Good afternoon, welcome to the CVD Equipment Corporation first quarter 2026 earnings conference call. As a reminder, today's call is being recorded. We'll begin with prepared remarks, followed by a question-and-answer session. Presenting on today's call are Emmanuel Lakios, President and Chief Executive Officer, and Richard Catalano, Executive Vice President and Chief Financial Officer. Our earnings press release and information about today's call replay are available in the investor relations section of our website at cvdequipment.com. Before we begin, please note that the comments made during this call may include forward-looking statements, including statements regarding our future financial performance, market growth, product demand, business outlook, and strategic initiatives. These statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially.
For a discussion of these risks, please refer to our filings with the Securities and Exchange Commission, including the Risk Factors section of our annual report on Form 10-K for the year ended December 31st, 2025. We undertake no obligation to update any forward-looking statements except as required by law. With that, I will now turn the call over to Emmanuel Lakios, President and Chief Executive Officer.
Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to review our first quarter 2026 financial results and to provide an update on our business and strategic initiatives. Following our prepared remarks, we'll be happy to take your questions. As previously disclosed, in response to continued volatility in our order rates and a recent decline in bookings within our CVD Equipment division, we initiated a transformation strategy late last year designed to specifically reduce fixed operating costs, create a more agile organization, and better position the company to maximize shareholder value. Key elements of this plan included transitioning the CVD Equipment business from a vertically integrated fabrication model to an outsourced fabrication for certain components, which we will expect to reduce fixed costs and improve scalability.
Leading a workforce reduction in CVD Equipment division during the fourth quarter, which is expected to reduce annual operating costs by approximately $1.8 million in 2026. Revising our sales approach by leveraging distributors and external representatives to complement our internal sales organization and broaden market reach. Finally, exploring strategic alternatives for certain business product lines, including potential sale of assets or divestitures. As part of our strategic review, on March 23, 2026, we announced that we had entered into a definitive agreement under which our SDC business was to be sold to Atlas Copco. The purchase price was approximately $16.9 million in cash and is subject to certain purchase price adjustments. The transaction closed on April 1st, 2026. The sale of SDC enables us to concentrate our attention on our core CVD Equipment business.
The divesture has strengthened our balance sheet and provided additional financial flexibility as we continue to evaluate strategic opportunities for the CVD Equipment business, its product lines and our facilities. We continue to drive operational efficiencies, allowing for reduced operating costs and increased flexibility. Our objective remains to maximize shareholder value. Net cash proceeds from the sale of the SDC division received by the company in April 2026 after payment of transaction costs and employee-related liabilities were $14.8 million. Immediately following the sale of SDC, CVD Equipment had approximately $23 million in cash and no long-term debt as we repaid the remaining balance of an equipment loan during the quarter. Under the agreement, an additional $900,000 was placed in escrow for post-closing adjustments and indemnification obligations under the agreement.
We have retained ownership of our Saugerties, New York facility that is being leased to the buyer for an initial term of two years. Turning to our financial results for our continuing CVD Equipment operations, first quarter 2026 revenue was $1.8 million, down 70.9% from the prior year quarter revenue of $6.3 million and down 30.9% sequentially from the fourth quarter of 2026 revenue of $2.7 million. Orders in the first quarter totaled $1.8 million, driven primarily for the demand of spare parts. At March 31, 2026, backlog was $4.7 million, similar to the CVD Equipment backlog at December 31, 2025.
Our bookings for our business continued to be affected by several factors, including geopolitical uncertainty, reduced U.S. government funding for universities, and a slower pace of adoption of our solutions in certain end markets. We are actively monitoring customer demand, the broader geopolitical uncertainties and potential future tariff impacts, and are adjusting our plans accordingly. Even against this backdrop, we remain focused on delivering solutions across our key markets, including aerospace and defense, industrial applications such as silicon carbide on graphite, silicon carbide for high-power electronics, as well as emerging applications, including nuclear energy. With that, I will turn the call over to our CFO, Richard Catalano, to review the financial results in more detail.
Thank you, Manny, and good afternoon, everyone. The financial results of SDC are now reflected in our financial statements as discontinued operations for all periods presented, and the SDC assets and liabilities are considered held for sale as of March 31st, 2026. With the sale of the SDC business in 2026, we now have one reportable segment consisting of our CVD Equipment division that manufactures chemical vapor deposition, physical vapor transport, thermal process, and related equipment. I will review first of the results from continuing operations. As Manny said, our first quarter of 2026 revenue was $1.8 million. This compares to $6.3 million in the first quarter of 2026 and $2.7 million in the fourth quarter of 2025.
The year-over-year decline as well as the decline from the fourth quarter was primarily driven by lower CVD systems revenue. Our revenue was concentrated among three key customers, which together represented 66% of total first quarter revenue. Gross profit for the quarter was $147,000, resulting in a gross margin of 8%. This compares with gross profit of $1.7 million and a gross margin of 27.4% in the prior year quarter. The decrease in gross profit was primarily the result of lower revenues, which led to higher unabsorbed overhead costs. Gross profit during the quarter ended March 31, 2026, did benefit by about $3.3 million or $317,000 from a contract modification with one of our customers.
Our operating loss from continuing operation for the first quarter of 2026 was $1.8 million, compared to $0.3 million in the first quarter of 2025. Included in the first quarter of 2026 was a gain of $46,000 from the sale of equipment. After interest income, net loss from continuing operations for the quarter was $1.7 million or $0.25 per basic and diluted share, compared with a net loss of $229,000 or $0.03 per basic and diluted share in the prior year quarter. Income from discontinued operations before transaction cost of our SDC business division declined from $0.6 million in the prior year quarter to $0.5 million in the current year quarter. This was due to lower gross margins on higher revenues.
Transaction costs associated with the sale of SDC consisted of legal and investment banking fees of $0.4 million for the quarter ended March 31st, 2026. Thus, the total income from discontinued operations was $63,000 for the quarter as compared to $0.6 million for the prior year quarter. Again, this is principally due to the transaction costs incurred in connection with the sale of SDC that was consummated on April 1st, 2026. At March 31st, 2026, we have cash and cash equivalents of $8.2 million, and immediately following the sale of SDC, our cash balance was approximately $23 million. The net proceeds from the sale of SDC, totaling $14.8 million, has been invested in short-term Treasury securities. Cash flows for the quarter.
Net cash, used in operating activities during the first quarter of 2026 was $0.9 million, principally as a result of a loss from continuing operation. This amount is net of approximately $0.4 million of cash that was contributed by SDC during the first quarter. During the quarter, we did receive $556,000 from the sale of equipment, and we used a portion of those proceeds to pay off an equipment loan in the amount of $181,000. Our working capital improved to $12.8 million at March 31st, 2026, and of course, it increased after we closed the sale of SDC in April. Looking ahead, our return to consistent profitability will depend on improved equipment order flow, disciplined cost management, successful execution of our transformation plan, as well as continued control of capital expenditures. With that, I will now turn it back to Manny.
Thank you, Rich. Our priorities are clear: serving our customers, supporting our employees, creating value for our shareholders, and returning our core CVD equipment business to sustained profitability. Operator, we are now ready to open the line for 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 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 keys. One moment please while we poll for questions. Thank you. Our first question is from Neil Cataldi with Blueprint Capital Management.
Hi, guys. Thanks for taking a couple questions for me. Appreciate it, the time. The first question: With the SDC sale complete, and as you said, $23 million in cash on the balance sheet, can you help us think a little bit about the book value of the Central Islip property? The PP&E on that's like $10.4 million. Is that reflective of what you believe the property is worth in today's market?
I think we can speak to the fact that we a while back had looked at a sale leaseback that the valuation was north of that. You know, we can't talk about the, you know, the write-up or anything of that sort, but, you know, what we can speak about is that we think that that is a conservative number for the valuation. You know, we can't speak to having multiple valuations on the property at this point.
Okay. That number, that was previously in a transaction, would be a fair number for investors to sort of think about?
It was just a number of years ago, correct?
Yeah.
Yeah.
you know, real estate prices have been.
Yeah.
flat around.
Okay. There's dynamics associated during that period of time. That was post-COVID. A lot of demand for high volumetric real estate. You know, the building is still a valued asset of the corporation.
Okay. You know, just trying to establish the substantial amount of value that's here with the company between the $23 million in cash and what that property was previously, you know, transacted for, you know, establishes sort of a floor here of like $7 per share in cash. Very helpful. Thank you. Second question pertains to the language that you're using in the press release. You're citing geopolitical uncertainty, reduced government funding, but yet you're sort of simultaneously adding themes like data center and nuclear to your investor deck and filings as target markets, seeing your R&D not really change.
Most of your, you know, presumably end market customers across the semiconductor wafer space, you know, whether it's 200 millimeter silicon carbide in active production or the 300 millimeter, you know, coming, as well as all the activity in the nuclear space. These are themes that are, you know, have very elevated activity right now. I'm just sort of wondering, like, is any of that translating into active pipeline conversations for either your PVT or your CVI systems?
You know, a couple of things. One is silicon carbide. We've spoken about silicon carbide and the impact on our value proposition in silicon carbide, which is the actual process equipment that makes the boule. You know, clearly, there was a deflation of that market from 2022, 2023 highs. The reasoning for that is really the Chinese vendors really flooding the market with wafers, making it economically unviable for U.S. wafer providers to ramp up and buy additional equipment. That's what deflated the PVT market. We are not primarily a two-dimensional wafer level process equipment company. We are a three-dimensional for the most part.
Most of our orders come from from pre-form CVI, where we are infiltrating a three-dimensional product or by growing a boule, which is a three-dimensional product. We typically are not two-dimensional. You know, a small portion of our business is wafer level, semiconductor wafer level. We are in more the industrial and aerospace element of the food chain. We are seeing RFQs coming in at a higher rate than what we had previously seen last year in 2025. We are seeing that, and it's You know, in general, I think we've seen that money now has freed up after the opening up after the shutdown.
It takes, you know, several months to a few quarters for those, and sometimes several quarters, for those RFQs to turn into orders. We are in the waiting period at this point, and we continue to prosecute RFQs as they come in to process those. As far as, you know, you mentioned whether it's, I think you mentioned AI and nuclear, et cetera. In the area of nuclear, we do see RFQs for CVI, CVD equipment in that space. Again, you know, we're very early in that process. As far as AI, you know, You know, AI is a buzzword. We provide some wafer-level processing, we don't advocate to be an AI, you know, enabling company at this point.
Again, we are I just want to go back and underscore, we are a more three-dimensional product or substrate company than planar wafers.
Okay, thanks. Yeah, that's very helpful. I used the word data center, which was the language that I think had been added to your filings.
Sure.
You know.
So-
The sort of reason behind adding that language. Really just because there's so much activity in this space right now. It seems like, you guys could be, you know, sitting in a good position.
Look, there are a few of our products that would address that, in a ramp-up, whether it's a silicon carbide PVT system. Again, that's gonna require some competitive position against the Chinese wafer suppliers. We also have other products in the past that we've sold to that would assist AI centers, but not on the chip level, more so on sometimes the power transport, whether it's superconducting tape or something of that sort.
Okay. Is the, you previously used to talk about the PVT200 system that was placed, you know, to an unknown customer other than, I guess, presumably Stony Brook. Is that still under evaluation?
Well, Stony Brook, we have a relationship with Stony Brook, where we sold them two tools. We continue to collaborate with Stony Brook and that'll be in the future. The customer on the 200 that we had sold also was impacted by the downturn in the U.S. supply of silicon carbide wafers. They're still in a waiting pattern. If there was news to share, we would have.
Okay. Last question. The strategic alternatives language has been pretty consistent for a few quarters. Is there any additional color on whether you're evaluating the business as a whole, specific product lines or, you know, what's left of the facilities and, any sort of timeline on when investors may hear if there's a conclusion to the review?
Well, the SDC was a strategic initiative. The SDC sale, great group. You know, we, I think benefited the shareholders by putting the cash on the balance sheet. Also the employees have a new home. We're pleased with that. As far as additional actions, we continue to look at options. We don't have anything to speak to today. When we do, we'll of course, you know, our shareholders will be aware of that.
Okay. Thanks, guys. Look forward to connecting offline as well.
Yeah. Yeah, we look forward to it, Neil. Thank you.
Yeah. Yeah.
Our next question is from Paul Tcheka with MS&E Resource.
Hello, am I on now?
Yes, you are, Paul. How are you?
All right. Fine, thanks. Thanks very much. The previous caller, nice to have him call in because you guys answered a lot of my questions based on his questions. I just wanted to say I'm very bullish on CVV near term and long term. You've got a lot of great potential for success in multiple applications from my perspective as a materials engineer who's worked in aerospace and the electronics area. I was intrigued by the silicon carbide boule project with Stony Brook. You've covered that already. The chip manufacturers, I think that's looking good. I wanna just voice my support for not using any of this cash that you have in hand for any kind of investor dividend or anything.
You've been very good over the years being very responsible and very methodical in using the cash you have. I'm really happy to hear that you've got this added cash for, you know, for your basis, for acquisitions or further developing your opportunities. I just wanted to throw that in there. Is there any other further work? I guess it's two-dimensional related, but gallium arsenide, gallium nitride, is that still a product line at all?
It's still a product line, of course. Let me just jump into that. Product line, there's not a lot of, you know, we don't see a lot of demand in that area. We are seeing some exploratory, I would say exploratory because it's early stage, bubbling up of some new applications for some of the, you know, products that we had in the past. It's really too early to really discuss that. You know, we play in the advanced materials area, not specifically in, let's say LEDs or something of that sort on GaN. That's not our strength.
Yeah, sure. I just hadn't seen anything, you know, in press releases, and I guess it's for a good reason because it's not happening, much. All right. thank you very much. Your team's doing a great job, I think.
Appreciate it, Paul.
Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks.
Thank you, operator, and thanks to everyone for joining us today. We appreciate your continued interest and in support of CVD Equipment Corporation. If you have any questions, please feel free, some of you do as well, to reach out to Rich or myself. This concludes today's call. Thank you.
Thank you again for your participation. You may now disconnect your lines.