CVD Equipment Corporation (CVV) Earnings Call Transcript & Summary

Good morning. I am Leonard Rosenbaum, Chairman and Chief Executive Officer of CVD Equipment Corporation. Before the shareholders' meeting begins, I want to extend a warm welcome to you and express the thanks of management for your virtual attendance. We hope that you find this meeting interesting and informative. As previously announced, due to the public health impact of COVID-19, we moved our annual meeting for 2020 to a virtual meeting format. Thomas McNeill, Chief Financial Officer, Treasurer and Secretary of the company, will act as Secretary of the meeting and will now present proof of the due calling of the meeting.

I present the following: a copy of the printed notice of meeting dated September 4, 2020, stating the time, place and purpose hereof. I suggest that unless specifically requested, we dispense with the reading notice. You can go to the website, the tab Meeting Document for the full notice if you choose. I also present a complete list of the holders of record of the common stock of the corporation as of the close of business on August 25, 2020, the record date fixed by the Board of Directors for shareholders entitled to notice of and to vote at the meeting. This list, which will be kept open to the inspection of shareholders throughout the course of the meeting, shows that at the close of business on August 25, 2020, there were 6,640,935 shares of common stock issued and outstanding. And the last item is an affidavit from Sharon Alexander of Continental Stock Transfer & Trust Company, showing that on September 11, 2020, she [indiscernible] mailed to each shareholder of record a copy of the notice of annual meeting, annual report for the year ended December 31, 2019, proxy statement, proxy card and business reply envelope.

Secretary is directed to incorporate a copy of the notice of the meeting together with an affidavit of mailing of the notice in the minute book of the company as part of the minutes of this meeting. At this time, I would like to introduce the company's directors who are present virtually here today. You have Mr. Waldman; Mr. Conrad Gunther; Randy Nielsen and Martin Teitelbaum. I have appointed Adam P. Silvers of Ruskin Moscou, Counsel to the company, as inspector of election. The Secretary will please annex the inspector's affirmation to the meetings -- to the minutes of this meeting. The inspector has entered upon his duties, and has informed me that holders of record of a majority of the outstanding shares of common stock represented in the quorum are present at the opening of the meeting. The notice of meeting sets forth 2 proposals for the shareholders to vote upon. Each of you, who are shareholders of record as of August 25, 2020, has received a proxy. If anyone has not previously voted, you may vote online until the polling has been closed. The virtual polls have been opened since the beginning of the meeting. Any shareholder who has not yet voted or wants to change the vote may do so by clicking the voting button on the web portal and following the instructions. Shareholders who have sent in a proxy or already voted via Internet and do not want to change their vote, do not need to take any further action. We will discuss each proposal that is due to be voted on. We will also advise the preliminary vote tabulations before this meeting adjourns. After the ballots have been counted, after the voting polls have been closed, we will file a Form 8-K advising on the final vote tabulations. After the formal business of the meeting is concluded, we will bring you up-to-date on the affairs of the company. The first item of business before this meeting is the election of 5 directors who shall serve until the next annual meeting of shareholders in 2021 when their successors are duly elected and qualified. Mr. Teitelbaum, will you present the nominations of management to the shareholders?

Yes, thank you. I nominate as Directors Leonard A. Rosenbaum; Martin J. Teitelbaum; Conrad J. Gunther; Lawrence J. Waldman and Raymond A. Nielsen.

Will anyone second the nominations?

Larry Waldman. I will second the nominations.

And the next item of business before the meeting is to ratify the appointment of Marcum LLP as the company's independent auditors for the fiscal year ending December 31, 2021. Will anyone move that the appointment of Marcum LLP has been ratified, confirmed and approved?

I move that the appointment of Marcum LLP be ratified, confirmed and approved.

Will anyone second the motion?

I second the motion.

Now that everyone has had the opportunity to vote, I now declare the polls are hereby closed. At this time, I ask the Secretary to give us a preliminary result of the balloting.

I have examined the list of shareholders prepared by Continental Stock Transfer & Trust, the transfer agent of the company, and report that the total number of outstanding shares of common stock entitled to vote at such meeting was 6,640,935. I tallied the number of shares present in person or by proxy at such meeting, and report that the number of shares present was 5,271,990 shares. I received and tallied the votes cast for directors of the company at such meeting and report and certify that the following persons received the number of votes set forth next to their names and were elected directors of the company, each to serve until the next annual meeting of shareholders and until his successor is duly elected and qualified. Leonard A. Rosenbaum, 2,406,556, shares withheld 263,455. Martin J. Teitelbaum, 2,301,027 shares voted and withheld 368,984. Conrad J. Gunther, 2,344,673, withheld 325,338. Lawrence J. Waldman, 2,351,223, withheld 318,788. And finally, Raymond A. Nielsen, 2,332,881. And the number withheld was 337,130. With respect to Marcum LLP, voted in favor, 5,144,634 shares voted. Votes against, 40,633. Those abstained, 86,723.

This completes all of the formal business come before the meeting as set forth in the meeting -- notice of meeting. Are there any other motions to come before the meeting? If there is no further business before the meeting, I will entertain a motion to adjourn the meeting.

I move that the meeting be adjourned.

Is there a second to the motion?

I second the motion.

All those in favor, say aye. All those opposed, say no.

Aye.

Aye.

This meeting is hereby declared adjourned. We are now going to have a quick presentation, which was prepared by the company to highlight some of the things that went on during the year 2019 and '20. I'll give everyone a moment to read the safe harbor statement. Hopefully, you see it up on your screen. Going to the next slide. COVID-19 has caused a fair amount of health and economic crisis, both for CVD and the world. And I'd like to talk a bit about the events that have affected our markets. In the aerospace market, CVD provides composite material production equipment for advanced commercial and defense engine parts. This has been historically our largest revenue market. COVID-19 has impacted air travel by approximately 80% for long-haul designations, for example, to Europe and Asia mostly. The major engine and commercial plane manufacturers have announced shelving of plants, layoffs and have slashed production demand. Production equipment purchases have been put off until air travel recovers. Our research shows that the world recovery of passenger demand to pre-COVID-19 levels is estimated to take 2 to 4 years, at the earliest by late 2022. COVID-19, the 737 groundings and the financial issues at both Boeing and their suppliers has delayed many existing and new programs. This has affected both our CVD Equipment and MesoScribe divisions. The programs we believe are only delayed, but we do not know for how long. In the research and academic market, CVD provides research application-specific equipment worldwide to universities and R&D laboratories. This is our second largest market. University research funding has been slashed as college attendance and research faculty levels are reduced. The social distancing, virtual classes, immigration and travel restrictions, athletic college games and many other issues has reduced university revenues. This has made it hard to fund research and less money -- with less money and the restrictions researchers are having to operate in. At CVD, we've had COVID-19 work restrictions and social distancing. We have reduced our long-term staffing by approximately 30%. Our operations were impacted by 80% personnel furlough for a period of 6 weeks and a slow reopening after, with stringent social distancing and employee safety protocols. Trade shows and noncritical travel has been canceled for 2020, impacting our messaging. CVD has been very careful operating in this environment, and we have been able to be COVID-free for approximately 4 months, but we have suffered in productivity. The tariffs on China and the COVID-19 business impact has also affected our business. Tariffs have caused increases in our material costs and the reluctance of China-based companies to buy from the U.S. due to trade conflicts and having to pay a stiff import tariff. Travel to China or most places has been very difficult. It has delayed system start-ups due to both travel restrictions for CVD personnel and the end user having COVID-19 issues. Next slide please. Business recovery highlights. During the third quarter, we have started to show some improvement, but we still have more to do. CVD received a contract to provide a CVD system and material to a COVID-19 diagnostics customer. We anticipate the system will be in production of the materials before year-end at our facility. We have continued our development of the Extracorporeal Membrane Oxygenation, ECMO device, based on our c-VACNT technology that has promised in blood oxygenation and carbon dioxide removal. Legacy ECMO units have been successfully used on patients having severe lung damage from COVID-19. We continue to see positive technical advances in this self-funded program and anticipate providing an update on the technical merits during the first quarter 2021. Our ECMO device, we anticipate, will provide benefits for all and being smaller, thereby requiring less blood, do less damage to the blood and the ability, if needed, to work on air. This will enable it to benefit adults, and more importantly, infants who have a very limited supply of blood. It will cause less free complications when in use -- less blood complications when in use, and be able to operate in the future as a portable device or artificial lung when oxygen is not readily available as it can work on air. Our Carbon products are becoming Main Street USA. In 2019, we announced that TAG Heuer, a high-end watch manufacturer, is using our equipment for advanced watch springs. If you have not seen TAG Heuer's video, I encourage you to go to their website and see it. We are also pleased to announce the adoption and production expansion of our Carbon technology for a semiconductor device application. In Q3 2020, we received an order for multiple Carbon Nanotube systems based on the previous system we provided for research and limited production. We anticipate further expansion in this area in 2021. Our ECMO device is based on Carbon technology and continues to undergo testing with blood at a local university. Next slide please. Business recovery highlights. The MesoScribe division has been fully relocated now into our CVD Materials facility in Central Islip, New York. We have pioneered the direct writing of robust high-temperature instrumentation, such as heaters, thermal measurement devices and sensors. We serve many markets, including defense, aerospace, both military and commercial, satellite. And in addition, we have several research programs that are funded by the U.S. government. We are very pleased with the prospects for MesoScribe going into 2021. We anticipate a better economic environment for aerospace and defense programs that have been delayed by COVID-19. We are also adding MesoScribe products to our web store to generate some standard product type orders and to bring in additional inquiries as the digital world keeps evolving. And see some of the photos on the slide of the facility and some of the products and of the direct writing capability of the unit. Tantaline will be operational -- Tantaline USA will be operational end of Q4 2020. Tantaline serves the mining, geothermal power generation, oil and gas, exploration and refinement, pharmaceutical and many other markets where corrosion is a serious safety, uptime and financial concern. Tantaline orders and quotations have seen improvements over the last 2 months, and we are projecting further improvement based on customer contact, focusing on specific markets and building on the application successes our customers have now evidenced. We will also be putting a number of Tantaline-coated standard type products in our web store. On the bottom right -- on the center right, you will see the facility in Central Islip for Tantaline. Our Central Islip, New York facility will support customers for Tantaline corrosion coatings in the USA and North America as well as being our flagship for research and development of industrial coatings. As mentioned above, Tantaline USA is expected to be operational by the end of this year. Next slide. This is a project we started last year and was delayed due to COVID-19. We expect the web store and resulting awareness of the display products and capability will also develop further applications. COVID-19 has changed how the world conducts business. We are improving our digital marketing in the socially-distant world. The web store should increase company visibility, leads and order rate for products sold by Tantaline, MesoScribe and SDC. Please go to our website and view our web store now, and then see how it evolves during 2021. Next slide. This is the end of the presentation, and I thank each of you for attending our virtual shareholder meeting. I look forward to a better 2021, both economically and without the past significant effects of COVID-19. Please stay safe and healthy. Thank you. We will now answer some questions that have been presented. Are there any questions that have been presented?

We have no questions.

There being no questions presented, I will request that we adjourn the meeting. Is there a nomination to adjourn the meeting?

Yes. I would move that we adjourn the meeting. And can I suggest that the directors call in for our Board meeting immediately following?

Is there a second to the motion?

Second.

Okay. There being no further questions, we hereby adjourn the meeting. Thank you very much for attending.