CVD Equipment (NASDAQ:CVV) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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Summary

CVD Equipment reported a significant decline in first-quarter 2026 revenue, down 70.9% year-over-year to $1.8 million, primarily due to lower CBD Systems revenue.

The company completed the sale of its SDC business to Atlas Copco for $16.9 million in cash, strengthening its balance sheet with approximately $23 million in cash and no long-term debt.

Strategic initiatives include transforming the business model to reduce fixed costs, exploring potential sale of assets, and focusing on the core CBD equipment business.

Operational challenges include geopolitical uncertainties and reduced U.S. government funding, impacting order flow, although there is increasing demand in aerospace, defense, and nuclear energy markets.

Management emphasized the importance of strategic transformation and disciplined cost management for future profitability, while acknowledging delays in turning RFQs into orders.

Full Transcript

OPERATOR

Good afternoon and welcome to the CVD Equipment Corporation First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded. We will 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 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 31, 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.

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 improvements Scalability meeting 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 and 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 19 16.9 million in cash and is subject to certain purchase price adjustments. The transaction closed on April 1, 2026. The sale of SDC enables us to concentrate our attention on our core CVD equipment business. The divestiture 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 from for post closing adjustments and identification 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 continue 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.

Richard Catalano (Executive Vice President and Chief Financial Officer)

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 31, 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 the results from continuing operations. As Manny said, Our first quarter 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 3.3.3 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 25 cents 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 5 million in the current 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 31, 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 and again, this is principally due to the transaction cost incurred in connection with the sale of SDC that was consummated on April 1, 2026 at December sorry at March 31, 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 the 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 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 on March 31, 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.

Emmanuel Lakios (President and Chief Executive Officer)

Thank you, Rich. Our priorities are clear. Serving our customers, supporting our employees, creating value for our shareholders, and returning our core CBD equipment business to sustained profitability. Operator, we are now ready to open the line for questions.

OPERATOR

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 2 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 pull for questions. Thank you. Our first question is from Neil Cataldi with Blueprint Capital Management.

Neil Cataldi (Equity Analyst)

Hi guys. Thanks for taking a couple questions for me. Appreciate 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 PPE on that's like 10.4 million. Is that reflective of what you believe the property is worth in today's market?

Richard Catalano (Executive Vice President and Chief Financial Officer)

I think we can speak to the fact that we a while back had looked at a sale lease back that the valuation was more of that and the, and we can't talk about the, 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.

Neil Cataldi (Equity Analyst)

Okay. But that number that was previously in a transaction would be a fair number for investors to sort of think about. It was this number of years ago, correct? Yeah. You know, real estate prices have been fluctuating.

Richard Catalano (Executive Vice President and Chief Financial Officer)

fairly dynamic, obviously there are dynamics associated during that period of time that was post Covid a lot of demand for high voluminous real estate. You know, the building is still a valued asset of the corporation.

Neil Cataldi (Equity Analyst)

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. So very helpful, thank you. Second question pertains to the language that you're using in the press release. So 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, and most of your presumably end market customers across the semiconductor wafer space, you know, whether it's 200-millimeter silicon carbide inactive 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. And so I'm just sort of wondering like, is any of that translating into active pipeline conversations for either your PVT or your CVI systems?

Emmanuel Lakios (President and Chief Executive Officer)

So 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 20, 22, 23 highs. And the reasoning for that is really the Chinese vendors really flooding the market with wafers, making it economically unviable for us wafer providers to buy, to ramp up and buy additional equipment. So that's what deflated the Physical Vapor Transport (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 preform CBI where we are infiltrating a three dimensional product or by growing a boule., which is a three dimensional product. So we typically are not two dimensional. You know, a small portion of our business is wafer level, semiconductor wafer level 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 in general, I think we've seen that money now has freed up after the opening up after the shutdown. But it takes Several takes several months to few quarters for those and sometimes several quarters for those RFQs to turn into orders. So 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, etc. In the area of nuclear, we do see RFQs for Chemical Vapor Infiltration (CVI), CVD equipment in that space. But again, you know, we're very early in that process as far as AI. We, you know, AI is a buzzword. We provide some wafer level processing, but we don't advocate to be an AI enabling company at this point. And again, we are, I just want to go back and underscore we are a more three dimensional product or substrate company than planar wafers.

Neil Cataldi (Equity Analyst)

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. So I was just trying to figure out, you know, the sort of reason behind adding that language. And really just because there's so much activity in this space right now, it seems like you team could be, you know, sitting in a good position.

Emmanuel Lakios (President and Chief Executive Officer)

Look, there are a few of our products that would address that in a ramp up, whether it's a Silicon Carbide Physical Vapor Transport system. But again, that requires, that's going to require some competitive position against the Chinese wafer suppliers. And then we also have other products in the past that we've seen sold 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.

Neil Cataldi (Equity Analyst)

Okay. Okay. You previously used to talk about the PVT 200 system that was placed, you know, to an unknown customer other than I guess presumably Stony Brook. Is that still under evaluation?

Emmanuel Lakios (President and Chief Executive Officer)

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 will be in the future. The customer on the 200. that we had sold also was impacted by the, by the downturn in the US demand for, well, the US supply of silicon carbide wafers. So there is still an awaiting pattern. If there was news to share, we would have.

Neil Cataldi (Equity Analyst)

Okay, and 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 what's left of the facilities, and any sort of timeline on when investors may hear if there's a conclusion to the review?

Emmanuel Lakios (President and Chief Executive Officer)

Well, the SDC was a strategic initiative. The SDC sale, great group. You know, we, I think, benefited the shareholder by putting the cash on the balance sheet. And also all the employees have a new home. So 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, our shareholders will be aware of that.

Neil Cataldi (Equity Analyst)

Okay, thanks, guys. Look forward to connecting offline as well.

Emmanuel Lakios (President and Chief Executive Officer)

Yeah, yeah, we look forward to it, Neil. Thank you.

OPERATOR

Our next question is from Paul Chayka with MSE Resources.

Emmanuel Lakios (President and Chief Executive Officer)

Yes, you are, Paul. How are you?

Paul Chayka

All right, fine, thanks. Thanks very much. The previous caller. Nice to have him call in because he answered. You guys answered a lot of my questions. Based on his questions, I just wanted to say I'm very bullish on CVD near 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. So 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 want to 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 in 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. For your basis for acquisitions or further developing your opportunities. So 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?

Emmanuel Lakios (President and Chief Executive Officer)

It's still a product line, of course. Let me just jump into that. It's a product line. There's not a lot of, you know, we don't see a lot of demand in that. 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 products that we had in the past. But it's really too early to really discuss that. But, you know, we don't play in. 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.

Paul Chayka

Yeah, sure. I just hadn't seen anything in press releases and I guess it's for a good reason, because it's not happening much. All right. Thank you very much. And your team's doing a great job, I think.

Emmanuel Lakios (President and Chief Executive Officer)

Appreciate it, Paul.

OPERATOR

Thank you. There are no further questions at this time. I'd like to hand the floor back over to the management for any closing remarks.

Emmanuel Lakios (President and Chief Executive Officer)

Thank you, operator. And thanks to everyone for joining us today. We appreciate your continued interest and 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.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.