CVD Equipment Corporation (CVV) Earnings Call Transcript & Summary

Good morning, and welcome to the CVD Equipment Corporation Annual Shareholder Meeting. My name is Lawrence Waldman, and I am the Chairman of the Board of Directors. It is my pleasure to introduce Emmanuel Lakios, our President and Chief Executive Officer.

Good morning, and thank you, Larry, for the introduction. I'm Emmanuel Lakios, President, Chief Executive Officer of CVD Equipment Corporation. Before this shareholder meeting begins, I want to extend a warm welcome to you and express the thanks of our management team for your virtual attendance today. We hope you find the meeting interesting and informative. As previously announced, due to the ongoing public health concerns related to COVID-19, our annual meeting for 2022 is being held today in a virtual meeting format. Thomas McNeill, Executive Vice President, Chief Financial Officer, Treasurer, Secretary of the company, will act as secretary of the meeting and will now present proof of the due calling of this meeting.

I present the following: a copy of the printed notice of meeting dated June 1, 2022, stating the time, place and purpose hereof. I suggest that unless specifically requested, we dispense with reading the notice. Please see the website, which contains a copy of the printed notice of the meeting. A complete list of the holders of record of the common stock of the corporation as of the close of business on May 27, 2022, the record date fixed by the Board of Directors for shareholders entitled to notice of and to vote at the meeting. The 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 May 27, 2022, there were 6,728,938 shares of common stock issued and outstanding and an affidavit from Robert Zubrycki of Continental Stock Transfer & Trust Company showing that on June 8, 2022, he [indiscernible] to be mailed to each shareholder of record a copy of the notice of annual meeting, annual report for the year ended December 31, 2021, proxy statement, proxy card and a business reply envelope.

The secretary is directed to incorporate a copy of the notice of meeting together with the 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 other directors: Lawrence Waldman; Raymond Nielsen; Conrad Gunther; and Dr. Robert Brill. I have appointed Adam P. Silvers of Ruskin Moscou Faltischek, P.C., counsel to the company, as inspector of the election. The secretary will please annex the inspector's affirmation to the minutes of this meeting. The inspector has entered upon his duties and has informed me that the holders of record of a majority of the outstanding shares of the common stock representing a quorum are present at the opening of this meeting. The notice of meeting set forth 5 proposals for the shareholders to vote upon. Each of you who are shareholders of record as of May 27, 2022, have received a proxy. If everyone has not previously voted, you may vote online until the polling has been closed. The virtual polls have been open since the beginning of the meeting. Any shareholder who has not yet voted or wants to change their vote may do so by clicking the voting button on the web portal and following the instructions. Shareholders who have sent in their 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 the meeting adjourns. After the ballots have been counted and the voting polls have been closed, we will file an 8-K advising of the final vote tabulation. After the formal business of the meeting is concluded, I will bring you up to date on the affairs of the company. The first item of business of this meeting is the election of 5 directors who shall serve until the next Annual Meeting of Shareholders in 2023 when their successors are duly elected and qualified. Mr. Waldman will present the nominations of management to the shareholders.

Thank you, Manny. I nominate as directors Emmanuel Lakios; Lawrence J. Waldman; Conrad J. Gunther; Raymond A. Nielsen; Robert M. Brill.

Will anyone second the nominations?

I second the nominations.

Will each of the shareholders kindly mark his or her ballot under item #1? The next item of business before the meeting is to ratify the appointment of MARCUM, LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2022. Will anyone move that the appointment of MARCUM, LLP be 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.

Will each of the shareholders kindly mark his or her ballot under item #2? The next item of business before the meeting is an advisory vote to approve the compensation of the company's named executive officers. This proposal is a nonbinding advisory vote. The company's executive compensation is discussed in the proxy statement that was sent to you in connection with this meeting. A motion to vote for the compensation of the company's named executive officers as described in the proxy is now in order. Will anyone move that the compensation of the company's named executive officers as disclosed in the proxy statement pursuant to the compensation disclosure rules of the SEC be approved?

I move that the compensation of the company's named executive officers as disclosed [indiscernible].

Will anyone second the motion?

I second the motion.

Will each of the shareholder kindly mark his or her ballot under item #3? The next item of business before the meeting is an advisory vote to approve the frequency of future nonbinding advisory resolutions relating to the compensation of the company's named executive officers. This proposal is a nonbinding advisory vote. The frequency of the future nonbinding advisory resolution related to the compensation of the company's named executive officers is discussed in the proxy statement that was sent to you with this meeting in which the Board of Directors recommends that you vote for 3 years as the preferred frequency and move to vote on the frequency of future nonbinding advisory resolutions related to the compensation of the company's named executive officers as described in the proxy statement is now in order. Will anybody -- will anyone move for the -- that the frequency of the future nonbinding advisory resolution related to the compensation of the company's named executive officers as disclosed in the proxy statement be approved?

I move that the nonbinding advisory resolutions related to the compensation of the company's named executive officers as disclosed [indiscernible].

Will anyone second the motion?

I second the motion.

Will each of the shareholders kindly mark his or her ballot under item #4? The next item of business before the meeting is the proposal to approve the company's 2022 Share Incentive Plan. Will anyone move that the proposal be approved?

I move that the proposal [indiscernible].

Will anyone second the motion?

I second the motion.

Will each of the shareholders kindly mark his or her ballot under item #5? Now that everyone has had the opportunity to vote, I declare the polls hereby closed. At this time, I ask the secretary to give us the preliminary result of the ballot.

I have examined the certified list of shareholders prepared by Continental Stock Transfer & Trust Company and the report that the total number of outstanding shares of common stock entitled to vote at such meeting was 6,728,938. [indiscernible] number of shares present in person or proxy at [indiscernible] report that the number of shares present was [indiscernible]. The following votes tallied for the directors of the company to serve until the next annual [indiscernible] shareholders and until his successor is duly elected and qualified: Emmanuel Lakios, for, 2,857,804, withheld, 62,571; Lawrence J. Waldman, for, 2,857,414, withheld, 62,961; Conrad J. Gunther, 2,856,654, withheld, 63,721; Raymond A. Nielsen, for, 2,551,054, withheld, 369,321; and Robert M. Brill, 2,857,454, withheld, 62,921. I received and tallied the votes cast for and against the ratification of the appointment of MARCUM, LLP at the company's -- as the company's independent registered public accounting firm for the year ended December 31, 2022, and report that the proposal is carried by a majority of the votes cast as follows: for, 5,036,346; against, 42,958; abstained, 13,279. I received and tallied the votes cast for and against the nonbinding advisory vote on the compensation of the company's named executive officers as disclosed in the proxy statement and report that the proposal was carried by a majority of the votes cast as follows: for, 2,670,485; against, 167,660; abstained, 82,230. I received and tallied the votes cast regarding the frequency of the nonbinding advisory vote on the compensation of the company's named executive officers as disclosed in the proxy statement and report that the proposal was carried by a majority of the votes cast as follows: for 1 year, 1,425,655; 2 years, 24,952; 3 years, 1,363,095; abstained, 111,673. I received and tallied the votes cast for and against the approval of the company's 2022 Share Incentive Plan as disclosed in the proxy statement and report that the proposal is carried by a majority of the votes cast as follows: for, 2,673,950; against, 153,323; abstained, 93,102.

This completes all of the formal business to come before the meeting as set forth in the notice of the 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, aye.

Aye.

Aye.

All those opposed, no. This meeting is hereby declared adjourned. As CEO and President, I am pleased to be presenting to you today a summary of our company's status, important company development and pertinent information related to our business and markets. As we will be providing subset of information, your thoughts are important to us, and we will be responding to your questions during the question-and-answer session. We recently reviewed with you our 2021 and first quarter 2022 financial results and performance. Today, I will provide you with an update and add color on our business, including the business drivers, our products and our plans to address the challenges ahead to achieve our performance and growth goals. In 2021, we set on the course to focus on 2 primary markets: electric vehicles and aerospace gas turbine engine components. I am pleased to say that we are seeing benefits of that focus and effort. Our preliminary summary of orders for the first half of 2022 was $16.6 million compared to $9.6 million in the same period 2021, yielding a 73% increase year-on-year. Q2 2022 orders were approximately $12.6 million, up almost 200% from Q1 2022 and over 110% from the same period in 2021. I want to emphasize that the Q2 2022 data is preliminary and may be subject to change. We, of course, will provide you the final numbers when we release our earnings for the second quarter. This improvement in orders is fueled by our acceptance of our new products launched in 2022 and is enabled by our alignment to customer needs and attention to customer satisfaction. Orders received to date in 2022 are planned for shipment in the second half of 2022 and into 2023. Our strategy for 2021 and into 2022 is to focus on growth end-use markets. The theme, electrification of everything, which underlines our target market focus, is benefiting our company. The primary end-use market is in the support of electric vehicles and has been a key driver of our performance this past year. Within the electric vehicle market, there are 2 key applications that we are focused on. The first is anode battery material. In 2021, the battery market was -- for electric vehicles was estimated at $46 billion and is forecasted to grow to $560 billion in 2030, a 32% compounded annual growth rate. In this market segment, we have developed technology and products and received production orders for evolutionary enhanced battery material as well as advanced material research systems. The second strategy -- strategic application relates to the charging and transmission of power for electric vehicles and other alternative green energy sources, specifically high-power electronics. In this segment, we have developed a silicon carbide boule growth system launched mid this year. That is our PVT-150, 200 system. To date, we have received orders for 20 PVT-150 systems. In our advanced materials for aerospace and defense, the impact to long-haul global travel from the COVID pandemic and the cascading effect to aerospace continues, with indication that the impact will continue into 2023 with the possibility of some partial recovery. This is, of course, uncertain, and we continue to be cautiously optimistic. What is virtually certain is that global air travel will continue -- will come back to a prepandemic level eventually. We continue to collaborate closely with our expanded network of gas turbine engine manufacturers to be poised and ready to respond to the demand of new equipment and services by this industry. Barring any prolonged impact caused by COVID-19 pandemic and geopolitical issues in Eastern Europe and Asia to long-haul travel and the global supply chain, we estimate that the served available market for CVD's products will be greater than $400 million over the next 5 years. We have and are developing a complementary mix of product lines with the underlying theme to provide long-term return on investment while maintaining short-term financial accountability. Consistent with this theme, we launched 3 products over the last 12 months. The first was a carbon 300 system for battery applications. The second, the power code 1100, a production system from battery anode materials. And the third, PVT-150, 200 system for silicon carbide boule growth. The served available markets for these applications is greater than $300 million over the next 5 years, and we have received orders for each of these products. Another element of our business strategy was to deemphasize some of our products, in some cases, reduce further spending in others. As an example, we previously reported the restructuring of our Tantaline business in 2021. I will be providing you with some positive outcomes of our actions in a few moments. Related to global influences on our business, the COVID pandemic and geopolitical issues in Eastern Europe and Asia continue to affect our business. Our largest legacy served market, aerospace gas turbine engine component, continues to be negatively impacted, having experienced a sharp decline in aircraft orders to long-haul travel. Our strategy of focusing on multiple growth markets for our products and services has offset the impact of our aerospace business and has provided us order growth over the last several quarters, including the previously mentioned first half 2022 preliminary overall results. As we now completed the second quarter, we are cautiously optimistic that aerospace market segment will continue to show some recovery into 2023. This pandemic and geopolitical issues have caused global supply chain issues as well. Material shortages and supplier workforce issues have caused challenges for most companies, and CVD is not immune to this. To address these challenges, we are expanding our manufacturing capacity in our 555 facility with additional manufacturing machine centers, resources and close collaboration with our suppliers. I'd like now to take a few moments to speak about some of our product groups. Related to our equipment group, we received 21 CVD system orders in the first half of 2022. These orders provided a healthy backlog for the second half of 2022 and into 2023. Our spares and service orders also showed some continued modest recovery. The system orders were mostly related to the theme of electrification of everything. In addition, new product -- in addition to new product launches, more effective and increased account management and communication with all customers, we're on a plan to reduce our susceptibility to some of these supply chain challenges. The focus on manufacturing self-reliance included enhancing and expanding our internal machining and manufacturing capability. We plan to receive and install new machine centers, which will assist CVD in mitigating some of our equipment material delays and offsetting supplier cost escalation. We also continue to prudently add resources as the business level dictates. Our SDC division continues to be both a critical captive and merchant supplier of gas and liquid delivery systems. Our SDC products are considered as standard in the marketplace. They are -- they also are a supplier to our equipment division. Orders in Q2 of 2022 have been strong, and the division continues to support the growth of the equipment group in addition to its merchant business. The Tantaline product line was acquired in 2016. Since then, the company has invested in the expansion of the addressable market and operational capability in Denmark and in the U.S. facility. During Q1 2021, all sales and marketing activities were consolidated into the Denmark facility, and the U.S. operations [indiscernible]. The result of these actions was a conservative effort and focused that yielded sales growth to approximately $2 million and positive net profit and cash flow for 2021 year. Our MesoScribe group, which was acquired in 2017, focuses on high-temperature instrumentation in very challenging environments such as in gas turbine engine and satellites. In 2021, we received a multiyear SBIR Phase II grant funded by NASA for approximately $900,000. The unit continues to be in the technology adoption phase and is financially self-sustaining. In summary, we continue to be cautiously optimistic that our served markets and customers are slowly recovering. We will continue to apply focus on our products, customers and financial performance. We have a dedicated and capable management team, supportive Board of Directors and a loyal employee and customer base. We are focused on business and operational planning for future profitability and growth. I will continue to state that planning is not a onetime event, but it's a continuous process that evolves as market conditions change. Hence, we continue to be in the execution phase of our plan throughout the remainder of 2022. It is my pleasure to serve you, and we are committed to you that we will continue to provide timely communication. Your comments and questions are important to us. With the close of our presentation, I would like to open the floor to review your questions. At this time, we do not have any questions. We appreciate the attendance. We appreciate the support and loyalty of our shareholders in addition to, obviously, the Board of Directors and the management team and our customers, which are paramount. We thank you for your support, and we look forward to speaking to you again with our second quarter results. Thank you.