CVD Equipment Corporation

Greetings and welcome to the CVD equipment 2021 fourth quarter and year end 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 a question and answer session. 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 future financial performance. market growth, total available market, demand for our products and general business conditions, and outlook. 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 factor section of our 10-K for the year ended December 31st, 2021. Actual results may differ materially from those described during the 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'd like to turn the call over to Manny.

Thank you, Kyle. Welcome to our CBD Equipment Corporation quarterly conference call. My name is Manny Lacchio, CEO and President, and I am pleased to be presenting to you today regarding our 2021 performance, and important company developments and pertinent information related to our business. As we will 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 questions and answers session. 2021 was a year of transition, reorganization, and focus on providing a path to profitability and growth. We are pleased with the improvements in performance of the company and increased demand of our products during this difficult period. We spent the first half of 2021 shoring up our balance sheet and optimizing our market focus and product offerings, all in the interest of maximizing the future profitability and viability of the company. In 2021, orders for the company as a whole were $21 million, up 75% from prior year 2020. The equipment group had an increase of 100% over 2020. 23 systems were booked in 2021 compared to nine systems in 2020. We obtained multiple strategic orders in our focused growth markets serving the electric vehicles. The first being battery anode material and the second silicon carbide growth systems for high power electronics. According to market research, both of these market segments are expected to grow in the coming quarters and years. The systems I mentioned are planned for delivery mid-2022. Recently, we announced two additional strategic orders in Q1 of 2022, one for battery nanomaterial research and development, and the other for carbon-based discrete devices for 5G cellular phone technology. Both systems will be completed the second half of 2022. During the first quarter of 2022, we also received orders for consumables that serve our installed base in the aerospace market. This is a sign of continued recovery of the aerospace market, which we do not expect to recover fully until 2023. The recent orders over the last three quarters further validate our strategy of focus on growth and use market, such as battery nanomaterials, silicon carbide growth systems, and advanced composite materials for aerospace and other markets. Our consolidation of the Tantalign product line operations into Denmark have yielded improved performance in 2021 over 2020. The division had its first profitable year and was cash flow positive. The mesoscribe product line, which was moved and consolidated from our 555 building into our 355 building, was also operational in Q3 and was cash flow positive, as was SDC division. In 2021, we right-sized our employee headcount. and there was a reduction in certain operating expenses associated with the consolidation of the 555 building into our 355 building, all located in Central Islip, New York, and into the Tantwine facility in Denmark. The sale of the 555 building was completed in July with the outcome of providing approximately $14 million of additional cash on hand The sale of the building provides both working capital as well as for future growth opportunities. Our revenue in 2021 was down from 2020 due to the lower equipment orders in 2020 attributed to the COVID pandemic. The impact of the reduction in revenue was partially mitigated by our right-sizing of our employee headcount and the consolidation of our facilities. We have experienced four quarters of sequential revenue increase in 2021, and we expect the trend to continue through 2022, yielding a break-even and profitability run rate by the end of 2022, hence achieving our profitability initiative. The COVID pandemic, and now more recently, the geopolitical instability in Russia and the Ukraine have caused global issues in supply chains, The negative effect has been felt by all companies with increases in commodity and product material costs, as well as in product delivery uncertainty. In our production group, we have seen and further have been addressing these global supply chain issues. This will be a challenge for most companies, including CBD. We have implemented rigorous supplier engagement, as well as expanded our network of suppliers We also, in 2022, have initiated a program to expand our internal manufacturing capability with the objective to be self-reliant. We have ample capacity in our 355 Central Islip facility to accommodate a shift in our manufacturing strategy to assist in addressing any longer-term supply chain issues. With that, I would like to now introduce our CFO, Mr. Thomas McNeil. who will provide you our fourth quarter and year-end 2021 financial summary.

Thank you, Matty, and good afternoon, all. CBD fourth quarter 2021 revenue was $4.7 million as compared to $3.2 million in the fourth quarter of 2020, an increase of $1.5 million, or 48.8%. CVD's operating loss for the quarter ended December 31, 2021 and 2020 was $1.2 million and $5.4 million, respectively. Included in the operating loss for the quarter ended December 31, 2020 is an impairment charge of $3.6 million related to the company's tantaline product line. Net loss for the fourth quarter of 2021 was 1.2 million or 18 cents per diluted share as compared to a net loss of 5.3 million or 80 cents per diluted share in the fourth quarter of 2020. With respect to our year-end results, as a result of the COVID-19 pandemic, CVD's due orders substantially decreased commencing in the first quarter of 2020. which reduced revenues in subsequent quarters, resulting in revenue of $16.5 million for the year ended December 31st, 2021, as compared to $16.9 million in the year ended December 31st, 2020, a decrease of $400,000 or 2.8%. CBD's operating loss for the year ended December 31st, 2021 and 2020 was 4.8 million and 7.8 million respectively. Included in other income for the year ended December 31st, 2021 was a gain on the sale of the 555 building in the amount of 6.9 million and a gain on debt extinguishment in the amount of 2.4 million, which was related to the PPP loan received due to the effects of the COVID-19 pandemic. Included in the operating loss for the year ended December 31st, 2020 is an impairment charge of 3.6 million related to the company's tantalum product line. Net income for the year ended December 31st, 2021 was 4.7 million or 71 cents per diluted share as compared to a net loss of 6.1 million or 91 cents per diluted share for the year ended December 31, 2020. 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 year ended December 31, 2020. Sequentially, CVD's revenue in the fourth quarter of 2021 was $4.7 million as compared to $4.3 million in the third quarter of 2021, an increase of $400,000, and the operating loss increased to $1.2 million in the fourth quarter of 2021 as compared to operating loss of $900,000 in the third quarter of 2021. During Q3 2021 and continuing to date, CVD has been 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. has commenced placing orders with increased lead times to try and help mitigate the manufacturing delays, as well as assessing other material suppliers to mitigate the potential cost impacts. In addition, CVD is utilizing its in-house flexible manufacturing to mitigate both potential delivery, scheduled delivery delays and material increases. The company's backlog at December 31st, 2021 improved by 4.7 million, or 82%, to 10.4 million, and this compares to 5.7 million at December 31st, 2020. While the negative effect of the COVID-19 crisis continues to impact the aerospace industry due to reduced travel and reduction of industry gas turbine engine sales, We have achieved new orders during the quarters ended June, September, and December 2021 in the amounts of $6 million, $6.1 million, and $5.2 million. This compares favorably to $3.8 million in the quarter ended March 31st, 2021. With respect to the 555 building sale debt and our cash position, As previously announced, we are pleased to have closed on a sale of our facility located at 555 North Research Place. And we did this in July of 2021. With a sales price of $24.4 million, we satisfied our then mortgage debt of approximately $9.1 million and paid various transaction related costs. The net proceeds of approximately $14 million improves our cash position which at December 31st, 2021, is $16.7 million, and provides us with a balance sheet to bolster sustainable growth strategies. As a result of the gain on the sale of the 555 building, we improved CVD's overall shareholder equity and retained earnings by approximately $5.1 million, and our retained earnings is now a positive $1.8 million at December 31st, 2021. Finally, on March 1st, 2022, we paid off our remaining mortgage debt on the 355 building in the amount of $1.7 million. And as such, we have no debt outstanding. With respect to our liquidity, primarily the result of the sale of the 555 building, cash, as I mentioned, increased to $16.7 million at December 31st, 2021. as compared to 7.7 million in the prior year period. Our working capital was 16.7 million at December 31st, 2021, as compared to 8.1 million in the prior year period. This is an increase of 8.6 million, or 106%. In addition, during the year ended December 31st, 2021, we have substantially reduced our CapEx from 1.6 million in the year ended December 31st, 2020 to 236,000 during the year ended December 31st, 2021. This related to ceasing further USA spend on the tantalum product line. The longer term impacts from the COVID-19 outbreak are highly uncertain and cannot be predicted, especially now with the impacts on our supply chain as we previously discussed. 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, among other things, the continued receipt of new orders, the lessening of ongoing effects of COVID-19 on our business and the aerospace market, managing through the supply chain issues discussed, and improvement in our operational efficiencies, as well as managing planned CapEx and operating expenses. Based upon all these factors, we believe that 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 to 18 months of the filing of our Form 10-K that was filed today. 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. At this point, I'd like to turn the call back over to Matty, our CEO.