses of approximately $900,000.
Our gross profit margin percentage was 28.0% in the current first quarter as compared to 16.5% in the prior year first quarter, and as compared to 27.7% in our recent fourth quarter. The improvement in gross profit from the prior year quarter was primarily the result of leveraging our fixed costs on higher sales levels as well as an improved product mix. These benefits offset certain increases in material components as well as compensation cost. The increase in our operating expenses from the prior year quarter and from our fourth quarter is due to higher employee-related costs to support the growth of our businesses. We also had additional selling expenditures and professional fees.
After accounting for non-operating other income, which principally consists of interest income, our net loss for the first quarter was $40,000, or $0.01 per share for both basic and diluted. This compares to a net loss for the first quarter of 2022 of $1 million or $0.15 loss per share for basic and diluted. Our net income in the fourth quarter of 2022 was $1.5 million or $0.23 earnings per share, basic and diluted. As a reminder, the fourth quarter did include the recognition of other income of $1.5 million for Employee Retention Credit that we completed an analysis that determined the company was eligible to receive this credit for certain quarters during fiscal 2021. Turning to our backlog.
Our backlog at March 31st, 2023 was $12 million as compared to $17.8 million as of December 31st, 2022. This does represent a decrease of $5.8 million as our revenue of $8.7 million exceeded our bookings of $2.9 million. Our backlog at March 31st consists of $10.1 million relating to remaining performance obligations on our contracts in progress, as well as certain contracts not yet started, with a balance of approximately $1.9 million representing other orders received from customers such as spare parts. Our cash and cash equivalents at March 31st, 2023 was $11 million as compared to $14.4 million at December 31st, 2022.
The decrease of $3.4 million was due to increases in contract assets of $1.5 million and decreases in contract liabilities of $2.8 million as we incurred costs on the contracts that we currently have in progress. Other factors impacting our cash flow during the quarter was a small increase in inventories of about $300,000, a decrease in accrued expenses of approximately $500,000, primarily due to the payment of year-end bonuses. These changes were partially offset by a reduction in accounts receivable of $1.4 million.
Our working capital at March thirty-first, 2023 was $15.7 million as compared to $15.5 million at December thirty-first, 2022. As to our future results, we are not able to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of our operations and cash flows. Our return to consistent profitability is dependent, among other things, on 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 assess our operations, and we'll take actions as necessary to maintain our operating cash to support our working capital needs. I'll now turn it back to Manny.
Rich, thank you for your presentation. In summary, the first quarter results for 2023 reflect our efforts to continue to focus on everything we do and those who we serve. Our focus remains on our customers, our employees, our shareholders of course, 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 canned presentation, I would like to open up the floor to your questions.
Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you'd 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 key. One moment please while we poll for questions. Thank you. Our first question is from Brett Rice with Janney Montgomery Scott. Please proceed with your question.
Hi, Manny. Hi, Richard. How are you guys doing?
We're doing well, Brett. Yourself?
Good. Everything's good. The orders in the first quarter being less than anticipated, why is that? Is it macroeconomic?
Sure. Well, it's a bit of both. I did mention in the... Let me say, we didn't lose any orders to any competitors. In our three markets, and it's interesting that each one of those have a different spin to it. In the silicon carbide area or arena for our PVT product line, there it is a bit of waiting for qualification by our customer to take the next step on expansion. Us then also getting our order from our second potential customer. There's always capital raise involved with that. It's a bit of the capital markets, but also the qualification process. It does take a period of time, and it's in quarters to be able to get a process qualified.
On the aerospace side, there it's a capital side orders pushed out a little bit through a capital procurement process. You know, we continue to be engaged with our two customers that we have presently, our more legacy customer, and also more recently, the order that we closed in the December timeframe. We continue to talk to both of those about their capital requirements as the aerospace industry, the gas turbine engine, the airline manufacturers, start now. The airplane manufacturers, Boeing, Airbus, et cetera, start actually gearing up some more. There's been some positive news there. And then in the battery side of the business, you know, we were hopeful to have closed our order in the Q1 timeframe.
That was delayed into Q2, into May. We're very pleased to have received that order. We believe that that partnership continues to be on a solid course. We did announce the customer for the battery material, Brett, that's OneD. Of course, that's in concert with their acknowledgement that we can do such.
Great. Great. Now the margins of the PVT-150, the PowderCoat-1100 and the CVI system, which have the best margins?
Yeah, they have similar margins. Obviously, the higher volume tools, we get some economy of scale on. You'll see a few margin points or, you know, up to several margin points higher. That would be the PVT tool. You know, we believe that we'll continue with getting additional volume. We'll be getting, you know, above our present level. Again, it's all volume based on the absorption of our overhead and our factory.
Right. Now on the PVT-150, additional orders, will they come from the existing customer that, you know, has ordered 30 of them and whose appetite might be you know, satiated? Is it gonna come from, a new list of customers on that particular system?
Okay. I'll go with C, both. Clearly the performance of our tool is such that we anticipate as our initial customer needs additional tools, that we will be the selected supplier. There's no reason that I can think of that that wouldn't be the case. We also, with the launch of our marketing efforts in Q1, we've engaged with a few additional customers already. In the last call we had, I think it was John that asked the question of what my objective was for the year, and it was to get two additional accounts. That's still my objective.
All right. Last question. You know, thank you for your responses. Can you tell us a little bit about the background of the, you know, the new dedicated sales manager?
Yes. He comes from an LED background, so he is very familiar with selling into very large accounts. He previously had worked with one of the top three LED manufacturers, heading up a portion of their sales efforts. I have a prior history with the sales manager as well, and have all the faith in him.
Great. Thank you very much as always for taking my questions.
Thank you, Brett
Thank you. Our next question is from Krish Sankar TD Cowen . Please proceed with your question.
Hi, this is Robert Mertens on for Krish. Thanks for taking my questions. Just real quick, on the backlog, thanks for providing the prior color. Is it fair to say the majority of the difference is probably due to timing and push outs and might be expected to be recovered in later quarters and not as much as to pull back in general demand? I had a quick follow-up.
Yeah. I think the orders are definitely, I think that that would be correct. That, you know, it was pushouts, and it's a matter of timing, of course. You know, again, as I said earlier, there are no orders that I know of that we lost that we are anticipating closing in the first quarter. We're still pushing to close those orders even as we speak. We've closed actually two of them that equate to about $2.3 million-$2.4 million already this quarter. Yeah, it's more a timing event for me than it is an absolute number.
Okay. Got it. Thank you. That's helpful. Then just could you provide a little more color on what you're seeing in the silicon carbide market and what the major growth opportunities are outside of course, growing the current customer account? Is there a focus on expanding the customer list or are there additional opportunities within the supply chain, whether it's on the wafer or equipment side of the silicon carbide market?
Yeah. Two broad questions. It's good, great for a good presentation. The first is, do we plan to expand outside as far as the customer base? Yes, we do plan to expand to other U.S. manufacturers and then European manufacturers of wafers. Some are wafers and devices, some are devices, wafers/boules and also equipment. We have a strategy for each one of those categories. You know, our primary focus is again, the United States and then Europe. We're not putting a lot of focus on Asia at this point in time. We think there's enough business for us.
We have, I would say, reached out to at least seven and have engaged in discussion with at least three additional ones to the one account that we have already an installed base at. We're in the selling process. Now, as far as after you land in the account, how do you expand in the account? We also announced, previously that we were working on a silicon carbide EPI system for 2014. We continue to be on that, on that path and timeline.
Okay. Got it. Thank you for all the clarity. I really appreciate it. Thanks for taking my questions.
Pleasure.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is from John Gruber with Gruber McBaine. Please proceed with your question.
Good afternoon.
Hey, John.
I'm a little confused on your current customer. They have a huge facility, 400,000 square feet, and the units that you've shipped and on order are, you know, won't even begin to cover anywhere near that. What's the hang up there? Why haven't you got a follow-up order? Do they have an issue with qualification on these units or what?
John, how are you? I can't really speak to any issues that they may be having or that they are ahead or behind on their roadmap. I am aware that there has been, there are 30, 20 tools installed. I have 10 systems on the floor that are shipping starting over the next week. Those will be out by the beginning of or middle of June. They're all shipping. You know, I have 20 installed. I don't know if, You know, I really can't say where the location is. I believe the announcement that you're looking at is a facility that has just been closed.
We shipped, many systems prior to that facility being closed out on. Did I help at all?
When is the hang up on more units to that customer?
I think it's, you know, I think it's based on they feeling comfortable that they have wafers. You know, I can't really say more than that at this point.
Okay. Second question then is on your new targets. When do you expect to get an initial order from your new targets, the other big players in the industry, either European or U.S.?
Yeah. We have them at different stages. We have one going through capital funding. It's based on they closing out on their funding. That's an if statement, of course. We have another in a little earlier in the process, where it's, they're evaluating our technology. Now, to answer your question specifically, I thought I was hoping to get orders in Q1, and they've moved out. Will they happen in Q2 or early Q3? It really depends on their acceptance of our technology, which I think we have some proven results. You know, the market conditions, which I think silicon carbide, none of us are going to disagree that that's a growth market and big demand.
The capital market, that's a question mark, and their ability and in some cases, the ability to get wafers produced, and that's with our present account. I think the answer to kind of the question, this end of this quarter, next quarter, I, you know, I would be disappointed if we're not able to get at least evaluation units.
Okay. Thank you.
Thanks, John.
Thank you. Our next question is from Oren Hershman with AIGH Investment Partners. Please proceed with your question.
Hi. Thank you. Can you go back to, you know, that you're working on the EPI tool for silicon carbide? You've had an experimental tool out there.
Sure.
How's that tool done? You know, obviously it's a much bigger TAM and a much bigger ASP. How does your special secret sauce in terms of, let's say, temperature control and other things play into that tool? Do they come into play in that tool as well?
Well, I don't think... Thanks. I appreciate the question. I don't think you're asking me how we do it, because otherwise it wouldn't be a secret anymore.
Okay.
We shipped our originals silicon carbide EPI tool back in 2008. We clearly it has to go through a productization and also a bit of maturing on the heating technologies. You know, we have demonstrated the ability to control temperatures up to 2,000 degrees for long campaigns, days, weeks, with plus minus half a degree, which is fairly exceptional, I would say. Our ability also to manufacture the product in-house gives us what I anticipate to be a competitive advantage from a price performance perspective. I can't really speak to the performance on the silicon carbide tool that we have in the field, and that it was really an R&D system.
Similar to how we took our PVT tool, which we shipped in 2011, and we productized it, and we're successful in achieving very good results, if not the best results that I can see in the marketplace. You know, I think that we'll also have a very competitive system as well. As you know, wafers are very cost sensitive. We have our internal manufacturing that allows us to cut out the middleman on the machine shop side and some of the others areas. That will give us an advantage, I believe, in being able to penetrate the market.
Again, you know, we'll be releasing more information later this year and into the beginning of 2024, with the product release probably in the third quarter of the year.
The product release in third quarter of?
2024.
Okay. I mean, do you have someone interested as a lead customer here without naming anybody you can't name?
Are they interested? Everybody is interested in a proper positioned cost of ownership, silicon carbide tool. Do I have an agreement with a customer? No, I don't have an agreement with a customer right now, but I have a list of customers we can have discussions with, but I really need to provide them performance data before I can have an intelligent discussion. That'll be closer to the end of Q1 to beginning of Q2.
Okay. Okay, thanks so much.
Welcome. Thank you.
Thank you. There are no further questions at this time. I'd like to hand the floor back over to Emmanuel Lakios for any closing comments.
Paul, thank you. We appreciate everybody's attendance today, on the call. I wanna extend my gratitude to our shareholders and to also our employees for all of their expressed support and loyalty. If you have any questions, be encouraged to please reach out to either Rich or myself directly. This concludes our first quarter call. Thank you.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.