CVD Equipment Corporation Stock

Good afternoon, and welcome to the CVD Equipment Corporation Second Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] 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. Before I begin, please note that the comments made during this call may include forward-looking statements, including statements regarding future financial performance, market conditions, customer demand, strategic initiatives, potential asset monetization opportunities and the execution of our transformation strategy. 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'll turn the call over to Emmanuel Lakios, President and Chief Executive Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to review our second quarter 2026 financial results and to provide an update on our business and strategic initiatives. The second quarter marked a transformational period for CVD Equipment. Most notably, we completed the sale of our SDC business on April 1, 2026, this transaction significantly strengthened our balance sheet, increased our financial flexibility and allowed us to focus on our future strategy, including our core Advanced Material Process Equipment Group.

As a result of the divestiture, we ended the quarter with approximately $23.5 million in cash and cash equivalents and no long-term debt, providing us with a strong financial foundation as we navigate a challenging market environment. In addition to completing the divestiture, we substantially completed the operational restructuring initiative that we began last year. These efforts were designed to align our cost structure with our current business activity levels, improve operating efficiency and position the company to respond more effectively when market conditions improve.

We expect these actions to materially reduce our fixed operating costs going forward. While customer orders level continued to be adversely affected by broader economic and geopolitical uncertainty. We remain actively engaged with our customers and are continuing to pursue opportunities developing across our targeted markets.

We are also focused on maintaining a disciplined approach to capital allocation and expense control with the goal of creating long-term shareholder value. Turning to operating performance. Second quarter revenue from continuing operations was approximately $2 million compared with $3.4 million in the prior year quarter. Orders during the quarter totaled approximately $1.2 million, and backlog at the end of June 30, 2026, was $3.9 million.

With that, I'll turn the call over to our CFO, Rich Catalano, to review the financial results in more detail.

Thank you, Manny, and good afternoon. As Manny noted, the sale of the SDC business closed on April 1, 2026. Accordingly, the results of SDC continue to be reported as discontinued operations for all periods presented. Following the divestiture, CVD Equipment operates as a single reportable segment focusing on advanced material processing equipment and related technologies.

The second quarter of 2026 revenue from continuing operations was $2 million, as Manny mentioned, compared to $3.4 million in the second quarter of 2025, a decline of approximately 43%. This reduction primarily reflects lower system revenue resulting from weaker bookings experienced during 2025 in the first half of 2026. Gross profit for the quarter was approximately $329,000, resulting in a gross margin of 16.8% compared to a gross profit of approximately $481,000 and a gross margin of 14.1% in the prior year quarter.

The increase in gross margin percentage was primarily attributable to a higher proportion of nonsystem revenues during the current quarter. Our operating loss from continuing operations was approximately $1.6 million for the quarter. After interest income and other items, the net loss from continuing operations was approximately $1.4 million or $0.20 per share basic and diluted compared to a net loss from continuing operations of $1.3 million or $0.19 per basic and diluted share in the prior year quarter.

Net income from discontinued operations was approximately $13.9 million. This is the regain on the divestiture of SDC, net of transaction expenses and income tax expense. Including transaction costs we recorded in the first quarter, the total gain on the divestiture was approximately $13.5 million. As a result, the total income for the second quarter was approximately $12.6 million or $1.81 per basic and diluted share compared to a net loss of $1.1 million in the prior year quarter.

Turning to our balance sheet. We ended the quarter with approximately $23.5 million in cash and cash equivalents, compared with $8.7 million at December 31, 2025. We also have $900,000 as being held in escrow related to the SDC transaction and no long-term debt. Our stockholders' equity increased to approximately $36 million as of June 30, 2026, as compared to $24.7 million at year-end.

Following our quarter end, the customer associated with the $0.8 million system order that we received in Q2 filed a prepackaged Chapter 11 bankruptcy proceeding. Although the unsecured trade creditors are expected to be unimpaired according to the proposed plan, we will be evaluating the potential impact on the order we just received as well as the impact on our backlog, our financial results, financial position and cash flows.

With that, I'll turn it back to Manny.

Thank you, Rich. The successful completion of the SDC divestiture represents a significant milestone for CVD Equipment. We have transformed the company into a well-capitalized, debt-free organization with a focus on business strategy and a substantially improved financial position. Although market conditions remain challenging, we continue to pursue orders across our targeted markets and remain committed to disciplined execution, operational efficiency and long-term shareholder value creation.

We believe the actions we have taken over the last year provide a solid platform from where we can move forward. Operator, we will -- we are now ready to open the line for questions.

[Operator Instructions] Our first question today is coming from Neil Cataldi from Blueprint Capital Management.

A couple of questions. My first one is on the aerospace side. We've seen continued pretty heavy CapEx from the major engine OEMs targeting CMC component capacity. GE Aerospace is -- disclosed multiple billion dollar plus investment programs for the LEAP and the GE9X engines. So the question is, given your order history with customers like them, how are you guys thinking about the timing and the sizing of potential follow-on orders in that business as like the production ramp sort of continue going forward here?

Do you want to ask all your questions, Neil? Or you want me take it one by one.

Yes, let's go 1 by one, if you don't mind.

So on aerospace in general. Aerospace, yes, has had a pickup in the production of gas turbine engines that utilize ceramic matrix composite materials, which we have both an installed base and we have a number of tools which we have spoken before about that are in the installation and commissioning phase.

So we are in the middle of adding to our customers capacity that they ordered previously and we shipped and now, as I said earlier, are in the process of installing and commissioning. We have seen an uptick in our consumables and spare parts from the aerospace segment. And as Rich indicated earlier, those are typically proprietary parts that are very reasonable gross margins. And we'll continue, we believe, to see that as the -- our customers continue to utilize our equipment.

Okay. Great. And then my second question is following up on the PVT discussion from our last call where the onsemi Stony Brook collaboration is generated, published research results. You guys had a press release on that. I'm just wondering if that visibility has translated into any sort of broader commercial engagement pipeline conversations or really just anything with PVT?

Sure. On the PVT side of the business, we have a quality system produces quality pools to a marketplace that is saturated by silicon carbide wafers. So we have a solution with a serving an ill market. And so we have -- as you've seen, we have played down any advancements. We continue to do characterization of our equipment and that there could be a potential future. But at this point in time, we have nothing really to report on the commercial side.

[Operator Instructions] Our next question is coming from Paul Chayka from MS&E Resources.

Again, on the Stony Brook system. I was just wondering if you have any progress on boule quality or wafer quality to share beyond your last press release on that.

We will typically -- thank you, Paul. I don't think we've actually spoken before. So we have an arrangement and agreement with Stony Brook University that we will co-release or allow them to release characterization information first. To the extent that they have not released anything since our last release, I would say there's nothing more I can say on that other than they continue to run boules on our equipment.

Sure. very fair. Yes, I look forward to hearing more about that, I had a long association with the infancy of that process. And the powder coat system, you may have already said this, I'm sorry, was that intended for battery applications? I assume it was.

It's in the energy space. We can assume that it's in the -- somebody can assume that it's in the -- in battery applications.

Yes. Okay. All right. Well, I'm looking forward to seeing how the leadership strategizes with new investments. The company has invested in some very intriguing, interesting new material technologies like process technologies in the past and since they come and they go and -- I'll be interested to see what kind of focus the company puts on the big market applications that you have, you have great technology and always finding ways to improve it. And I don't honestly think there's not a lot of competition in the small niche that you're in. So I just want to commend you on the technology and the decisions that you've been making. Thanks.

Our next question is coming from Brett Reiss from Janney Montgomery Scott.

Manny, can you hear me?

Brett, I can hear you well.

Manny, what macroeconomic headwinds have to change and shift so that orders can start to flow to our company.

Okay. So if that's the question, it's -- we probably need a cup of coffee on it, but let's start off with university funding, there needs to be a shift in the government -- federal government funding of universities such that research is put at a higher priority.

That has always driven our FirstNano product lines. The FirstNano product lines are lower ASP, but they're receding material for production systems of the future. The second is we are still impacted by the -- and it's just going to take time, by the inefficiencies that were caused by the government shutdown, some of our prospects, their funding was delayed substantially.

I typically tell my team the longer you leave an order or an opportunity on the table, the more it could potentially grow mold, so some of these opportunities have to be rebirthed, requoted, funding resubmitted. That's going to take some period of time. We are seeing some interesting demand for opportunities in the defense area. And I can't comment because I don't have enough information yet to quantify if that will be a pickup and in what period of time we could see that as a pickup.

So those are the major ones. As far as PVT, a lot of questions today about PVT and silicon carbide, yes, there's a big demand in the world and a lot of buzz around data centers. Silicon carbide plays a role in data centers, but we don't serve the buy side, we serve the boule growth side. And I said in the first question with Neil, is that market today is saturated, saturated by the Chinese suppliers. And then, of course, onsemi, Wolfspeed and Coherent. So there, I think that's going to take a longer period of time, and I don't know what the savings rates will be for that, but the PVT could potentially have -- can be incubated into other growth technologies.

Again, that suspect and a lot of their statements. So there's nothing really to speak about there. And in the area of aerospace, we always want to mention that we launched several new products in the aerospace market. Many of those products have not been installed and commissioned to date yet. Those need to be installed, commissioned so that we can -- and be adopted so that we could potentially and again, potentially enjoy orders in the future. So those are the major, I would say, macro and I would say, mid-range being the aerospace headwinds that we have to overcome.

Now Manny, the business that we used to get from universities, if the Democrats take the house in November, will that loosen up the spigots, or do we have to wait for a change in the executive branch?

Yes. I would offend probably half the people in the room if I started talking about politics 1 way or another. So I probably will stay away from that one. I think whichever party is more favorable to university funding will be a positive to the universities and then therefore, to all the equipment suppliers, including CVD.

Okay. Fair enough. Now the strategic initiatives that you're exploring, have you retained an outside investment bank to help you with that? Or are you doing it all internally?

So we really -- in the past, when we had something to speak about on the strategic alternatives, we did just that. We spoke about it. At this point in time, we do not have anything that I would be able to have a substantive conversation on or disclose as we do develop that, we will inform all of you of that.

Okay. And because it's a kind of difficult product mix there's no way that Rich could tell us what the revenue amount to break even, what that number would be?

Brett. Nice to hear from you. At this point, historically, we have not given any type of guidance given the nature of our business and the size of our business. So Unfortunately, we're not able to go out and make those type of forecasts and [indiscernible]

We reach the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, operator, and I appreciate everyone's questions and look forward to hearing from you personally. Thank you all for joining us today. We appreciate your continued support and interest in CVD Equipment Corporation. If you have any other questions or follow-up questions, feel free to contact Investor Relations or myself, or Rich, who is also Investor Relations. And we'd love to chat. Thank you very much.

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

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 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 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.

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. 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 $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 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 2 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 from 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.

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 3 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 $0.3 million or $317,000 from a contract modification with one of our customers.

Our operating loss from continuing operations 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 costs 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 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 costs 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 a loss from continuing operations. 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 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.

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.

[Operator Instructions] our first question is from Neil Cataldi with Blueprint Capital Management.

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 is 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. And we can't talk about a write-up or anything of that sort. But what we can speak about is that we think that, that is a conservative number for the valuation. We can't speak to having multiple valuations on the property at this point.

Okay. But that number that was previously in a transaction would be a fair number for investors to sort of think about?

It was a number of years ago, correct? Real estate prices have been fairly moderate. Yes.

Obviously, there are dynamics associated during that period of time that was post-COVID, a lot of demand for high volumetric real estate. The building is still a valued asset of the corporation.

Okay. 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 transacted for establishes sort of a floor here of like $7 per share in cash. So very helpful. 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 of target markets, seeing your R&D not really change.

And most of your presumably end market customers across the semiconductor wafer space, whether it's 200-millimeter silicon carbide in active production or the 300-millimeter coming as well as all the activity in the nuclear space. These are themes that are -- 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?

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. Clearly, there was a deflation of that market from 2022, '23 highs. And 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 buy -- to ramp up and buy additional equipment. So that's what deflated the PVT market.

We are not primarily a 2-dimensional wafer-level process equipment company. We are a 3-dimensional for the most part. Most of our orders come from preform CVI, where we are infiltrating a 3-dimensional product or by growing a boule, which is a 3-dimensional product. So we typically are not 2-dimensional. 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 in general, I think we've seen that money now has freed up after the opening up after the shutdown. But it takes several months to a 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 mentioned, whether it's -- I think you mentioned AI, nuclear, et cetera. In the area of nuclear, we do see RFQs for CVI, CVD equipment in that space. But again, we are very early in that process. As far as AI, we -- AI is a buzzword. We provide some wafer-level processing and -- 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 3-dimensional product or substrate company than planar wafers.

Okay. Yes, 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 the sort of reason behind adding that language. And really just because there's so much activity in the space right now, it seems like you guys could be sitting in a good position.

Look, there are a few of our products that would address that in the ramp-up, whether it's silicon carbide PVT 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 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 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 will be in the future. The customer on the 200 that we had sold also was impacted by the downturn in the U.S. demand -- well, the U.S. supply of silicon carbide wafers. So they're still in a waiting pattern if there was news to share, we would have.

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 to the facilities? And any sort of time line 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. We've, I think, benefited the shareholders by sort of 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.

Our next question is from Paul Chayka with MS&E Resource.

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 want 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. 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 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 2-dimensional related, but gallium arsenide, gallium nitride, is that still a product line at all?

It's still a product line, of course. So let me just jump into that. It's a product line. There's not a lot of -- 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 products that we had in the past, but it's really too early to really discuss that. But the -- 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.

Yes, 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.

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 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.

Good afternoon, and welcome to the CVD Equipment Corporation Fourth Quarter and Full Year 2025 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 cvdequipment.com.

Before we begin, please note that 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.

Thank you, Diego, and good afternoon, everyone. We appreciate you joining us today to review our fourth quarter and full year 2025 financial results and to provide you an update on our business and strategic initiatives. Following our prepared remarks, we will be happy to take your questions.

As previously disclosed, in response to continued volatility in order rates and recent decline in bookings within our CVD Equipment division, we have initiated a transformation strategy during the fourth quarter designed to significantly 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 outsource fabrication for certain components, which we expect will reduce fixed costs and improve scalability; completing a workforce reduction in the CVD Equipment division during the fourth quarter, which was to rightsize the organization, and 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 exploring strategic alternatives for certain businesses and product lines, including potential asset sales 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 will be sold to Atlas Copco Group. The purchase price is approximately $16.9 million in cash, subject to certain purchase price adjustments. The transaction is expected to close during the second quarter of 2026, subject to customary closing conditions. This transaction will allow us to sharpen our focus on our core CVD Equipment business in Central Islip, New York. It is also expected to strengthen our balance sheet and provide additional financial flexibility as we continue to evaluate opportunities across the CVD Equipment business, its product lines and our facilities.

We expect net cash proceeds after transaction expenses and taxes to be approximately $15 million, of which $900,000 will be held in escrow for post-closing adjustments and indemnification obligations under the agreement. We retain ownership of our Saugerties, New York facility, which will be leased to Atlas Copco Group for the initial term of 2 years following the closing. I also want to express our appreciation to our SDC employees for their contribution to the company over the years.

Turning to our financial results. Fourth quarter 2025 revenue was $5 million, down 33% from prior year period and down 33% sequentially from the third quarter. For our full year 2025, revenue was $25.8 million, a decrease of 4.1% from fiscal year 2024. Orders in the fourth quarter totaled $3.5 million, driven primarily by the demand in our SDC segment for gas delivery equipment and the receipt of two orders from Stony Brook University for two PVT150 units.

For the full year, orders totaled $13 million compared to $28 million in 2024, primarily driven by demand in our SDC business for gas delivery equipment and order for spare parts and service for our CVD Equipment division.

At December 31, 2025, backlog was $6.6 million compared with $8 million at the end of September 30, 2025, and $19.4 million at the end of December 31, 2024. Our bookings continued to be pressured by several factors, including softer demand for our products in our CVD Equipment division, tariff-related uncertainties, reduced U.S. government spending for universities and a slower pace of adoption of our solutions in certain end markets. We continue to market -- to monitor our customer demand, the general uncertainty of the geopolitical environment and potential tariff impacts as we are -- and we are planning accordingly.

Even against this backdrop, we remain focused on delivering solutions across our key targeted markets of aerospace, defense, industrial applications, including silicon carbide on graphite and silicon carbide use in high-power electronics and other emerging applications.

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. Fourth quarter 2025 revenues were $5 million. This compares to $7.4 million in the fourth quarter of 2024. This year-over-year decline was primarily driven by lower CVD systems revenue. Revenue in our CVD Equipment segment was concentrated among two key customers, which together represented approximately 53% of total fourth quarter revenue.

Our SDC segment reported revenue of $2.2 million in the quarter compared to $1.9 million in the fourth quarter of fiscal '24 and $1.7 million in the third quarter of 2025. Consolidated gross profit for the quarter was $1.1 million, resulting in a gross margin of 22.2%. This compares with a gross profit of $2 million and a gross margin of 26.4% in the prior year quarter. The decrease was primarily due to lower CVD revenue, which resulted in higher unabsorbed overhead as well as a less favorable contract mix.

Our operating loss for the fourth quarter of 2025 was $1.3 million compared to operating income of $34,000 in the fourth quarter of 2024. Included in the fourth quarter 2025 results was a noncash impairment charge of $163,000. This was related to certain equipment and capitalized software associated with our transition to outsourced fabrication of certain components in our CVD business. After interest income, the net loss for the quarter was $1.3 million or $0.18 per diluted share compared with net income of $132,000 or $0.02 per diluted share in the prior year quarter.

For the full fiscal year, revenue was $25.8 million. This compares to $26.9 million in fiscal 2024. The year-over-year decline was primarily due to lower SDC revenue and lower MesoScribe revenue as we ceased that business. MesoScribe ceased operations in 2024.

Revenue in our CVD Equipment segment was again concentrated among two key customers, which together represent 41% of total revenue for the year. Our SDC segment reported full year revenue of $7.6 million as compared to $7.8 million in fiscal 2024.

Consolidated gross profit in fiscal '25 was $7.3 million or 28.3% of revenue compared to $6.1 million or 22.5% of revenue in fiscal '24. The increase in gross profit was primarily due to improved gross margins in our CVD Equipment segment. This was primarily due to a prior year charge of $1.6 million that we took last year to write down certain inventory to net realizable value. We did not incur a similar charge in fiscal '25. This improvement, not having the charge was partially offset by lower gross profit in the current year in our SDC and MesoScribe segments due principally to lower revenues.

Operating loss for fiscal '25 was $1.9 million. This compares to an operating loss of $2.4 million in fiscal '24. Interest income, net loss for the year was $1.6 million or $0.23 per diluted share compared to a net loss of $1.9 million or $0.28 per diluted share in fiscal '24. At December 31, '25, we had cash and cash equivalents of $8.7 million. This compares to $12.6 million at December 31, '24. Net cash used in operating activities during fiscal '25 was $3.7 million. This was largely driven by changes in working capital and contract timing as far as milestone billings.

Working capital improved to $14.1 million at year-end '25. This compares to $13.8 million at the end of '24. This was due in part to the classification of approximately $0.5 million of fixed assets that we had held for sale and for which we sold in the early part of 2026.

Looking ahead, our return to consistent profitability will depend on improved equipment order flow, disciplined cost management, successful execution of our transformation plan and continued control of capital expenditures. While our quarterly results might continue to fluctuate based on order timing, we believe our current cash position and projected cash flows will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months.

In addition, upon the closing of the transaction to sell SDC, we expect net cash proceeds, excluding the $900,000 escrow amount to approximate $14 million and we currently intend to initially invest those proceeds in U.S. treasury securities.

With that, I'll now turn it back to Manny.

Thank you, Rich. Our priorities are clear: serving our customers, supporting our employees and creating value for our shareholders and returning the business to sustained profitability.

Operator, we are now ready to open the line for questions.

[Operator Instructions] And our first question comes from Brett Reiss with Janney Montgomery Scott.

Can you hear me?

We can hear you, Brett. Good to hear you again.

Great. Great. Great. You're sitting on $23 million, $24 million in cash. Could you describe to us the skill sets of your existing engineers? And what I'm trying to get at is what are -- their skill sets would be complementary and enhance what type of acquisition you might be contemplating with the $23 million?

Yes. Well -- so Brett, we -- the number, I'll let Rich speak to the actual number on the cash -- any cash on hand plus what will net from the transaction. But as far as the talent pool, you asked, there are a couple of questions in your one question. The first is talent pool is consistent with what the talent pool was essentially from a capabilities perspective a year ago. We have a full complement of resources in the engineering and technology group for CVD equipment or CVI equipment, basically the main product line from Central Islip. So we retain that skill set.

As far as the subsequent question, which is what are we going to do with cash and the proceeds, the Board is looking at opportunities and strategic alternatives for increasing shareholder value, and we'll continue to do that. At this point in time, we do not have something that is material or a [ path ] yet. This was a fair transaction for all parties, the SDC transaction. So we took advantage of that. So time will tell, but we don't have something to highlight today.

Yes. Fair enough. Can you give us some sense, though, of what the pipeline of opportunities you're looking at? Are you looking at 3, 4, 5 different things? And how long have you been kicking the tires on some of these opportunities?

Well, we -- as a Board, we've been looking at strategic alternatives for quite several quarters, as you can imagine. You don't do a transaction in a quarter or two. And so -- but again, at this point in time, I'd be speaking out of turn -- I think in the next few quarters, we'll be able to identify and share with you certain -- some additional information. But right now, again, Brett, I don't have anything to speak of.

Okay. And are you guardedly optimistic, though, you'll be able to find something that will have a less lumpy or more recurring revenue stream, perhaps with service revenue, which has always been what the company would like to have had, but just the nature of the type of businesses we're in, it's always been a kind of lumpy revenue cadence.

Well, the equipment business, Brett, is lumpy in itself, especially when you're a couple of hundred million dollars of revenue as we are, of course. The -- I think you've outlined nicely the objective for any strategic activity, which we want to have is have a smooth non-lumpy revenue stream, good customer value in spares and service. Those are all the attributes of entities we would like to entertain. But again, I can't speak to that at this point.

Okay. I'll drop back. I don't know if there are any other people...

Thank you, again, Brett. Good hearing your voice.

[Operator Instructions] And your next question comes from Frank Giordano, Private Investor.

I just wanted to ask a question, of course, the money. It's something continuing on with Brett before. Regarding that, have you ever considered paying a special dividend in situations like this? Or it's something that the company doesn't pay?

I do not believe that in the history of the company, a special dividend was paid, at least in the period of time that I've been with the company, which is 9 years that has not been the case. But I could be corrected, but I think I'm accurate. Clearly, we believe shareholder value is based on growing the business, and utilization of our funds in a respectful manner, and we are conservative. So at this point in time, that is not actively on the table.

Okay. And something else regarding the business itself. Are you concentrating a little bit with the military right now, let's say, in the drone companies or anything dealing with the military due to the situation that we are in?

Yes. Frank, thank you. Yes, we do serve aerospace and defense. That's one of our key markets. About 78% of our revenue over the last several years of our orders has come from military and defense, whether it's gas turbine engines, the use of CMCs or other ceramics, which we create -- we build the equipment that creates the material, and that goes into both commercial and also military gas turbine engines. As well as last year, we received an order, we shipped it this year. Actually, we shipped it in 2025 was for a research system that will be used for especially the ceramic materials for hypersonics. So we are in the next generation, I would say, materials. So -- and it will continue -- I foresee that it will continue to be our revenue and previously that orders will be driven by aerospace, defense for the foreseeable future. That's where these advanced materials are primarily utilized.

Okay. I just wanted to tell you just my opinion here. You remind me of a company based out of Milan, it's called SAES Getters, was founded during Mussolini's time, the dictator Mussolini. And it survived through World War II. And then it became a company was taken over, I believe, a couple of years ago, at a much higher price than what it was in 2000. It was the only Italian company trading on the NASDAQ back in 2000, and it was around your price around $3 or $4 a share. And they used to pay a dividend every 3 months. I couldn't believe it, but it wasn't with the vapor, the decision, they do a lot of stuff, maybe different from your kind of company. But again, it was similar. It was similar. If you could research that and give you some ideas, interesting company out of Milan.

Yes. Drop us a line on the -- I didn't catch the name entirely, but drop us a line on that...

All right. I repeat it again. SAES Getters. And there was a takeover, but the name is still there. There's a website. Of course, you could research it. But again, I don't know if they do have a division here still in the United States, out of Denver or something like that. But I remember that 20 years ago, when I used to deal with them.

We'll do. Thank you, sir. Appreciate it.

And there appears to be no additional questions at this time. So I'll hand the floor back to Emmanuel Lakios for closing remarks. Thank you.

Thank you, Diego, and thanks to everyone for joining us today. We appreciate your continued interest and support of CVD Equipment Corporation. If you have any additional questions, as I said earlier, please reach out to myself or Rich directly. And this concludes our today's conference call.

Thank you. And all parties may now disconnect. Have a good day.

Good afternoon, and welcome to the CVD Equipment Corporation Third Quarter 2025 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 call replay information are available in the Investor Relations section of our website at www.cvdequipment.com.

Before we begin, please note that comments made during this call may include forward-looking statements, including those related to our future financial performance, market growth, demand for our products and overall business outlook. These statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed discussion of these risks, please refer to our filings with the SEC, including the Risk Factors section of our Form 10-K for the year ended December 31, 2024. We assume no obligation to update any forward-looking statements, except as required by law.

With that, I'll now turn the call over to Emmanuel Lakios, President and CEO.

Thank you, Paul, and good afternoon, everyone. We appreciate you joining us today to review our third quarter 2025 financial results and to provide an update on our business and strategic initiatives. After our prepared remarks, we look forward to taking your questions. For the third quarter 2025, revenue was $7.4 million, a 9.6% decrease from prior year quarter and a 44.9% increase compared to the second quarter of this year. Revenue to date was $20.8 million and was 7.1% higher than the same period 2024.

Orders for the third quarter totaled $2.2 million, primarily driven by continued demand in our SDC segment for gas delivery systems. For the 9 months of 2025, total orders were $9.5 million compared to $21 million in the same period last year. At September 30, 2025, backlog stood at $8 million compared to $13.2 million at June 30, 2025, as we converted backlog to revenue in the quarter.

Our third quarter and year-to-date bookings were influenced by several external factors, including uncertainties related to proposed tariffs, reduced U.S. government funding for university and U.S. government shutdown and timing in the product adoption within our growth markets.

In response to the ongoing fluctuations in our order rate and the recent decline in bookings within the CVD Equipment division, our Board of Directors has approved a comprehensive transformation strategy aimed at significantly reducing fixed operating costs and creating a more agile organization.

Key elements of this plan include: transitioning CVD equipment business from vertically integrated fabrication to outsourced fabrication of certain components, enabling us to reduce our fixed costs and improve scalability. A workforce reduction in the CVD Equipment division to be completed by year-end 2025, expected to reduce the annual operating cost by approximately $2 million beginning in 2026. To note, the SDC division will not be impacted by these actions.

Revising our sales approach by leveraging distributors and external representatives to complement our internal sales force and broadening our market reach, exploring strategic alternatives for certain businesses and product lines, which could include asset sales and divestments. Together, these initiatives will allow us to focus on our core strengths, which are engineering design, assembly, test, installation and customer service, all while driving greater efficiency and long-term profitability.

We remain encouraged by the opportunities ahead in our target markets, aerospace and defense, industrial applications, which include silicon carbide on graphite, silicon carbide high-power electronics and electric vehicle battery materials. As an update on opportunities in the silicon carbide market, in October 2025, we announced a new order from Stony Brook University for 2 PVT150 physical vapor transport systems to support their center established by onsemi Silicon Carbide Crystal Growth Center.

We're proud to play a role in advancing semiconductor materials research and support critical technologies in artificial intelligence and electrification. We are continuing the development of our 200-millimeter silicon carbide crystal growth process using our PVT200 system targeted at the high-power electronics market. This same platform is being evaluated for other wide band gap materials such as aluminum nitride.

Our reactor design and control architecture delivered the precision and repeatability needed for next-generation material production. CVD remains well positioned across multiple growth markets. We believe that our transformation initiatives will strengthen our foundation and will better support our goal of achieving profitability and positive cash flow.

With that, I'll now turn over the call to our CFO, Rich Catalano, to review our financial results in more detail.

Thank you, Manny, and good afternoon, everyone. Third quarter 2025 revenue was $7.4 million compared to $8.2 million in Q3 of 2024. The quarter-over-quarter decrease was primarily due to the absence of revenue from our MesoScribe segment, which ceased operation in 2024. Revenue from our CVD Equipment segment was driven by 3 key customers, representing approximately 55% of total revenue for the quarter. Our contract modification during the third quarter allowed us to recognize revenue in Q3, contributing approximately $1 million. This was a change only in the timing of the revenue recognition.

Our SDC segment reported $1.7 million in revenue, down slightly from $1.9 million in Q3 2024 due to fewer contracts in progress, but they continue to have a strong backlog. The company gross profit for the quarter, was $2.4 million with a gross margin of 32.7%. This is compared to $1.8 million and 21.5% in the prior year quarter. This improvement was primarily due to a more profitable contract mix in our CVD Equipment segment, offset by the loss of the MesoScribe's contribution, and we also had a $100,000 charge for a onetime certification cost within the SDC segment.

Operating income was $308,000 as compared to operating income of $77,000 in Q3 2024. After other income, primarily interest, net income was $384,000 or $0.06 per diluted share versus $203,000 or $0.03 per diluted share in the prior year quarter.

As to our balance sheet, at September 30, 2025, we held $8.4 million in cash and cash equivalents as compared to $12.6 million at December 31, 2024. Net cash used in operating activities for the first 9 months of 2025 was $4.1 million, largely due to changes in working capital as well as contract timing. Our working capital improved to $14.6 million as compared to $13.8 million at year-end 2024.

As part of our transformation plan discussed earlier, we do expect to incur approximately $100,000 in severance and related charges in Q4 of 2025. In addition, we may recognize noncash impairment charges in future periods if certain long-lived assets are sold below their book value.

Looking ahead, our return to consistent profitability depends on new equipment orders, cost management, successful implementation of our transformation plan and continued control over our capital expenditures.

Although order timing can cause quarterly fluctuations, we believe our current cash position and projected operating cash flows will be sufficient to meet working capital and capital expenditure needs for at least the next 12 months.

With that, I'll turn the call back to Manny.

Thank you, Rich. Our focus remains clear: serving our customers, supporting our employees, creating value for our shareholders and achieving a return to sustained profitability. Our goal continues to be enabling tomorrow's technology today.

Operator, we're now ready to open the line for questions.

[Operator Instructions] Our first question is from [indiscernible] with MSE Resources.

I'm a long-time buy-and-hold fan of CVV. Also, materials engineer that's worked -- done a lot of work mainly in CVD coatings for engine -- high-temperature engines and semiconductor applications. So I've got a lot of hope for the company in those markets, especially. My question is about markets for composite applications for combustion turbines for power generations, meaning stationary turbine engines. For example, GE Vernova is showing growing backlog for stationary combustion engines. I was wondering if you can speak to orders or applications of the CVV systems for stationary combustion engines. Also a second question about just a little bit of insight on general locations of the materials outsourcing you'll be doing? Is it quite regional? Is that across the country or abroad?

Paul, thank you for being a loyal shareholder. Let me -- 2 questions. First, the question on the ground-based gas turbine engines. As you're likely aware and many of the listeners are as well, the primary use of ceramic matrix composites are in the hot section of the engine. There are several engines out there that already are utilizing silicon carbide-based composite materials for shrouds and for nozzles.

Those, to my knowledge, have not yet been brought into the ground station gas turbine engines in that they don't burn -- they're not a hot section turbine, where we anticipate use in the future for silicon carbide-based composite materials, CMCs in the energy field would be more so in replacement of some specific materials for nuclear reactors and for pellet encapsulation. Those are future emerging opportunities.

On your second question, which is more on the supplier base. CVD has historically had a mix of both external and also internal make components. We've had a focus on our sheet metal shop and also on the smaller machine components, both turned and milled machined elements. The larger chambers have typically been outsourced. So we've always had a mix of suppliers. Over the last several years, we have combed through those suppliers. And we've evaluated our cost structure closely over the last 12 months to a little over a year.

And we've determined that the vertical integration model -- integrated model has really become less efficient given both our order volumes and also from the sheer fact that when you're vertically integrated, it's very difficult to be best-of-breed in sheet metal cutting, bending, welding, painting. And those are things that our suppliers do -- our merchant suppliers do, I would say, as well and in some cases, better than we do and are more cost effective.

So this -- the outsourcing was inevitable, and this is the right time to implement that strategy. Now to answer your question, is it regional? It's in the U.S. We are -- our focus is to outsource our machining to the U.S. We will extend to North America, specifically Canada in some cases.

Okay. That's really great detail. Aside on that, the vertical integration, I think, was hugely valuable to the company 15, 20 years ago. I think it allowed you to really refine the quality and the control that you had over your systems, but I totally understand the change in the dynamics of the economies and economies of scale. I assume that your quartz, will that remain interior?

It will be a mix, but we will retain our IP and Black Art in the area of quartz fabrication. And we'll also retain certain elements of capability in our machine shop, but the lion's share of the components will be outsourced.

There are no further questions at this time. I'd like to hand the floor back over to Emmanuel Lakios for any closing comments.

Okay. Thank you, operator, and thanks to everyone for joining us today. We appreciate your continued support and confidence in CVD Equipment Corporation. If you have any additional questions, please feel free to reach out to me directly. This concludes today's call. Thank you.

We thank you again for your participation. You may now disconnect your lines.