CVD Equipment Corporation (NASDAQ: CVV) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results cover CVD Equipment Corporation and subsidiaries, which make chemical vapor deposition and related process equipment, gas-control systems, and materials coatings.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $5.81 million | $4.03 million | $10.46 million | $7.40 million |
| Gross profit / margin | $1.44 million / 24.8% | $1.00 million / 24.7% | $2.21 million / 21.1% | $1.44 million / 19.5% |
| Operating loss | $0.86 million | $1.08 million | $1.87 million | $2.70 million |
| Net income (loss) | $(0.84) million | $1.47 million | $(1.84) million | $(0.04) million |
| Basic and diluted EPS | $(0.12) | $0.22 | $(0.27) | $(0.01) |
- Q2 revenue increased 44.0% year over year; six-month revenue increased 41.4%. Growth principally came from CVD Equipment equipment sales, with SDC also contributing to first-half growth. CVD Materials revenue declined.
- Q2 gross margin was broadly stable year over year; first-half margin improved 1.6 percentage points. Higher volume and product mix helped offset increased component, labor, and compensation costs.
- Q2 2021 net income included a $2.44 million gain from forgiveness of the company’s PPP loan. The gain was absent in 2022; 2021 also included income from subleasing the building sold in July 2021. Thus the year-over-year net-income comparison is not a like-for-like measure of operating performance.
- At June 30, cash and equivalents were $12.16 million, down from $16.65 million at December 31, 2021. Working capital was $15.0 million, versus $16.7 million. Current assets were $21.57 million and current liabilities $6.58 million.
- Six-month operating cash use was $2.23 million; investing cash use was $0.50 million, including $0.46 million of capital expenditures. Financing cash use was $1.77 million, reflecting repayment of the remaining mortgage debt. The company reported no debt at June 30.
Changes, outlook, and risks
- First-half orders totaled $16.7 million, up 72% from $9.7 million in the prior-year period. Backlog was approximately $16.7 million at June 30, compared with $10.4 million at December 31, 2021. Fourteen PVT-150 silicon-carbide system orders were received in the first half; the company said 20 systems had been ordered over the prior nine months and were planned for shipment during 2022.
- Management said cash, cash equivalents, and projected operating cash flow should fund working-capital and capital-expenditure needs for the next 12 to 18 months from the filing date. This is a liquidity assessment, not earnings guidance. Management identified new equipment orders, easing COVID-19 and aerospace impacts, improvement in the materials business, and expense and capital-spending management as important to a return to profitability.
- COVID-related effects, reduced aerospace demand, supply-chain delays and shortages, geopolitical disruption, and inflation in labor and materials costs could affect deliveries, revenue recognition, costs, and margins. Management noted that impacts for the remainder of 2022 were uncertain and could be material. Price increases on new quotations and longer supplier lead times were among the mitigation actions described.
- Revenue depends on project-cost estimates and progress measurement; changes in estimated costs or schedules may materially affect reported results. Unrecognized contract revenue was approximately $12.8 million, expected to be substantially recognized within 12 months, subject to performance and estimates.
- Customer concentration is notable: two customers each exceeded 10% of Q2 revenue, representing 24.3% and 14.8%. Three customers together represented 54.1% of receivables at June 30.
- The company maintained a full valuation allowance against deferred tax assets. It reported no legal proceedings and no other material changes to the risk factors in its 2021 Form 10-K. Management considered disclosure controls effective and reported no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the $16.7 million backlog and planned 2022 PVT-150 shipments convert to revenue on schedule and at expected margins.
- Whether operating cash use moderates as receivables, contract assets, and inventory rise; cash fell by $4.49 million in the first half.
- Whether supply-chain, inflation, and aerospace conditions improve enough to support margin gains and management’s stated liquidity horizon.
- The durability of the revenue mix and the impact of customer concentration, contract-cost estimates, and the fully reserved deferred tax assets.