CVD Equipment Corporation (NASDAQ: CVV) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparative period is FY2019. The filing was signed March 31, 2021. CVD designs, manufactures, and services chemical vapor deposition, gas-control, and related process equipment, with additional materials-coating and deposition businesses.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $16.92 million | $19.65 million |
| Gross profit / margin | $2.88 million / 17.0% | $2.80 million / 14.2% |
| Operating loss | $7.82 million | $4.98 million |
| Loss before income taxes | $7.60 million | $4.91 million |
| Net loss / diluted loss per share | $6.07 million / $0.91 | $6.33 million / $0.96 |
| Cash from (used in) operations | $(1.13) million | $0.57 million |
| Capital expenditures | $1.58 million | $2.69 million |
| Cash and cash equivalents at year-end | $7.70 million | $8.66 million |
| Working capital | $8.1 million | $8.8 million |
| Total debt at year-end | $13.80 million | $12.05 million |
Revenue fell 13.9%, primarily from a $3.68 million decline in the CVD Equipment segment; SDC and CVD Materials revenues increased. Gross margin improved on repeat-order efficiencies, lower costs including furlough-related savings, and product mix. Operating loss worsened chiefly because of a $3.60 million impairment charge for Tantaline. The $1.53 million income-tax benefit, largely from CARES Act NOL carrybacks, helped reduce net loss year over year despite a larger pretax loss. Management maintained a full valuation allowance against deferred tax assets.
Cash declined by $0.96 million. Operating cash use and capital expenditures were partly offset by $2.42 million of PPP proceeds and tax refunds. The company reported $8.1 million of working capital and said it expected available resources to fund operations for the 12 months after filing, based in part on planned cost reductions and the 555 Building sale.
Material changes and business developments
- Backlog fell to approximately $5.7 million at December 31, 2020, from $8.9 million a year earlier. Orders can be delayed or cancelled, and backlog does not assure revenue or profit.
- CVD Equipment revenue declined 26.2% to $10.39 million, including lower equipment and spare-parts sales. SDC revenue was $4.21 million, up 6.7%; CVD Materials revenue was $2.33 million, up 42.0%. Segment reporting presents different amounts before eliminations; verify the segment table and reconciliation when comparing figures.
- Materials Business revenue was $2.3 million in 2020, but the business had cumulative operating losses of $2.5 million for 2018–2020, excluding the impairment. Management reported Tantaline operating losses, partly offset by MesoScribe operating profits.
- Headcount declined to 130 employees from 172. COVID-19-related furloughs, facility disruptions, lower trade-show activity, and reduced customer demand affected operations.
Outlook, risks, contingencies, and unusual items
- In January 2021, the Board appointed Emmanuel Lakios CEO and announced a strategic refocus on the core equipment business. Management forecast continued Tantaline losses and negative cash flow, decided to stop further investment in that product line, and estimated avoided future costs of $1.5–$2.0 million. Potential employee and lease-termination costs were estimated at approximately $400,000.
- The company agreed on March 29, 2021, to sell the 555 Building for $24.36 million, subject to closing conditions or contingencies. Proceeds are intended first to repay approximately $9.3 million of related mortgage debt and cover transaction costs; excess proceeds would support working capital. Remaining Materials operations were to be consolidated into the 355 Building.
- COVID-19 materially reduced orders beginning in the second quarter of 2020, with effects expected to continue into 2021. Aerospace exposure is significant: it has represented as much as 60% of revenue. Management said the duration and financial impact remained uncertain.
- The $2.42 million PPP loan bears 1% interest and matures in April 2022. The company was seeking forgiveness and anticipated all or substantially all would be forgiven; forgiveness was not confirmed in the filing.
- Mortgage balances were approximately $2.1 million on the 355 Building and $9.3 million on the 555 Building, with maturities in March and December 2022, respectively. The company reported compliance with its mortgage financial covenant at year-end.
- Key risks include continuing losses and financing needs, customer concentration (two customers accounted for 30.5% of FY2020 revenue), long and variable sales cycles, order cancellations, competition, and dependence on aerospace and other cyclical markets. The 2020 customer concentration figure and revenue mix make order continuity particularly important.
Most important facts for investors to verify
- Whether the 555 Building sale closed, the net proceeds after mortgage repayment and costs, and the timing and cost of facility consolidation.
- Whether PPP loan forgiveness was obtained and the final amount forgiven or repayable.
- Subsequent backlog, new orders, customer concentration, and revenue trends—especially aerospace demand and 2021 operating cash flow.
- Actual Tantaline wind-down costs and savings, any additional impairment or restructuring charges, and the profitability of the remaining Materials businesses.
- The company’s liquidity and covenant position after the sale and debt maturities, given recurring losses and management’s reliance on planned actions to support its 12-month liquidity assessment.