CVD Equipment Corporation

Greetings and welcome to the CVD Equipment Corporation 2022 Third Quarter Results Conference Call. 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 Richard Catalano, 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 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 in our filings with the SEC, including but not limited to the risk factor 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 Emmanuel Lakios.

Thank you. Welcome to our CBD 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 third quarter 2022 performance and important company development and pertinent information related to our business. Your thoughts are important to us and we look forward to your questions in our Q&A session. Before discussing the results of the third quarter, I would like to first provide you with an update on our sale and leaseback transaction. In September, we announced that we had entered into an agreement to sell our main facility in Central Islet and lease it back for a period of 10 years with two five-year renewal options. The potential purchaser had 30 days to complete their due diligence during which time they retained the ability to cancel the agreement. On November 3rd and 4th, we amended the agreement with the potential purchaser to extend the due diligence period to last Friday, November 11th. On November 11th, 2022, the potential purchaser notified the company that it was terminating the purchase agreement in its entirety. Each party will bear its own costs and expenses in connection with the foregoing. Either party will pay a termination fee with respect to the termination of the purchase agreement. While we are disappointed that we are unable to complete the sale and leaseback transaction, we may explore a sale and leaseback or other transaction in the future. Now back to our third quarter and year-to-date results. First, I'm pleased to report that we achieved an operating profit of $122,275 for the third quarter and net income of $63,538. While our revenue and profitability will continue to fluctuate due to the timing of orders and shipments, we believe that we are on the right track to achieve consistent long-term profitability over the years ahead. The first nine months of 2022 have been an exciting period for all the stakeholders of CPD equipment. The year-to-date order rate for 2022 lends further support that our belief that we are on the right path. Our core strategy, which includes focusing on markets that support the electrification of everything, is fueling our present growth. This market segment includes Electric Vehicle Battery Technology, as well as High Power Electronics for power charging and transmission. Our Q3 2022 orders were $7.3 million compared to $6.1 million in Q3 of the prior year. Through the first nine months of 2022, we have received orders exceeding $15.5 million for our CBD systems and services segments. as compared to approximately $8.3 million for the same period, 2021. This is an 86% year over year increase in orders for the equipment group. These orders primarily consisted of 22 first nanoCBD systems compared to 23 orders for the entire 2021 year. Of the 22 system orders, 14 of our were for our newly launched PBT-150 system that addresses silicon carbide growth and processing. Two were for superconducting tape applications, and the remainder of the system motors are for battery nanomaterials, both R&D and production, as well as advanced carbon-based capacitors, and of course, for our legacy advanced R&D first nanosystem. We announced recently that we are selected and received an order in the fourth quarter from a major aircraft engine manufacturer. Specifically, the order is for a production chemical vapor infiltration system valued at approximately 3.7 million. As I stated earlier, the system will be used to manufacture ceramic matrix composite materials for aerospace gas turbine engines. We believe that this order is a tangible sign of the beginning of the aerospace market recovery. which traditionally has been a significant part of the CVD Equipment Corporation business. We are also continuing to engage and market our CVI systems to other gas turbine engine manufacturers. We continue to receive orders for consumables and spare parts that serve our installed base in the aerospace market. While we believe that this new order rate is a sign that the aerospace market is beginning to recover. We do not expect it to fully recover for at least until the latter part of 2023. Our SDC segment had increased sales over prior year 23.1% and increased orders in the third quarter that reflect a higher demand for our gas and liquid control system products. Our tantaline and and Mesoscribe product lines continue to be profitable. Supply chain issues though continue to negatively impact our revenue timing and profitability for all the segments of the company. The lingering pandemic and geopolitical instability has impacted most global supply chains. The negative effect has been felt by all companies with increases in commodity and product material costs as well as in delayed product deliveries. We continue our drive towards increased operational self-reliance. We received and installed additional machine centers in our central ISOC facility to offset the supply chain issues related to machine parts. In addition, we're working closely with our OEM suppliers to mitigate as much as possible the delivery delays and increases in prices and components of the materials. I would like to turn our call over to our CFO, Rich Catalano, who will provide our third quarter and year-to-date 2022 financial summary.

Rich. Thank you, Manny, and good afternoon. Our revenue for the third quarter of 2022 was $8.1 million. This compares to $4.3 million for the third quarter of 2021. That represents an increase of $3.8 million, or 88.4%. Net income for the third quarter was $63,538 or one cent per basic and diluted share. This compares to net income of $6 million a year or 89 cents per basic and diluted a share in the third quarter of 2021. However, keep in mind that the 2021 quarter included a $6.9 million non-operating gain on the sale of one of our buildings. Operating income for the third quarter of 2022 was $122,275. This represents an improvement of $1 million from both the operating losses of $9 million that we reported in both the second quarter of this year, 2022, and also the third quarter of 2021. This improvement in operating results from the prior year quarter was an increased revenue of $3.8 million, and this resulted in increased gross profit of $1.6 million This was offset by an increased operating expense of about 0.5 million, 500,000. The increase in gross profit was primarily the result of leveraging our fixed costs on higher sales levels as well as an improved product mix. This offset increases that we had in certain material components and compensation costs. The increase in our operating expenses is due to higher employee related costs to support the growth of our business including additional marketing and engineering efforts, as well as we incurred an employee severance charge during the quarter. For the nine months ended September 30th, 2022, our revenue was 18.6 million as compared to 11.7 million for the same period in 2021. This is an increase of 6.9 million or 58.4%. The net loss for the nine months ended September 30th, 2022 was 1.8 million. or 26 cents per basic and diluted share. This compares to net income of 5.9 million or 89 cents per basic and diluted share in the same period of 2021. However, you should note that in the nine months ended September 30th, 2021, it included two non-operating gains that totaled 9.3 million. We had the 6.9 million gain on the sale of the building and a $2.4 million gain on debt extinguishment from the forgiveness of the company's PPP loan. When the nine months ended September 30th, 2022, our operating was decreased by $2 million to 1.6 million as compared to the operating loss that we had in the same period in 2021. This improvement was the result of the increased revenue of 6.9 million that resulted in an additional gross profit of 2.3 million. This was offset by increased operating expenses of 0.3 million. Similar to the results for the quarter three, the increase in gross profit was primarily the result of our leveraging our fixed costs, again, on our higher sales levels, as well as an improved mix. This has been offset by higher material component costs and higher compensation costs. Our operating expenses did increase over the prior year due to higher employee-related costs as we focused on growing our business, so we had additional marketing and engineering costs for R&D. This increase was offset by lower building costs, however. We did consolidate our central ISLIP operations in 2021, and we also benefited from lower professional fees as compared to the prior year. Now, turning to our backlog, our backlog at September 30, 2022 was $15.7 million, as compared to $10.4 million at the beginning of the year, as of December 31, 2021. This represents an increase of $5.3 million or 50.9%. Our cash and cash equivalents at September 30th was $11.9 million. This compares to $16.7 million at December 31st, 2021. This is a decrease of $4.8 million. And this is primarily the result of a satisfaction of our mortgage debt on our Central Islip facility earlier in the year. That was for $1.8 million. We have our net loss as adjusted for non-cash items of 2.3 million, and we also invest in our capital, our PPE, of approximately 0.6 million. Our working capital at September 30th is 15 million, and this compares to 16.7 million at December 31st, 2021. We continue to be unable to predict the extent of the lingering impact of the pandemic and the current geopolitical uncertainties. will have on our financial position and results of operations for the balance of 2022 and, of course, going forward into 2023 and beyond. Due to various uncertainties regarding our supply chain disruptions, rising costs, the impact on the aerospace sector that impacted the company over the past couple of years, but the impact can be material in the future periods, whether indirectly or directly. Again, the longer-term impacts from the pandemic and the geopolitical uncertainties are still uncertain and cannot ultimately be predicted. Our return to consistent profitability is dependent, among other things, on the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions and the inflationary pressures, as well as managing planned capital expenditures and operating expenses. In addition, our revenues and orders have historically fluctuated based on changes in order rate as well as other factors in our manufacturing process that impacts the timing of our revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter. After considering all these factors, we believe our cash and cash equivalent positions and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 to 18 months. Should the current economic environment continue longer or even worsen, we will continue to assess our operations and take actions anticipated to maintain our operating cash to support our working capital needs. I'll now turn the call back over to Manny.