CVD Equipment Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. The company designs and manufactures chemical vapor deposition and related process equipment, gas-control systems, and material coatings.
Financial performance
- Revenue: $4.66 million, up 38.3% from $3.37 million. Growth was led by CVD Equipment and SDC. Gross profit was $770,000; gross margin increased to 16.5% from 13.2%.
- Expenses and earnings: Operating expenses declined 13.9% to $1.78 million, including lower general and administrative costs, partly offset by higher selling costs. Operating loss narrowed to $1.01 million from $1.62 million. Net loss was $997,000, or $0.15 per basic and diluted share, versus $1.51 million, or $0.23 per share.
- Cash flow: Operating activities used $1.42 million, investing activities used $195,000, and financing activities used $1.77 million, primarily to repay debt. Cash decreased $3.38 million to $13.27 million.
- Liquidity and debt: Working capital was $15.9 million, versus $16.7 million at December 31, 2021. The company repaid its $1.77 million HSBC mortgage balance at maturity on March 1; no debt was reported at quarter-end.
- Other indicators: Backlog was approximately $9.9 million, down from $10.4 million at year-end. Unrecognized contract revenue was approximately $6.2 million, expected to be recognized within 12 months. Three customers contributed 14.3%, 13.3%, and 11.6% of quarterly revenue.
Material changes and operating developments
- Revenue growth reflected approximately $0.8 million more from CVD Equipment and $0.6 million more from SDC, partly offset by a $0.1 million decline in CVD Materials.
- Lower G&A expense reflected reduced legal and building costs following the 2021 sale of the 555 Building and facility consolidation. The prior-year quarter also included $219,000 of building sublease income; there was none in Q1 2022.
- Interest expense fell to $10,000 from $107,000 following mortgage repayments; interest income rose to $18,000 from $1,000.
- Management reported approximately $4.1 million of orders in Q1 and $7.2 million in April, or $11.3 million year to date through April. The company said 14 April orders were for silicon-carbide growth systems and that 18 CVD systems had been booked in the first four months of 2022.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance was 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, while noting that a prolonged or worsening operating environment could require further actions.
- COVID-19 and reduced aerospace activity continued to weigh on bookings and revenue. Supply-chain delays, component shortages and higher costs—including for nickel and integrated circuits—may delay revenue recognition, extend lead times, and pressure margins. Geopolitical developments may also constrain sourcing and sales in certain regions.
- Management is seeking to mitigate disruption through earlier purchasing, alternative suppliers or components, flexible in-house manufacturing, and price increases on new quotations. It cautioned that the duration and financial impact of these factors are uncertain.
- Profitability depends in part on new equipment orders, improvement in aerospace and Materials operations, and management of costs and capital spending. Deferred tax assets remain fully reserved; Q1 income tax expense was zero.
- Management identified contract cost-to-complete estimates as a judgment area that could materially affect reported results. The company reported no legal proceedings, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the reported Q1 and April orders convert to shipments and revenue on schedule, particularly the silicon-carbide system orders.
- Whether supply constraints, component inflation, and aerospace weakness affect backlog conversion, gross margins, and customer delivery timing.
- Cash use and liquidity after the mortgage repayment, including whether management’s 12–18 month liquidity assessment remains supportable.
- Customer concentration: four customers represented 58.1% of accounts receivable at March 31, 2022; monitor collections and exposure to major customers.
- Progress toward profitability, including the performance of the CVD Materials segment and the assumptions used in estimating contract costs and revenue.