CVD Equipment reports Q3 revenue drop; implements cost-reduction strategy amidst declining orders and evolving market dynamics.

Manny - (00:00:00)

Driven by continued demand in our SDC segment for gas delivery Systems. For the nine 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 US Government funding for university and US Government shutdown, and timing in the production 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 CBD 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 Equipment's 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 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 boule market, in October 2025 we announced a new order from Stony brook University for 2 PBT150 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 bandgap materials such as aluminum nitride. Our reactive design and control architecture deliver the precision and repeatability needed for next generation material production CVD Equipment remains well positioned across multiple growth markets. We 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.

Rich Catalano - Chief Financial Officer - (00:04:28)

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 equipment segment was driven by three 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 and 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 equipment segment offset by the loss of the Mesoscribe contribution and we also had $100,000 charge for a one time 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 for 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 nine 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 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.

Manny - (00:07:36)

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 - (00:08:02)

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is on the question queue. You may press star2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question is from Paul Chaeca with MSE Resources.

Paul Chaeca - (00:08:56)

Good afternoon everybody. I'm a longtime buy and hold fan of CVD Equipment. Also I'm a materials engineer that's worked done a lot of work mainly on 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's 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 CVD Equipment systems for stationary combustion engines. Also, second question about just a little bit of insight on general locations of the materials outsourcing you'll be doing. Is it. Is it quite regional? Is it across the country or abroad?

Manny - (00:10:02)

Thank you Paul. Thank you for being a loyal shareholder. Let me two questions. First, the question on the ground based guest 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.

Paul Chaeca - (00:11:32)

Oh, excellent. I had not thought of those.

Manny - (00:11:35)

Thank you. On your second question, which is more on the supplier base, CVD Equipment 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 machined 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. our focus is to outsource our machining to the U.S. we will extend to North America, specifically. Specifically Canada in some cases.

Paul Chaeca - (00:13:30)

Okay, that's really great detail. Thank you. Aside on that, the vertical integration, I think, was hugely valuable to the company, you know, 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, you know, the change in the dynamics of the economies and economies of scale. I assume that your quartz, will that remain interior?

Manny - (00:14:02)

It'll 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. Components will be outsourced.

Paul Chaeca - (00:14:23)

I see. All right, thank you. Well done, everybody.

Manny - (00:14:26)

Thank you.

OPERATOR - (00:14:32)

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

Emmanuel Lakios - (00:14:41)

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

OPERATOR - (00:15:05)

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