Greetings, and welcome to the CVD Equipment 2022 Second Quarter Results Conference Call. [Operator Instructions] 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 McNeill, 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 [indiscernible] 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 CVD 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 CVD 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 FirstNano CVD systems, compared to 23 systems orders for all of 2021. Of the 21 system orders, 14 are for our recently announced PVT-150 system, addressing silicon carbide growth and processing, 2 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 our legacy advanced R&D FirstNano system. The systems are planned for shipments starting in the fourth quarter and into 2023. We also…

Thank you, Manny, 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 CVD's PPP loan. CVD'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 resulting 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 marketing and engineering efforts. For the 6 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 6 months ended June 30, 2022, was $1.8 million or $0.27 per diluted share, as compared to a net loss of $35,125 or $0.01 per diluted share for the same period in 2021. And again, that small loss of $35,000 in 2021 included a $2.4 million gain on debt extinguishment from the forgiveness of CVD's PPP…

Tom, thank you for your presentation. In summary, the second quarter and first half of 2022 have built on our efforts of 2021, which were and which was a year of transition, reorganization and focus on everything we do and those who we serve. Our focus remains on our customers, markets, employees, shareholders and the pursuit of growth and return to profitability. We look forward to the second half of 2022 and continue to be cautiously optimistic. Your comments and questions are important to us. With the close of our presentation, I'd like to open up the floor to your questions. Diego?

[Operator Instructions] And our first question comes from Brett Reiss with Janney Montgomery Scott.

Just a headcount question, the amount of employees this quarter versus last quarter. And are you looking to hire more people? Or is your headcount pretty much where you want it to be?

We -- clearly, with the order rate as strong as it's been, we've added additional capacity in our manufacturing floor. We've gone to a second shift in our machine shop. Again, that's part of this self-reliance. So we've added folks in the machine shop, in inspection, in welding, assembly, wiring. Those have occurred during this year. As you remember, in 2021, we went through a pruning exercise of -- and rightsizing the organization for the business level. We continue to rightsize the business. We've increased our staffing approximately 15 to 18 personnel [indiscernible] during this year.

And were you able to find the people with the proper skill sets at the right labor cost? Or is...

That labor cost, I mean that is, I would say, that there's a lot under that watermark. We are finding -- we're able to attract talent, both in our engineering and also operations. We're very pleased with the people we brought on board this year. And it is in line with our ongoing labor costs here on the island. So I would say, yes, it's been positive for us. It's not a slam dunk, but we've also brought on -- one of our hires was a new HR director, and she's just done a wonderful job of being able to do and conduct talent acquisition over the last several months.

Right, right. That's good to hear. Now the things you're doing in-house to mitigate supply chain issues, if the supply chain issues receded and abated, would you still continue to make the things you've taken in-house? And would that going forward improve margins?

So the company has -- interesting that you say that. Yes, it will improve margins because, obviously, we don't pay somebody else's gross margin. And the company has historically been a very vertically integrated house, primarily because it was doing many one-offs, and it was more cost-effective to do that. What we found is our investment in some capital equipment this year has allowed us to elevate our level of excellence in machining, coupled that with -- so that's capability -- coupled that with going to a second shift has allowed us to do additional capacity. I would anticipate that we will continue doing that in that it does greatly support our competitiveness in this marketplace. Do I see the effect of the supply chain going away in the next 3, 6, 9 months? My crystal ball is as good as anybody else's. I think we've wisely invested. The equipment is installed, and all of it will be operational and producing value by the end of this month. So yes, there is a gross margin benefit. Yes, there is a competitive advantage. We can deliver products in much shorter periods of time. I would say that one example is our PVT-150. We received orders back, as you remember, in December, late December. We have already shipped several of those in approximately 6 months. That's world-class, and I compliment the entire team, both engineering and manufacturing, for that. So yes, there is an advantage. Yes, we'll continue to do that.

Great. Now one last one. In the virtual annual meeting, you listed 3 types of different devices that you manufacture with respect to battery technology, a carbon 300 machine, a powder coat 1100 and then the PVT-150, which seems to have become the crown jewel. Can you just briefly, to this lay person who's not an engineer, tell me what each of these devices do and that part of the $300 million total addressable market you mentioned at the annual meeting?

Yes. So yes, it is. And it's the electrification of everything. It's not entirely due to -- it's not battery material per se, all 3 of those applications. The carbon 300 was launched earlier in the year. We've gotten multiple orders for that. It was launched latter part of 2021. And we launched, being delivered to customer, and we've had multiple orders for those. And that is for advanced carbon technology used in the battery carbon nanotubes per se exactly. The powder coat 1100 is a coating system that this one specifically was for growing silicon nanowires on carbon powder in an evolutionary enhancement of the carbon material used in the anode of batteries. And the PVT-150 is a product utilized to grow silicon carbon -- silicon carbide boules for silicon carbide wafers used in power electronics, both charging and also for transmission switching. It's referred to as high-power electronics. So each of those are different products, different technologies. Some are carbon-based. Some are silicon nanowire-based and very large production systems. Others are silicon carbide growth systems using different techniques. But all those, and I appreciate you asking the question, all 3 of those are products that we've launched of standard products that we hope to become standard in the marketplace that we've launched over the last several quarters.

Now are there -- how proprietary in nature are these 3 products? And what are the barriers to entry to competition? And is your major competitor, the -- your customer who might want to do these things in-house?

Our customers manufacture them in-house? The world has really gone away from that. Part of the -- when you look at the competitive nature of our products, there is the element of the process capability, the ability to reach temperature, control the temperature, they'd be able to deposit at certain rates, be able to have a certain capacity be able to do that in a safe environment and in a safe manner and way, which goes into much of our environmental, health and management elements that go into the design of our products, the control aspects, the production worthiness. And then that's really from the technical performance of the tool set. On the flip side, you also have cost of ownership. The capital cost, the ability to manufacture these more -- and that's your previous question -- more efficiently and have a proper gross margin to invest in future products and return for our investors as well as providing the right value to our customers. And that's where we couple all those elements together, that's how we create our barrier to entry against our competition.

[Operator Instructions] Our next question comes from [indiscernible].

First, the comments, thank you for hosting this call. Thank you for your transparency and your candor. It all very much is very much appreciated. So thank you, above all else.

Appreciate it. You're welcome. Thank you.

And I have a few questions just to better understand what I think I'm seeing. Could you comment if the growth has been market share gains or it's been industry growth in general?

It's, quite honestly, it's both. It's demand on new technology for both carbon, for silicon nanowires, for the battery material, that is, and also for silicon carbide. So from that perspective, it's market expansion. But there are other competitors in the marketplace that we won these orders from. So there is a -- we did carve out more market presence and market share in the last few quarters. So it's [indiscernible] it's a bit of both.

And I've been looking at the 10-K to understand who the competition is, and I do not believe I'm seeing specific companies named. If it's appropriate to ask -- and if it's not, please don't comment. Are there any competitors who you can name as being peers or being benchmarks for their growth rates and their margins?

Well, there are companies that we would say are we want to target our performance, but they're not competitors of ours. They're much larger companies. As far as our direct competitors, we likely would not want to advertise who those are on this call.

And just -- I hope this is sort of in a different direction, but I noticed an article in the Wall Street Journal published October 24, 2016, Germany withdraws approval of Chinese takeover of Aixtron. I'm wondering if this dynamic exists in America or what you're doing has national security, national security concerns and therefore, once you become vertically integrated in Made in America, customers might strongly prefer to go to you and not go to someone who's based overseas, so is there some type of national security and Made in America preference going forward?

Going back to 2016 and the whole Aixtron issue there that they had, sometimes I can -- I'm not sure I remember what I had for breakfast, but -- and so I can't comment on that one. But I can say that there is clearly an initiative for both battery manufacturing and also for associated electric vehicle and electrification of everything preferenced to be manufactured in the U.S. And we are a U.S. competitor and supplier. So therefore, we would benefit from that.

And if I could just ask at a high level, what's your scarcest resource, what you wish you have more of? Is it human capital? Is it access to financial capital? What's been holding you back to really unleash the full potential?

Supply chain issues. Supply chain issues. Our -- we -- simple answer, it's having a -- and most equipment companies, if not all equipment companies, are suffering with the same.

And our next question comes from [indiscernible].

I remember asking before about the product [indiscernible]. And you said it wasn't that big a deal. It may come, and don't get excited about it. I thank you for downplaying it. Has it gotten any closer to being a potential commercial product?

[Indiscernible], thank you again for your question, and I greatly appreciate it. And let me say that, even though we are not a medical device company, we are an equipment and carbon technology and other process technology company, we do continue to have applications development such as the device that you're referring to now. When we say downplay, we don't emphasize it. We try not to downplay much, but we don't emphasize certain things in our business. But we have received some government funding to continue our carbon technology development. Our carbon-carbon, that is, technology development for such devices. So in the background, we continue to do R&D. I want to just really underscore, a lot of research, it's not a development, it's not a product. And -- but we are continuing, and we have gotten some external funding for that specific application to use our carbon-carbon technology in.

Well, thank you for giving us realistic expectations. So I asked you before, where is the dream? And it sounds to me like the dream is -- using this new phrase -- the electrification of America. It sounds [indiscernible].

It's expanding. Yes. Thank you, again. It's an expanding marketplace. It's a large market. It's an expanding market. It's somewhere where we can clearly carve ourselves a good position, a good market share. We also have -- I mean we have not -- we still support aerospace, as I mentioned, and I do believe aerospace will come back. I do like the ASPs on the aerospace products, multimillion-dollar tools and different complexity, of course, solid recurring revenue on the production consumables and spare parts as we add value to them in that area. I believe having our hands in multiple growth markets and large markets is the future of the company.

I was the stockholder of 15 years. I've had various amounts of stock. And I appreciate the fact that you're not [BSing] us. You're being realistic and optimistic both, and I appreciate it. So I thank you for your thoughts. I appreciate it. Bye.

Yes. We have another question coming from [indiscernible].

At a high level, as the company becomes profitable at some point going forward, I'd love to appreciate how the company thinks about capital allocation. Do you have any thoughts about repurchasing shares at the price that's compelling versus doing strategic M&A? Just how you think about those different buckets from your point of view.

I can't say we've spent a lot of time thinking about repurchasing shares. We spent quite a bit of time looking at both organic and inorganic growth for the company. As you clearly stated, as we continue down the path of getting to profitability. I think those become more frequent discussions on how do we grow the company long term, medium to long term. But for the moment in time, we have our organic products, and we've just launched these products, they're in what I would term the alpha/beta phase. And we still have work to do there. And we are, for the first half of this year, excited about the booking rate of $16 million compared to last year, if I remember correctly, which I do, we did approximately $21 million. So, so far, our strategy of focusing on internal growth and profitability works. And I think I answered the question on the capital nature and repurchase and M&A. We have nothing to really report on right now.

There are no further questions at this time. I'll hand the floor back over to Mr. Lakios for closing remarks.

Well, I appreciate all the questions. In summary, the second quarter and first half of 2022 have built on our, again, on our efforts of '21. We greatly appreciate the support of our shareholders, our employees, of course, our Board of Directors and suppliers and, of course, value our customers. We thank you for your attendance today, and we look forward to giving you further updates in the next period of time. Thank you.

Thank you. That concludes today's conference. All parties may disconnect. Have a great evening.