Prepared remarks
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 provided 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 order levels 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 and 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 non-system 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 gain 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 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 are now ready to open the line for questions.
Questions and answers
(Operator provided 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 has 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 the production ramp continues going forward?
Do you want to ask all your questions, Neil, or do you want me to take them one by one?
Yes, let's go one by one, if you don't mind.
On aerospace in general, aerospace has had a pickup in the production of gas turbine engines that utilize ceramic matrix composite materials, which we have both an installed base for and a number of tools that are in the installation and commissioning phase. We are in the middle of adding to our customers' capacity that they ordered previously and we shipped and are now 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 carry very reasonable gross margins. We expect to continue to see that as 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 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?
On the PVT side of the business, we have a quality system that produces quality boules to a marketplace that is largely served by silicon carbide wafers. We have a solution addressing a niche market. As you've seen, we have not publicly disclosed any additional advancements. We continue to perform characterization of our equipment in partnership with Stony Brook. At this point in time, we have nothing material to report on the commercial side.
(Operator provided 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.
Thank you, Paul. 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, there's nothing more I can say on that other than they continue to run boules on our equipment.
Sure, very fair. 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. One can assume that it's intended for 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 new material process technologies in the past; since they come and they go, I'll be interested to see what kind of focus the company puts on the big market applications. You have great technology and are always finding ways to improve it, and I don't honestly think there's 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.
(Operator provided instructions.) 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?
We probably need to break that down. First, there needs to be a shift in 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 a precursor for production systems of the future, and higher university research funding would help that channel. Second, we are still impacted by the inefficiencies caused by the government shutdown; some of our prospects had their funding delayed substantially. The longer you leave an order or an opportunity on the table, the more it can degrade, so many of these opportunities have to be rebirthed, requoted and have funding resubmitted. That will take time. We are seeing some interesting demand in the defense area, but I don't have enough information yet to quantify whether that will be a meaningful pickup or on what timeline. Regarding PVT, there is a lot of interest around silicon carbide driven by data centers and other markets. Silicon carbide plays a role in data centers, but we serve the boule growth side, not the buy side. The market today is largely served by Chinese suppliers and companies such as onsemi and Wolfspeed; I think that market will take a longer period of time to evolve. PVT could potentially be incubated into other growth technologies, but that is speculative, and there's nothing material to report right now. In aerospace, we launched several new products; many of those have not yet been installed and commissioned. They need to be installed and adopted before we could potentially see related orders in the future. Those are the major macro and mid-range factors — university funding, recovery from funding delays, defense opportunities and the timing of aerospace installations.
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?
I would avoid getting into partisan politics. I think whichever party is more favorable to university funding will be positive for universities and, therefore, for 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?
In the past, when we had something substantive to speak about regarding strategic alternatives, we disclosed that. At this point, we do not have anything substantive to discuss or disclose. As we develop any initiatives, we will inform you and the market.
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 would be?
Brett, nice to hear from you. Historically, we have not provided guidance given the nature and size of our business. Unfortunately, we're not able to provide that level of detail or make those types of forecasts.
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. 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. 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.