CVD Equipment Corporation — Q1 2015 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2015, compared with Q1 2014. CVD operates through its CVD and SDC divisions, serving semiconductor/materials processing and ultra-high-purity manufacturing markets. The filing was signed May 15, 2015.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $9.69 million | $4.39 million; up 121.5% |
| Gross profit / margin | $3.76 million / 38.8% | $1.98 million / 45.1% |
| Operating income (loss) | $1.21 million | $(49,915) |
| Net income (loss) | $668,222; $0.11 per diluted share | $(268,147); $(0.04) per diluted share |
| Cash from operating activities | $(4.16) million | $791,196 |
| Cash and cash equivalents | $7.50 million at March 31 | $11.97 million at December 31, 2014 |
| Working capital | Approximately $17.0 million | Approximately $16.4 million at December 31, 2014 |
| Debt | $4.39 million total carrying amount | $720,000 current; $3.67 million long-term |
Revenue growth reflected increased work on orders from aerospace and medical customers. CVD revenue, net of eliminations, rose 134.9%; SDC revenue rose 52.4%. Gross margin declined 6.3 percentage points, primarily because a large order was being performed at a lower margin. General and administrative expense increased 37.4%, mainly due to personnel, occupancy, and legal costs. Income tax expense was $520,927.
Operating cash outflow included the $4.925 million payment to resolve Taiwan Glass litigation, reflected by a corresponding decrease in the accrued settlement liability. Cash flow also reflected higher accounts receivable and contract work-in-progress balances. Capital expenditures were $122,363; long-term debt payments were $180,000. The $7 million revolving facility was unused, and the company reported compliance with its financial covenants. The term loan and mortgage were outstanding; the revolving facility matured August 5, 2015.
Changes, outlook, and risks
- Bookings fell 67.0% to $5.18 million from $15.73 million. Ending backlog was $16.56 million, up 8.6% from $15.26 million a year earlier. Management said a significant portion was expected to be completed within 12 months, while noting that timing could extend to two years and orders could be delayed or canceled.
- One customer generated 54.6% of Q1 revenue ($5.3 million). One customer accounted for 58.4% of quarter-end backlog ($9.7 million), down from 84.3% a year earlier.
- Management said cash and operating cash flow should meet working-capital and capital-expenditure needs for the next 12 months and expected to renew the $7 million revolving line on similar terms. No specific earnings or revenue guidance was provided. Management noted potential future capital raising for acquisitions; equity financing could dilute shareholders.
- A plaintiff acting for Stion seeks approximately $6.9 million plus interest and legal fees, as well as other relief, alleging contract, warranty, and related claims concerning a custom furnace. The company denies the claims and is defending itself; it had moved to dismiss, with arbitration scheduled for the week of August 31, 2015 if the case proceeded. The filing does not provide a clear estimate of the company’s potential loss or indicate an accrual for this claim.
- Forward-looking results are subject to competition, financing availability, profitability, and expansion risks. The filing says Q1 results are not necessarily indicative of full-year results. Management reported effective disclosure controls and no material quarterly change in internal controls.
Important facts for investors to verify
- Whether bookings recover and the $16.56 million backlog converts to revenue on the expected schedule, especially given customer concentration.
- Whether the lower-margin large order continues to pressure gross margin and how elevated general and administrative costs evolve.
- Cash collection and operating cash flow after the settlement payment, and the status and terms of the expected revolving-credit renewal before its August 2015 maturity.
- Developments and potential financial exposure in the Stion arbitration, including the outcome of the motion to dismiss.
- The amount and timing of the $4.925 million Taiwan Glass settlement payment and its impact on liquidity.