CVD Equipment Corporation

Greetings and welcome to the CVD Equipment 2022 Second 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 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 in our filings with the SEC, including but not limited to the risk factors section of our 10-K for the year ended December 31, 2021. 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 the new circumstances or revised expectations. Now, I would like to turn the call over to Manny.

Thank you, Diego. Welcome to our CVD Equipment Corporation's quarterly conference call. My name is Emmanuel Lakios, CEO and President, and I am pleased to be presenting to you today regarding our second quarter 2022 performance and important company developments and pertinent information related to our business. While we will be providing substantive information, your thoughts are important to us, and we look forward to your questions at the end of our conference call in the Q&A session. The first half of 2022, as we previously indicated, has been an exciting period for all the stakeholders of CBD equipment. The order rate for the first half lends support to our belief that we are on the path to future profitability and growth. Our strategy of focusing on markets that support the electrification of everything is fueling our present growth. The market segment includes electric vehicle battery technology, as well as high-power electronics for charging and power transmission. Our Q2 2022 orders were 12.6 million compared to 5.8 million in Q1 of the prior year. In the first half of 2022, we have received orders exceeding $16 million for our CBD equipment products as compared to approximately 9.6 million for the same period in 2021. That is a 72% year-on-year increase in orders for the company. These orders primarily consisted of 21 First Nano CBD systems compared to 23 systems orders for all of 2021. Of the 21 system orders, 14 are for a recently announced PVT150 system addressing silicon carbide growth and processing. Two were for superconducting tape applications. and the remainder of the system orders are for battery nanomaterials, both R&D and production. Advanced carbon-based capacitors and for a legacy advanced R&D first nanosystem. The systems are planned for shipment starting in the fourth quarter and into 2023. We also received orders for consumable and spare parts that serve our installed base in the aerospace market. We have taken the last year to expand our engagement with additional gas turbine engine manufacturers for systems to produce ceramic matrix composite materials. This is a sign that the aerospace market is beginning to recover. However, we do not expect it to recover until at least 2023. Our SDC product line also had an increase in order rate in the second quarter. Supply chain issues continue to negatively impact our revenue and profitability for all the segments of the company. The COVID pandemic and geopolitical instability in Russia, Ukraine, and Eastern Europe have caused issues in the global supply chain. The negative effects have been felt by all companies with increases in commodity and product material costs, as well as in product delivery uncertainty and unpredictability. We continue to drive towards operational self-reliance. We received and installed additional machine centers in our central ISOC facility to offset supply chain issues related to machine components. We also are working closely with our OEM supply chain to mitigate as much as possible the delays and price escalations in components and materials. I would like to now introduce our CFO, Mr. Thomas McNeil, who will provide our second quarter and year-to-date 2022 financial summary.

Thank you, Matty, and good afternoon. CVD's revenue for the second quarter of 2022 was $5.8 million as compared to $4 million for the second quarter of 2021, an increase of $1.8 million, or 44%. Net loss for the second quarter of 2022 was $0.8 million, or $0.12 per diluted share, as compared to net income of $1.5 million, or $0.22 per diluted share in the second quarter of 2021. However, that quarter included a $2.4 million gain on debt extinguishment from the forgiveness of CBD's PPP loan. CBD's operating loss for the second quarter of 2022 decreased by $0.2 million to $0.9 million for the second quarter of 2022 as compared to an operating loss of $1.1 million for the second quarter of 2021. This decrease was a result of increased revenue of $1.8 million and the resultant improvement of gross profit margins of $0.4 million offset by increased operating expenses of $0.2 million. The increase in gross profit and gross profit margins was primarily the result of leveraging fixed costs on higher sales levels and our improved product mix, which offset certain component cost increases and compensation costs. In addition, operating expenses increased due to higher employee-related costs to support our greater demand and Mark Schroeder. For the six months ended June 30, 2022, revenue was $10.5 million as compared to $7.4 million in the same period in 2021, an increase of $3.1 million or 41.4%. Net loss for the six months ended June 30, 2022 was $1.8 million or 27.4% for the six months ended June 30, 2022. and others. CVD's operating loss decreased by 0.8 million to 1.9 million as compared to an operating loss of 2.7 million for the same period in 2021. This improvement was the result of increased revenue of 3.1 million and the resultant improvement of gross profit margins of 0.8 million and decreased operating expenses of 0.1 million. The increase in Gross Profit and Gross Profit Margins was primarily the result of leveraging fixed costs on higher sales levels and improved product mix, which more than offset certain component cost increases and compensation costs. Beginning in 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. These increases in delays may also impact CVD's ability to recognize revenue and result in reduced gross profit margins in future quarters, extended manufacturing lead times, and reduced manufacturing efficiencies. CVD is also seeing inflationary effects that have resulted in increased costs for labor materials. We have placed orders with increased lead times to attempt to mitigate the manufacturing delays and continue to assess other material suppliers in an effort to alleviate the potential cost impacts. In addition, CVD is utilizing its flexible in-house manufacturing to further mitigate potential delivery delays and material cost increases. Now turning to our backlog. Our backlog at June 30, 2022 was $16.7 million. as compared to $10.4 million at December 31, 2021, an increase of $6.3 million, or 60.5%. This increase is due to the timing of the receipt of new orders for the six months ended June 30, 2022 of $16.7 million, reduced by recognized revenue of $10.5 million. While the negative effects of the COVID-19 pandemic continue to impact the aerospace industry, generally in the form of reduced long-distance travel and reduction of turbine engine sales, industry reports indicate improvement may begin to occur in the late 2022-2023 timeframe. I'll turn to our liquidity. Our cash and cash equivalents at June 30, 2022 was $12.2 million as compared to $16.7 million at December 31, 2021. This decrease of $4.5 million is primarily the result of the satisfaction of our mortgage debt on our 555 facility in the amount of $1.7 million, as well as our net loss adjusted for non-cash items of $1.3 million during the six months and to June 30th, and our capital expenses of 0.5 million to improve our manufacturing to further mitigate potential delivery delays and reduce costs. Our working capital was 15 million at June 30th as compared to 16.7 million at December 31st, 2021, a decrease of 1.7 million or 10%. The longer term impacts from the COVID-19 outbreak are highly uncertain and cannot be predicted, especially now with the impacts on a supply chain as we previously discussed. While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability, there could be no assurance of the ultimate impact in the length of time period that the supply chain factors may impact our business. Our return to profitability is dependent upon, among other things, the substantial completion and delivery of existing orders, which include the significant first half of 2022 orders of approximately 16.7 million, the ongoing receipt of new equipment orders and others, the lessening of the ongoing effects of the COVID-19 pandemic on our business and the aerospace market, managing through the supply chain issues discussed, and improvement of operational efficiencies as well as managing planned capital expenditures and operating expenses. Based upon all of 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-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. I'll now turn the call back over to Matt.