CVD Equipment Corp. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; filed May 15, 2013. CVD Equipment designs and manufactures process equipment through its CVD and SDC divisions. The quarter coincided with the company’s move into a substantially larger Central Islip facility, which management said disrupted production.
Key financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $3.45 million | $7.15 million |
| Gross profit / margin | $0.79 million / 22.8% | $2.74 million / 38.2% |
| Operating income (loss) | ($0.87 million) | $1.07 million |
| Net income (loss) | ($0.44 million) | $0.73 million |
| Basic and diluted EPS | ($0.07) | $0.12 |
| Cash provided by (used in) operations | ($0.77 million) | $2.27 million |
| Capital expenditures | $0.97 million | $7.60 million |
Financial position and liquidity
- At March 31, cash and cash equivalents were $11.77 million, down $1.95 million from year-end; working capital was $18.61 million, down $1.50 million.
- Total assets were $41.75 million and total liabilities were $10.96 million. Balance-sheet current and long-term debt totaled approximately $8.09 million. Restricted cash of $0.80 million was separately reported.
- The $7 million revolving credit facility was unused. Management said cash, positive operating cash flow, and available credit were sufficient for working capital and investment needs over the next 12 months; Q1 operating cash flow, however, was negative.
- The company was out of compliance with one HSBC financial covenant at quarter-end and had obtained a waiver.
Changes and management commentary
- Revenue fell 51.8% year over year. Management attributed the decline to fewer new orders accepted during the transition and production disruption and inefficiencies from dismantling and rebuilding equipment during the move.
- Gross margin declined to 22.8%. Management cited hiring and training engineering and production employees ahead of the move as the primary factor.
- General and administrative expense rose 10.4% to about $1.41 million, mainly due to added laboratory and administrative staff. Selling and shipping expense declined 36.1% to about $0.24 million, reflecting fewer systems shipped and lower commissions.
- The $0.46 million income-tax benefit was deferred; there was no current income-tax expense. The filing does not identify this benefit as cash received.
- Backlog was approximately $8.07 million, down 3.3% from December 31, 2012. New orders received during the quarter were approximately $3.17 million. Management cautioned that orders may be delayed or canceled and backlog does not assure future revenue or profit.
Outlook, risks, and unusual items
- The company completed its move to the larger Central Islip facility near quarter-end. It sold its former headquarters on April 5, 2013 for $3.875 million, before closing costs; the filing does not state the resulting gain or net proceeds.
- Forward-looking risks identified include competition, access to financing on acceptable terms, future profitability, and potential expansion. Management provided no specific revenue or earnings guidance.
- The company is pursuing a $5.816 million breach-of-contract claim against Taiwan Glass. Taiwan Glass denies the allegations and seeks unspecified damages; the court denied Taiwan Glass’s $3.564 million partial-summary-judgment motion in November 2012. The filing does not provide a clear estimate of the litigation’s ultimate financial outcome.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether production, order intake, revenue, and margins recovered after completion of the facility move.
- Current backlog conversion, new orders, and any cancellations or delays.
- Compliance with HSBC covenants after the reported waiver, and availability and terms of credit.
- Net proceeds and any gain or other financial impact from the April 5 property sale.
- Developments in the Taiwan Glass litigation, including potential claims and counterclaims.