Thank you for standing by, and welcome to CVD Equipment Corporation's third 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 Manny Lakios, President and CEO, and a member of the CVD Board of Directors, and Rich 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 at www.cvdequipment.com. Before we begin, I would 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, 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 factor section of the company's 10-K for the year ended December 31st, 2022. Actual results may differ materially from those described during this call. In addition, all forward-looking, 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. I would now like to turn the call over to Emmanuel Lakios. Please begin, sir.
Sherry, thank you, and good afternoon, everyone. Thank you all for joining us today to discuss our third quarter, 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. As previously communicated, our order and revenue levels have historically fluctuated and will continue to do so. This is typical for the highly cyclical process equipment industry. As such, while we experienced a year-over-year decline in third quarter revenue of approximately $1.9 million, we are pleased that our year-to-date revenue for the first nine months of 2023 continues to be $1.4 million or 7.6% higher than the prior year.
On the order front, during the third quarter, we booked $4.1 million of new orders, principally in our aerospace and defense sector. In the high power electronics market, there were no PVT150 system orders received in the first nine months of 2023. Our installed base of PVT150 systems are meeting our performance expectations, and we continue to support our existing PVT customer in their end product development goals. We have expanded our marketing efforts to include direct outreach to multiple potential customers for our PVT systems, as well as attended key silicon carbide trade-related trade shows and conferences, including the ICSCRM conference this past September. The engaged customers both include silicon carbide wafer manufacturers as well as fully integrated wafer and device manufacturers.
The success of our PVT150 and our recently launched PVT200 systems is dependent on the performance of our equipment in the field, overall market conditions, our customers' ability to qualify their end product with their customer, and their ability to obtain funding required to purchase our equipment. We continue to make progress divesting and winding down non-core business entities to allow our team to focus on the equipment product lines and pipeline of potential customer opportunities in our key strategic markets of high-power electronics, battery materials, energy storage, and aerospace defense. As previously announced, we sold our Tantaline subsidiary in May 2023, and in August 2023, the company entered into a purchase and license agreement with a third party to sell certain assets and to license certain intellectual property of our MesoScribe business in exchange for approximately $900,000.
The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones. During the third quarter, we welcomed two board members, Ms. Deb Wasser and Dr. Ashraf Lotfi. Both board members bring extensive experience to the company in the areas of corporate governance and financial communications for Ms. Wasser, and high-power electronics for Dr. Lotfi. We remain committed to stay the course of our of our strategy to achieve consistent long-term profitability, growth, and return on investment. Our return to profitability is subject to our ability to receive additional system orders and continue our efforts to reduce our overall operating costs. I would like to turn the call over to our CFO, Rich Catalano, who will provide an overview of our third quarter results.
Thank you, Manny, and good afternoon. Our revenue for the third quarter of 2023 was $6.2 million, as compared to $8.1 million for the third quarter of 2022. This represents a decrease of $1.9 million or 23.2%....This decrease in our revenue was primarily attributable to lower revenue in our CVD Equipment segment of $1 million, primarily related to lower PVT system revenues that was partially offset by higher aerospace revenue. Our CVD Materials revenues were lower by $0.7 million due to the sale of our Tantaline subsidiary in May 2023 and the wind down of our MesoScribe operations. There were certain customer contracts where our revenue was to be recognized at the point of time when the equipment was to be transferred to our customer based on the contractual terms.
These contracts were modified during the three months ended September 30th, 2023, such that the revenue under these contracts will now be recognized over time using the input method. Our revenue for the three months ended September 30th, 2023, includes $8.1 million of revenues that was deferred at June 30th, 2023, and recognized on the date of the contract modification. Our operating loss for the third quarter of 2023 was $1 million, as compared to operating income of $0.1 million for the third quarter of 2022. The increase in our operating loss was due to lower revenues as well as increased operating costs. Our gross profit margin percentage was 25.6% in the current third quarter, as compared to 29.8% in the prior year quarter.
The decline in gross profit margin from the prior year was primarily due to results in changes in our contract mix, increases in certain component costs, as well as higher compensation costs, as well as lower gross profit, due to the sale, again, of our Tantaline subsidiary and the wind down of our MesoScribe operations. The increase in third quarter operating expenses from the prior quarter is due to higher employee-related costs to support the growth of our business, additional selling expenditures, as well as higher professional fees. After non-operating income, which consisted principally of interest income, our net loss for the third quarter was $753,000, or $0.11 per share for both basic and diluted. This compares to net income of $63,000 last year, or $0.01 per share for basic and diluted.
Our backlog on September 30th was $16.6 million, this as compared to $17.8 million as of the beginning of the year, as our orders were slightly less than revenues by approximately $100,000. Our reported backlog at September 30th was also reduced, however, by about $500,000 related to Tantaline and $0.6 million related to the planned wind down of MesoScribe. Our working capital at September 30th was $16.2 million. This compares to $15.5 million as of the beginning of the year, and our cash and cash equivalents was $14.3 million, very similar to the $14.4 million we started at the beginning of 2023.
In July 2023, we did collect $1.6 million of employee retention credits from the IRS related, and that was credits were related to the fiscal 2021 period. As for our future, operating results, we are unable to predict what impact the current economic and geopolitical uncertainties will have on our financial position and future results of operations or our 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, as well as 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'll take actions as necessary to maintain our operating cash to support our working capital needs. I will now turn it back to Manny.
Rich, thank you for your presentation. In summary, the financial results of 2023 reflect our efforts to continue to focus on our strategic markets and products. Overall, our focus remains on our customers, our employees, our shareholders, and the pursuit of growth and return to consistent profitability. We look forward to continuing to build on our success in the years ahead and remain cautiously optimistic. Your comments and questions are important to us. With the close of the formal presentation, I would like to open the floor up to your questions.
Thank you. We will 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 would like to remove your question from the queue. For a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed.
Hi, Manny. Hi, Rich.
Hi, Brett. How are you? Good afternoon.
Hi, Brett.
I'm good. I'm good. The softness in the PVT orders, that means, I guess, your existing customer, you know, has decided, you know, not to expand. You know, do you have any idea-
No.
Why that is?
Well, yeah, I can't speak for the customer themselves, but what I can say is that the tools are performing as to our expectations and also to our specifications. They are in, you know, the normal process of installation, adoption, ramp up and qualification of their end product. And, you know, as I always say, it's a matter of when, not if. And we continue to be very supportive of them. So, again, I can't really say any more about their particular business.
Okay. I recall also with the PVTs, that you were in discussions with a second potential customer.
Yes.
But, you know, the roadblock there had been that second potential customer needed to do some sort of capital raise, which, you know, from my end, you know, that's, this is a bit of a challenging market-
It is.
To do capital raises.
It is, and as we say, you know, and as we commented in the script, our success in all of our products is our ability to perform our product performance, our ability to perform as a company, as well as the customer's acceptance and qualification in the marketplace, and their ability to raise funding. Back in the first quarter of the year, we launched the PVT150 to the broader community of potential customers. And that includes anyone who makes a wafer, both for their own consumption or sell it as a merchant.
Yes, we have had both startup companies and back in the March timeframe, I also say that we hired our sales manager, and we stepped up our game and our presence in many of the trade shows, and we've gotten good what I would call market awareness. We've created awareness of the CVD brand at all of the high-power electronics, silicon carbide, crystal growth companies. So that's all a positive. Today, we're engaged with companies that are fully integrated, which means that they grow crystals, make wafers, make power electronics from that down to the startup companies that just grow crystals and make wafers, to the established, very large companies that just grow crystals and make wafers. So we have a broad breadth of opportunities in our sales funnel.
So even though that some of the... and particularly one of our potential customers, was not able to raise the capital needed, we've added additional accounts that fit the bill of what I said, and we're at the level of providing quotations and discussion with some of them on terms and conditions. So, again, you know, as I say, it is a, it's a when, not a, an if statement. The tools perform, the market exists, the venture market is very, very soft, as you indicate. And that both troubles us, but, you know, we, we also have accounts that are very well-funded also, potential accounts.
Right.
It's a broad mix. To answer your question, yes, we're engaged with and having in-depth conversations with other potential accounts as well.
Right. Right. In prepping for this call, I kind of, you know, perused your your website, which, you know, I see has been revamped and, you know, it looked very good. But in poking around your website, I see you guys are involved with wide bandgap, you know, semiconductors, and, you know, there seems to be a lot of military use, you know, for wide bandgap semiconductors. With what-- you know, with the state of the world being what it is, is that, you know, potential-
Sure.
You know, business for you guys?
Well, just a little bit about the unfortunate climate that we're in with two conflicts, two major conflict zones. High power electronics or wide bandgap with semiconductors, gallium nitride is one, silicon carbide is another base material for such. So we already are in that, in the high power electronics area. The other is obviously Gallium Nitride, which we sell R&D systems to. In that area, we have not seen a large uptick for military applications. We have seen interest in some of our other products, R&D products, that are for aerospace and defense, which are electronics-based.
But we've seen, and in our press release, we noted that we've had a strong aerospace and defense market share mix this year, with the CVD tools for the large gas turbine engines. We also, this past quarter, received two orders for R&D systems from a notable names in the area of ceramic matrix composite materials, as well as materials that would be utilized potentially in high speed hypersonic applications. So that's an area where CVD has had a history in our legacies. And we're glad that and pleased with the performance of our aerospace and defense product line, because, you know, quite frankly, it is part of our business. It's one of the legs.
It helps, of course, more than pay the bills, and it gives us runway as it allows us to tread water while our high-power electronic silicon carbide crystal growth system gets adopted, and we again, it's the when, not the if statement.
Okay. Also from your website, you know, we're getting out of the Tantaline business, but we're still in the tantalum business when it comes to our initiatives with implants?
Yeah, that is. There are some applications that we have, whether it's stents or whether it's actual implant devices, which are more bone related. It's not a large portion of our business, but yes, of course, we continue to sell the equipment related to those applications.
Okay. And one last thing. I didn't see any employment openings at CVD. Does that mean your headcount right now for the existing level of business is kind of where you want to be? And what is the headcount these days?
You know, we're north of 130 employees in our facility here in Central Islip and in upstate New York, in our Saugerties site. And, you know, we think we're properly sized. We continue to find ways to improve our efficiencies and we always continue to look at talent, as it may come along, as we need the talent. You know, so we monitor our both near-term and long-term order rate, and we adjust our headcount accordingly.
Right. Right. If interest rates, you know, are topping out and, you know, start to come down and therefore, you know, cap rates in real estate, you know, come down, do you still have an appetite to sell and lease back your existing facility, you know, for added working capital?
Yeah, we have ample. You never have enough, but we have ample working capital to fund our 2024 objectives and business plan. So it's good, but you never wanna raise money when you need it. So we would continue to look at options as they avail themselves, but we're not actively looking, no.
Great. Great. Thank you for answering my questions, and have a good Thanksgiving to, to both of you.
Thank you. Appreciate it.
As a reminder, just star one on your telephone keypad if you would like to ask a question. We will just pause for a brief moment to see if there's any final questions. There are no more questions at this time. I would like to turn the conference back over to management for closing comments.
Thank you, Sherry, and thank you to everyone for dialing in today. We appreciate your attendance on the call. As well, we appreciate your loyalty and also the loyalty of our employees and suppliers. If you have any further questions, feel free to reach out to myself or Rich. Happy Thanksgiving to all, and this concludes our third quarter call. Thank you.
Thank you for your participation. You may now disconnect.