CVD Equipment Corporation

Greetings, and welcome to our CVD Equipment's 2021 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. We will begin with some prepared remarks followed by question and answer sessions. Presenting on the call today will be Emmanuel Lakios, President and CEO and member of the CVD Board of Directors, and Thomas McNeil, Executive Vice President and Chief Financial Officer. We have posted our earnings press release and call replay information to the Investor Relations section of our website at www.cvdequipment.com. Before I begin, I'd like to remind you that many of the comments made on today's call contain forward-looking statements, including those related to the future financial performance, market growth, total available market, demand for our products, and general business conditions and outlooks. These forward-looking statements are based on certain assumptions, expectations, and projections, and are subject to a number of risks and uncertainties described in our press release and our filings with the SEC including, but not limited to, the risk factors section of our 10-K for the year ended December 31, 2020. Actual results may differ materially from those described during this call. In addition, all forward-looking statements are made as of today and we undertake no obligation to update any forward-looking statements based on new circumstances or revised expectations. Now, I would like to turn the call over to Manny.

Hello. Welcome to our CBD Equipment Corporation's quarterly conference call. My name is Manny Laccio, CEO and President. I am pleased to be presenting to you today regarding important company developments and pertinent information related to our business. As we'll be providing substantive information Your thoughts are important to us. We look forward to your questions at the end of our conference call and the question and answer session. I would like to introduce our CFO, Mr. Thomas McNeil, who will provide you with our financial third quarter 2021 summary.

Thomas McNeil Thank you, Manny, and good afternoon, everyone. CVD third quarter 2021 revenue was $4.3 million as compared to $4 million in the third quarter of 2020, an increase of 0.3 million or 8.4%. CVD's operating loss for the three months ended September 30, 2021 and 2020 was 0.9 million and 1.4 million respectively, with Q3 2021 improving in performance by 0.5 million compared to Q3 2020. Included in other income for the three months ended September 30, 2021, was the gain on the sale of the building in the amount of $6.9 million. Net income for the third quarter was $6 million, or $0.89 per diluted share, as compared to a net loss of $1.3 million, or $0.19 per diluted share, in the third quarter of 2020. With respect to our nine months results, As a result of COVID-19 pandemic, CVD's new order bookings during 2020 were substantially impacted, which reduced revenues in subsequent quarters, resulting in revenue of $11.7 million for the first nine months of 2020, I'm sorry, of 2021, as compared to $13.7 million in the first nine months of 2020, a decrease of $2 million, or 14.7%. CBD's operating loss for the nine months ended September 30, 2021 and 2020 was $3.6 million and $2.4 million, respectively. Included in other income for the nine months ended September 30, 2021 was the gain on the sale of the building in the amount of $6.9 million and the gain on debt extinguishment in the amount of $2.4 million, which was related to our PPP loan received due to the effects of COVID-19 pandemic and the subsequent forgiveness of that debt. Net income for the first nine months of 2021 was 5.9 million or 89 cents per diluted share as compared to a net loss of 0.8 million or 12 cents per diluted share for the first nine months of 2020. Included in the first quarter of 2020 CVD's net income was favorably impacted by the CARES Act, which allowed for the carryback of net operating losses and resulted in CVD recognizing an income tax benefit of $1.5 million in the nine months ended September 30, 2020. Sequentially, CVD's revenue in the third quarter of 2021 was $4.3 million as compared to $4 million in the second quarter of 2021. an increase of 0.3 million, and the operating loss decreased to 0.9 million in the third quarter of 21, as compared to an operating loss of 1.1 million in the second quarter of 2021, an improvement of 0.2 million. During Q3 2021, CVD was impacted by increased costs on certain manufacturing material components, as well as delays in supply chain deliveries. This may also impact CVD's ability to recognize revenue and reduce gross profit margins in future quarters, as well as extend its manufacturing lead times and reduce manufacturing efficiencies. CVD has commenced placing orders with increased lead times to try to help mitigate the manufacturing delays, as well as assessing other material suppliers to mitigate the potential cost impacts. In addition, CBD is utilizing its in-house flexible manufacturing to further mitigate both potential scheduled delivery delays and material cost increases. The company's backlog at September 30th, 2021 improved by 1.8 million to 9.9 million as compared to 8.1 million at June 30th, 2021. Since the first quarter of 2020, the company continued to experience significant negative effects from COVID, including reductions of new orders. And while the company's order activity has improved in the first three quarters of 2021, we believe its longer-term improvements will be benefited by the anticipated slow recovery in the aerospace markets, which industry reports indicate will begin to occur in the 2022 to 2023 timeframe. With respect to our building sale, as previously announced, we're pleased to have closed on the sale of our facility at 555 North Research in Central Isle of New York on July 26, 2021. With a sales price of $24.4 million, we satisfied our then mortgage debt of approximately $9.1 million on that facility and paid various transaction-related costs. The net proceeds of approximately $14 million, improves our current cash position, which at September 30, 2021, is $17.4 million, and provides us with a balance sheet to bolster sustainable growth strategies. As a result of the gain on the sale of the building of approximately $6.9 million, we improved CVD's overall shareholder equity and retained earnings by approximately $6 million. and our retained earnings is now a positive $3 million at September 30, 2021. With respect to our liquidity, again, primarily the result of the sale of the 555 building, our cash and cash equivalents improved to $17.4 million at September 30, 2021, as compared to $7.7 million at December 31, 2020. And our working capital was $17.7 million on September 30, 2021, as compared to $8.1 million at December 31, 2020, an increase of $9.6 million, or 118%. In addition, during the first nine months of 2021, we have substantially reduced our CapEx from $1.2 million in the first nine months of 2020 to $213,000 during the first nine months of 2021, related to ceasing further USA spend on the tantaline product line. The longer-term impacts from the COVID-19 outbreak are highly uncertain and cannot be predicted, especially now with the recent outbreaks of the COVID-19 Delta variant and impacts on a supply chain, as I previously discussed. And while we have initiated actions to mitigate the potential negative impacts to our revenue and profitability, there can be no assurance of the ultimate impact and the length of time that the supply chain factors may impact our revenues and profitability. Our return to profitability is dependent upon, among other things, the receipt of new equipment orders, the lessening of the ongoing effects of COVID-19 on our business and the aerospace market, improvement in our operating efficiencies, as well as managing planned capital expenditures and operating expenses. Based on all these factors, we believe our cash and cash equivalent positions and projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months of the filing of this Form 10-Q. Should the current environment continue longer or worsen, we will continue to assess our operations and take actions anticipated to maintain our operating cash to support the working capital needs as well as compliance with our loan covenant. And now I'd like to turn the call back over to Manny, our CEO.