CVD Equipment Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited consolidated results. The company designs and manufactures specialized process equipment and provides gas-control systems and materials-coating services.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $8.12 million | $4.33 million | $18.58 million | $11.73 million |
| Gross profit / margin | $2.42 million / 29.8% | $0.86 million / 19.9% | $4.63 million / 24.9% | $2.30 million / 19.6% |
| Operating income (loss) | $0.12 million | $(0.92) million | $(1.60) million | $(3.62) million |
| Net income (loss) | $0.06 million | $5.97 million | $(1.77) million | $5.94 million |
| Basic and diluted EPS | $0.01 | $0.89 | $(0.26) | $0.89 |
- Cash and cash equivalents were $11.88 million at September 30, down from $16.65 million at December 31, 2021. Working capital was $15.0 million, versus $16.7 million at year-end.
- Operating cash use was $2.33 million for the first nine months; investing cash use was $0.68 million and financing cash use was $1.77 million. Capital expenditures were $0.64 million.
- Debt totaled approximately $432,000, including a new $432,000 equipment loan at 6%; the prior $1.8 million mortgage was repaid in March 2022. The equipment loan is payable in 60 monthly installments.
- Total assets were $33.60 million and stockholders’ equity was $27.72 million at September 30, 2022.
Changes versus the prior comparable period
- Q3 revenue rose 88.4%; nine-month revenue rose 58.4%. Management attributed much of the increase to higher equipment sales, particularly PVT-150 silicon-carbide systems. Gross margin improved in both periods, which management attributed to higher sales, fixed-cost absorption and product mix, partly offset by higher component and labor costs.
- The company returned to modest Q3 operating and net income, but remained at a nine-month operating and net loss. Prior-year net income included a $6.9 million building-sale gain and a $2.4 million PPP-loan forgiveness gain; those nonrecurring gains were absent in 2022.
- Orders for the first nine months were $24.0 million, up 51.2% from $15.9 million. Backlog was $15.7 million at September 30, compared with $10.4 million at December 31, 2021. The filing says all 14 PVT-150 system orders were planned for shipment in 2022.
- Cash declined as operating activities used cash, capital spending continued and the company repaid its mortgage. Receivables, contract assets and inventory increased alongside higher revenue and orders.
Outlook, risks and unusual items
- No quantified earnings or revenue guidance is provided. Management said cash and projected operating cash flow should cover working-capital and capital-expenditure needs for the next 12–18 months from the filing date, while noting that a prolonged or worsening environment could require further action.
- Management said a return to profitability depends on new equipment orders, mitigating supply-chain and inflationary pressures, and controlling capital and operating costs. It reported longer component lead times, higher materials and labor costs, and delays that can defer revenue recognition. Price increases on new quotations were intended to help offset inflation.
- Management warned that geopolitical conflict, including the war in Ukraine, may affect sourcing of nickel and integrated circuits and sales in certain regions. Reduced long-distance air travel has also hurt aerospace equipment orders. The duration and financial effects of these conditions remain uncertain and could be material.
- Revenue is recognized over time for system contracts using estimated costs to complete; changes in cost estimates, build timing or contract scope can materially affect reported results. Approximately $9.8 million of contract revenue remained unrecognized at quarter-end, expected substantially to be recognized within 12 months.
- Customer concentration is notable: one customer represented 44.6% of Q3 revenue and 28.6% of nine-month revenue; one customer accounted for 34.4% of accounts receivable at quarter-end.
- A proposed $28.5 million sale-leaseback of the Central Islip facility, with initial annual rent of $1.5 million, was terminated by the potential purchaser on November 11, 2022, after the quarter-end. Neither party owed a termination fee.
- The company maintained a full valuation allowance against net deferred tax assets. Management reported disclosure controls were effective and no material changes in internal controls occurred during the quarter.
Important facts for investors to verify
- Whether the PVT-150 backlog converted to shipments and cash collections as planned, and whether the $15.7 million backlog is maintained or replenished.
- Whether gross-margin improvement persists as higher input costs, labor costs and supply delays affect production.
- The effect of major-customer concentration on future sales and collections, including the collection timing of concentrated receivables.
- Cash burn, capital spending and the sufficiency of liquidity against management’s 12–18-month assessment.
- How the failed facility sale-leaseback affects future financing or occupancy plans; the filing reports no completed transaction.
- Progress toward sustainable operating profitability, given the nine-month operating loss and the prior-year gains that inflated comparative net income.