Greetings, and welcome to our CVD Equipment's 2021 third quarter results conference call. At this time, all participants are in a listen-only mode. A Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. We will begin with some prepared remarks, followed by a Q&A 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 the 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 our filings with the SEC, including, but not limited to, the Risk Factors section of our 10-K for the year ended December 31st, 2020. 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 new circumstances or revised expectations. Now, I would like to turn the call over to Manny.
Hello. Welcome to our CVD Equipment Corporation's quarterly conference call. My name is Manny Lakios, CEO and President, and I am pleased to be presenting to you today regarding important company developments and pertinent information related to our business. As we will be providing substantive information, your thoughts are important to us. We look forward to your questions at the end of our conference call in the Q&A session. I would like to introduce our CFO, Mr. Thomas McNeill, who will provide you with our financial third quarter 2021 summary.
Thank you, Manny, and good afternoon, everyone. CVD Q3 2021 revenue was $4.3 million as compared to $4 million in the third quarter of 2020, an increase of $0.3 million or 8.4%. CVD's operating loss for the three months ended September 30, 2021 and 2020 was $0.9 million and $1.4 million respectively, with Q3 2021 improving in performance by $0.5 million compared to Q3 2020. Included in other income for the three months ended September 30, 2021 was the gain on the sale of the building in the amount of $6.9 million. Net income for the third quarter was $6 million or $0.89 per diluted share as compared to a net loss of $1.3 million or $0.19 per diluted share in the third quarter of 2020.
With respect to our nine months results, as a result of COVID-19 pandemic, CVD's new order bookings during 2020 were substantially impacted, which reduced revenues in subsequent quarters, resulting in revenue of $11.7 million for the first nine months of 2020. I'm sorry, of 2021, as compared to $13.7 million in the first nine months of 2020. A decrease of $2 million or 14.7%. CVD's operating loss for the nine months ended September 30, 2021 and 2020 was $3.6 million and $2.4 million respectively.
Included in other income for the nine months ended September 30, 2021 was the gain on the sale of the building in the amount of $6.9 million and the gain on debt extinguishment in the amount of $2.4 million, which was related to our PPP loan received due to the effects of COVID-19 pandemic, and the subsequent forgiveness of that debt. Net income for the first nine months of 2021 was $5.9 million or $0.89 per diluted share as compared to a net loss of $0.8 million or $0.12 per diluted share for the first nine months of 2020.
Included in the first quarter of 2020, CVD's net income was favorably impacted by the CARES Act, which allowed for the carryback of net operating losses and resulted in CVD recognizing an income tax benefit of $1.5 million in the nine months ended September 30, 2020. Sequentially, CVD's revenue in the third quarter of 2021 was $4.3 million as compared to $4 million in the second quarter of 2021. An increase of $0.3 million. The operating loss decreased to $0.9 million in the third quarter of 2021, as compared to an operating loss of $1.1 million in the second quarter of 2021, an improvement of $0.2 million. During Q3 2021, CVD was impacted by increased costs on certain manufacturing material components, as well as delays in supply chain deliveries.
This may also impact CVD's ability to recognize revenue and reduce gross profit margins in future quarters, as well as extend its manufacturing lead times and reduce manufacturing efficiencies. CVD has commenced placing orders with increased lead times to try to help mitigate the manufacturing delays, as well as assessing other material suppliers to mitigate the potential cost impacts. In addition, CVD is utilizing its in-house flexible manufacturing to further mitigate both potential scheduled delivery delays and material cost increases. The company's backlog at September 30th, 2021 improved by $1.8 million to $9.9 million, as compared to $8.1 million at June 30th, 2021. Since the first quarter of 2020, the company continued to experience significant negative effects from COVID, including reductions of new orders.
While the company's order activity has improved in the first three quarters of 2021, we believe its longer-term improvements will be benefited by the anticipated slow recovery of the aerospace markets, which industry reports indicate will begin to occur in the 2022 to 2023 timeframe. With respect to our building sale, as previously announced, we're pleased to have closed on the sale of our facility at 555 North Research in Central Islip, New York, on July 26, 2021. With a sales price of $24.4 million, we satisfied our then mortgage debt of approximately $9.1 million on that facility and paid various transaction-related costs.
The net proceeds of approximately $14 million improves our current cash position, which at September 30, 2021 is $17.4 million, and provides us with a balance sheet to bolster sustainable growth strategies. As a result of the gain on the sale of the building of approximately $6.9 million, we improved CVD's overall shareholder equity and retained earnings by approximately $6 million. Our retained earnings is now a positive $3 million at September 30, 2021. With respect to our liquidity, again, primarily the result of the sale of the 555 building, our cash and cash equivalents improved to $17.4 million at September 30, 2021, as compared to $7.7 million at December 31st, 2020.
Our working capital was $17.7 million at September 30th, 2021, as compared to $8.1 million at December 31st, 2020, an increase of $9.6 million or 118%. In addition, during the first nine months of 2021, we have substantially reduced our CapEx from $1.2 million in the first nine months of 2020 to $213,000 during the first nine months of 2021, related to ceasing further R&D spend on the tantalum product line. The longer-term impacts from the COVID-19 outbreak are highly uncertain and cannot be predicted, especially now with the recent outbreaks of the COVID-19 Delta variant and impacts on our supply chain, as I previously discussed.
While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability, there can be no assurance of the ultimate impact and the length of time that the supply chain factors may impact our revenues and profitability. Our return to profitability is dependent upon, among other things, the receipt of new equipment orders, the lessening of the ongoing effects of COVID-19 on our business and the aerospace market, improvement in our operating efficiencies, as well as managing planned capital expenditures and operating expenses. Based on all these factors, we believe our cash and cash equivalent positions and pro-projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months of the filing of this 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, as well as compliance with our loan covenants. Now I'd like to turn the call back over to Manny, our CEO.
Tom, thank you for your presentation. We've spent the first nine months of 2021 shoring up our balance sheet and optimizing our market focus and product offering, all with the interest of maximizing our present and future profitability and viability. In Q3, we initiated our strategic planning for 2022. We also want to announce that we obtained strategic orders in our focus growth markets. During the third quarter, we closed on two electric vehicle battery nanomaterial system orders, one of which was with a production use case customer, OneD Battery Sciences, and the other to a research and pilot production customer. Our order rate has now shown incremental recovery, with orders in the range of $6 million per quarter in both the second and third quarter. We received five CVD system orders in the third quarter and 14 year- to- date.
Our SDC division continues to show incremental order growth. It is our strategy to continue to focus on production applications for nanomaterials, including battery anodes, as well as our aerospace and defense applications. We are also pleased to see a recent increase in our spare parts business within the aerospace market, and that gives us cautious optimism that our assessment that the timing of the resurgence in gas turbine engine demand will materialize in 2023. In our production group, we have seen and further have been addressing this, the global supply chain issue, of increases in material costs and the general delay and uncertainty of material delivery. This will be a challenge for most companies. We have implemented a vigorous supplier engagement as well as expanded our network of suppliers.
Our vertically integrated manufacturing is being tapped to supply capacity to improve the delivery and cost of our products. We have ample capacity in our 355 Central Islip facility to accommodate a shift in our manufacturing strategy to assist in addressing any long-term supply chain issues. On another front, the sale of our 555 building was completed in July with the outcome of providing approximately $14 million of additional cash on hand. The sale of the building provides both short-term working capital as well as for future growth opportunities. In summary, even with these positive indicators, the year is far from over and we expect to face many challenges. However, our focus remains consistent on our customers, our employees, our shareholders, and the pursuit of growth and return to profitability. Your comments and questions are important to us.
With the close of this formal presentation, we'd like to open the floor to your questions.
Thank you. At this time, we'll be conducting a Q&A session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Your first question comes from the line of Brett Reiss with Janney Montgomery Scott. Please proceed with your question.
Hi, Manny. Hi, Tom. How are you guys doing?
Well, Brett Reiss, we're doing very well knowing that you're on the call. Good evening.
Hi. I have a series of questions with respect to the device you're delivering to the OneD Battery Sciences in the first quarter. Are we still on schedule to deliver that in the first quarter of 2022?
The plan is to deliver in the first quarter, yes. We are on schedule for that.
Great. Now, it's a private company, but you know, when you go on their website, you know, they talk about this pilot plant, you know, to do the battery stuff in Wisconsin. Is that where the, you know, the reactor which we're making for them, is that where it's gonna be employed by them?
Well, Brett, this is a CVD Equipment conference call, but Vincent is a great CEO and probably would answer your questions as well. I believe it's, I'm not confident it's Wisconsin. It may be Pacific Northwest, Washington State, possibly. I think just so I'm correct, I'm not sure they stated that it was in Wisconsin.
Okay. Yes, you know, I own CVD, and that's what I'm really interested in.
Of course.
You know, it reads like this could be, you know, the first plant among many. I mean, are they possibly going to need one of your devices for every location that they're going to open up?
They will need a CVD reactor for each and every one of their locations and sites. That's correct. As they publicize, they have a very interesting and attractive model that I would probably suggest, you know, the listeners go to their website. We are doing our utmost and feel confident that we will be their supplier of choice for each of those sites.
Okay. Now, if what they have really lifts off and clicks, you know, they have barriers to entry because of their patents and their intellectual, you know, property. What do we bring to that equation? Are they using us, you know, solely for our knowhow and experience? Or do we have something, you know, proprietary that no one else could deliver on, you know, should they go with somebody else?
Brett, typically, the barrier to our competition is our performance. We will deliver on time, as per the committed specification. We will facilitate their installation, and we'll continue to partner with them. We are pleased that we were selected.
Right.
We see this as a strategic. This is not a one and done for us, and we're putting that level of effort into the development, the engagement with them. We see them as an important customer for years to come.
Right. Once our device is installed in their plant and being used, is there any future recurring revenue stream that would accrue to us?
There's, of course, because it's a production application or a pilot production application similar to our aerospace installed base. We will continue to support them even for just the installed base without additional orders, which we-
Right.
I would hope and expect that they will be successful and adopted. We will again supply them consumable and spare parts, you know, under separate contracts.
Okay. Different line of questioning. You change, you know, the way your sales force is compensated. You know, of course, you report, you know, backlog, you know, when you get a firm order. You know, some of the companies I follow, you know, have a metric where they'll sometimes say that there are, you know, X dollar amounts of tenders or potential orders outstanding. They're not firm orders, but, you know, these are submissions that are out there. Do you have something similar that you monitor? And if so, has that gone up, you know, because you've changed, you know, the way you compensate your sales force?
Well, we have a competitive compensation package for all our employees, which is also partially based on the performance of the company to our objectives. That's been communicated to the entire rank and file, from executives to every level in the organization. There's also metrics associated with individual or group performance, which is specific to the department of the function. For the sales team, you can imagine it's order rate. That's the answer with your first question.
Right.
The second question is we monitor our opportunities. Clearly, there are people, Jeff and his team, that monitor it on a daily and, you know, every hour of the day, on the opportunities. But we update our internal forecast on a weekly basis, looking at all our probabilities and all our opportunities. We do a weighted average of total opportunities to we compare that to the best few, and then we compare our forecast that we actually commit to ourselves, management, the team that commits to myself on what we anticipate our forecast would be, which is what we roll into our financial forecast.
The ratios are strong ratios from the aspect of the best few to what we have in our forecast, and then the opportunities to real opportunities to what's actually what we call our best few. It goes through a couple of filters or iterations. I'm pleased with the ratio of those numbers. We have ample targeted accounts in our forecast, and we have backups for those as well.
Great. Now, you know, since, as you said, aerospace is picking up again, you know, the type of reactor you successfully made for General Electric some years back, is there any possibility of getting some more additional orders, either from General Electric or any other aerospace manufacturer, you know, similar to those large orders we got two or three years ago?
Well, I appreciate both the question and the positioning as I think for the record, we have never specifically stated that we have received orders from General Electric, but they are a major player in the ceramic matrix composites gas turbine engine industry. I'll say that the customer that we have shipped product to clearly will start recovering from a standpoint of engine demand, therefore component demand, and that will trickle down to us. What we'll first see, Brett, is an increase in the spare parts business and in the consumable business, where they start now buying for their internal production of material for these gas turbine engine components. We've started to see that.
We've started to see a nice uptick. It's not back to where we were in 2019, though.
Right.
I anticipate that likely will take another year-t o- year and a half until 2023 before we start seeing that level of consumables and before their capacity is fully tapped and where they would have to buy additional equipment. Now, that doesn't mean that other players won't enter the market as well. We continue to engage other than the one or two customers we have. We continue to engage others as well with quotations, proposals, and discussions.
Great.
Again, I don't see a recovery in demand until 2023 for the engine recovery for components.
Right.
They do have to buy equipment prior to that. We're engaged with all of the component manufacturers. Will some of them buy before that? We're optimistic and believe that that's possible. Are we you know, hanging our hat on it and saying that, "Geez, you know, next year we're going to triple our business"? No. That's. I think that would be extremely unprofessional of us and unethical. We continue to be conservative. When we see something that changes the needle for our direction, we will absolutely speak up and provide additional information. Right now we see indication of recovery.
I think as we all know, you know, we need to be a little gun-shy due to the fact that we were all caught off guard with this COVID a year ago.
Right. Thank you for answering my questions, and have a good Thanksgiving.
You too, Brett. Thank you so much.
Okay.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we pull for more questions. Your next question comes from the line of Morton Howard, Private Investor. Please proceed with your question.
Okay, I have two questions. One, at the last conference call, you urged us not to get too excited about what was going on at Stony Brook, as a potential moneymaker for CVD. Is there any change in that? Have they made any progress in terms of getting us a little bit enthused about what's going on up there?
Hi, Morton. How are you?
I'm fine.
Nothing that would, again, move the needle on that. We are working on a couple of things, and I don't wanna spook them right now. Because we had previously issued some press releases when things looked much brighter for the ECMO device, we will. When there is a change, we will absolutely send out a note on that. At this point, we're looking at other applications for this media-to-media exchange, which is, in the case of an ECMO device, a blood oxygenation. There are other potential uses for that, even in the area of desalination of water. We're looking at other opportunities. I can tell you that.
Water would be big. Water would get everybody excited.
Well, I don't wanna set off.
Come on. I've been bored to death with this company for 10 years. I wanna get some excitement.
We're working on it.
Let me go to my second question then.
Yeah.
Thank you for that one. You mentioned that the material costs may be going up. I would think most of your products, the part of the material is modest, the cost of the material versus the technology you have. In other words.
That's correct. We are changing the model of the company to be less hardware and more value proposition. Our orders are much more performance-based than they were just hardware specifications. That lends our company to be right in line with your comment that it's more value-oriented. You know, the material content is still the material content. We're seeing some increases in material content, you know, to the extent of it affecting gross margin points. We're assessing that as we speak. I'm not ready to you know, have that conversation at this point. I think we all know that, you know, raw materials, especially the specialty materials, the C-22, Hastelloy materials, they've gone up 300% in price.
That's been somewhat, you know, for some jobs, pain, for other jobs, no effect at all. What we're seeing a bigger issue on is delivery and just the uncertainty of delivery of some key components. We'll continue to manage through that. You know, we can't hibernate. We can't, you know, make believe it doesn't exist. We going to our own machine shop and working overtime in the machine shop and on the floor in our core shop will help alleviate that. You know, the company has historically been very vertically integrated. We're leaning more on that than we probably would have had it not been for the supply chain issue.
Okay, one last question. A few years ago, graphene was touted as the miracle material of the future. Well, I've heard that kind of stuff. I've been hearing that kind of stuff for 50 years, not just about graphene, but other things. I was a little skeptical then. Is graphene? I mean, we're an expert in graphene, apparently, or one of the experts in graphene.
Well, we are very knowledgeable. Hence, people think we're experts.
Okay.
We're extremely knowledgeable and.
Okay.
We are experts.
Is that?
in the area of carbon. We're very knowledgeable and experts in the area of silicon nanowires.
Well, looking ahead five years, do you think this will start to pay off in sort of bigger production products or where we can get recurring income?
I'm hanging my hat, you know, on the carbon nanotubes, carbon nanofibers, silicon nanowires, silicon deposition. I see markets that exist today that benefit from that. You know, batteries are an exceptional example. No one on this phone call can argue that electric vehicles are not going to be the future. No one can state that. We'll all state, just be positive, it's all about the battery. That's the biggest problem. It's not the motor. These cars can go 0-60 in three seconds. It's not the motors, it's not the braking system, it's not the upholstery, it's the battery that's the problem. There's a lot of focus on batteries. The amount of our market research shows that the amount of battery material required.
Now, granted today, it's for the most part just carbon for the anode. When you try and have an evolutionary roadmap of performance, you start looking at modifying that carbon with silicon. That's hence what you know this one firm that we received the order. We received two orders in that area. Two different applications, one on carbon-based material, the other one's on silicon-based material depositing carbon on it. Both of them are evolutionary processes, so they don't have to change the direction of an aircraft carrier. They are in the path, and they are technology insertion points for the battery material suppliers. We feel that that is a market that exists.
We are players in that market, and we're doing our utmost as per, you know, some of the comments that Brett made, is wrapping our arms around the customers in that space to be a provider.
Thank you very much. I appreciate your thoughts.
Thanks, Morton.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for more questions. Ladies and gentlemen, there are no further questions at this time, and I'd like to turn the call back to Mr. Manny Lakios for closing remarks.
Well, we appreciate your attendance, and your both loyalty and, to some extent, your patience as we continue to clean up the shelves. We've done a lot in the last nine months, and we continue to plan for the future. As information is available, we will be pleased to send that out in our releases. We wish you all a happy and healthy Thanksgiving and holiday period. With that, thank you very much.
Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you all for your participation.