CVD Equipment Corporation — Q3 2023 Form 10-Q
Business context and period. CVD Equipment designs and manufactures chemical vapor deposition, thermal process, and gas-delivery equipment. This unaudited report covers the three and nine months ended September 30, 2023; financial amounts below are in U.S. dollars. The company is focusing on equipment businesses serving electrification-related markets and aerospace.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $6.23m | $8.12m | $20.00m | $18.58m |
| Gross profit / margin | $1.60m / 25.6% | $2.42m / 29.8% | $5.42m / 27.1% | $4.63m / 24.9% |
| Operating income (loss) | ($0.99m) | $0.12m | ($2.41m) | ($1.60m) |
| Net income (loss) | ($0.75m) | $0.06m | ($1.91m) | ($1.77m) |
| Basic and diluted EPS | ($0.11) | $0.01 | ($0.28) | ($0.26) |
- Q3 revenue declined 23.2% year over year, chiefly from lower PVT150 revenue and reduced CVD Materials sales. Gross margin fell 4.2 percentage points, with management citing contract mix, component costs, compensation costs, and the smaller Materials business.
- Nine-month revenue rose 7.6%; gross margin improved 2.2 percentage points. Higher aerospace and SDC sales contributed, while CVD Materials revenue decreased. Operating expenses increased 25.7%, including higher R&D and selling costs, a $0.16m Tantaline disposition loss, and a $0.11m impairment charge.
- Other income, net was $0.24m in Q3 and $0.52m year to date, compared with a $0.06m expense and $0.17m expense, respectively, in the prior-year periods. The improvement primarily reflected higher interest income and employee retention credit receipts, as well as lower foreign-exchange losses.
- Cash was $14.29m at September 30, 2023, versus $14.37m at year-end 2022. Working capital was $16.2m, compared with $15.5m. Nine-month operating cash use was $0.08m; investing cash use was $0.02m and financing cash provided was $0.02m. Capital expenditures were $0.31m.
- Total debt was approximately $0.37m, comprising $0.08m current and $0.29m long-term, compared with approximately $0.43m at year-end. The equipment loan bears 6% interest.
- Management expects cash, operating cash flows, receivable collections, backlog revenue, inventory sales, and customer deposits to cover working-capital and capital needs for the 12 months following issuance of the report.
Material changes and outlook
- Backlog was $16.6m at September 30, down from $17.8m at December 31, 2022. It included $15.5m of remaining performance obligations expected to be recognized over time and $1.1m of other orders expected to be recognized at a point in time. The company reported $19.9m of bookings for the first nine months, down 17.1% from $24.0m a year earlier; aerospace orders were approximately $10.6m.
- No PVT150 orders were received in the first nine months of 2023. Management notes that order timing and revenue can fluctuate with market demand, customer financing, sales cycles, and manufacturing lead times. The company is marketing its PVT150 system and developing products for silicon-carbide markets, including a planned PVT200 system.
- The company sold Tantaline in May 2023 for a nominal amount at closing, with a possible earn-out tied to subsidiary net income through 2027. It recorded a $0.2m loss on disposition.
- The company agreed to sell and license certain MesoScribe assets for $0.9m, subject to installments and performance milestones; $0.6m had been received and recorded as a deposit at quarter-end. It expects to complete the equipment shipment in the following months, fulfill remaining product orders through 2024, and then cease MesoScribe operations.
- In Q3, contract modifications changed the revenue recognition method for certain equipment contracts from point-in-time to over-time recognition. The quarter included $0.8m of revenue previously deferred at June 30 that was recognized upon modification.
Risks, contingencies, and other disclosures
- Management identifies geopolitical conflict, supply-chain disruption, longer component lead times, and inflation in materials and labor as risks to procurement, production schedules, revenue timing, and profitability. It says the future financial impact is uncertain.
- Revenue recognition on long-term contracts depends on estimates of costs to complete; revisions to those estimates could materially affect margins or results. The company also reports customer concentration: one customer represented 40.3% of Q3 revenue and is expected to remain significant through June 30, 2024. Three customers accounted for 53.6% of receivables at quarter-end.
- The company has a full valuation allowance against net deferred tax assets, citing its assessment of recent operating losses. It reported no material changes to the risk factors in its prior annual report, no legal proceedings, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether backlog converts to revenue on expected schedules, and whether new orders—particularly aerospace, SDC, and PVT systems—replace shipments and support margins.
- How the concentrated customer relationship and the related expected revenue through June 2024 affect quarterly results and collections.
- Whether the MesoScribe asset sale meets its milestones and yields the remaining purchase price, and the financial effects of its planned wind-down.
- Whether supply constraints, cost inflation, and contract cost estimates change production timing, gross margins, or cash needs.
- Whether operating cash flow and available liquidity remain adequate if bookings, collections, or profitability weaken.