CVD Equipment Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Comparisons are with Q1 2016 unless otherwise noted.
Financial performance
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $9.65 million | $5.00 million; up 92.9% |
| Gross profit and margin | $4.17 million; 43.2% | $1.53 million; 30.7% |
| Operating income (loss) | $1.72 million | $(0.53) million |
| Net income (loss) | $1.02 million | $(0.34) million |
| Diluted EPS | $0.16 | $(0.05) |
| Operating cash flow | $(2.93) million | $(0.53) million |
- Cash and cash equivalents were $18.38 million at March 31, down $3.30 million from year-end 2016. Management attributed the decline primarily to the cash needed to build equipment after customer payments received early in order cycles.
- Working capital was $21.5 million, versus $19.9 million at December 31, 2016. Accounts receivable rose to $8.05 million from $0.61 million, which the company attributed mainly to the timing of invoicing, shipments and customer payments.
- Total debt was approximately $3.19 million, including $0.30 million current and $2.89 million long-term. The company also had an unused $7 million revolving credit facility, available through September 1, 2018, and reported compliance with its covenants.
- Capital expenditures were $0.28 million. Cash used in operations primarily reflected a $7.44 million increase in accounts receivable, partly offset by higher deferred revenue and reductions in inventory and contract assets.
Material changes and management commentary
- Management attributed revenue growth to increased orders. The CVD division’s revenue, net of eliminations, rose 108.9%; SDC’s rose 21.3%.
- Gross margin improved as a result of higher overall revenue and better efficiencies on current projects. Operating expenses increased 18.8% to $2.45 million, with higher general and administrative costs primarily associated with CVD Materials, Tantaline.
- One aerospace customer represented approximately 70% of Q1 revenue, compared with 26% in Q1 2016, and approximately 76% of accounts receivable at March 31. The company said it continued to book follow-on business with this customer and pursue opportunities with other customers.
- Full-time employee count increased to 201 from 173 at December 31, 2016.
Outlook, risks and other matters
- Management expects cash and operating cash flow to be sufficient for working capital and capital expenditures over the next 12 months. No specific revenue or earnings guidance was provided.
- The company may raise capital for potential acquisitions or when market conditions are favorable; equity or equity-linked financing could dilute existing shareholders.
- Customer concentration and collection timing are notable risks. Cash balances exceeded FDIC insurance limits by $16.25 million at March 31, 2017.
- Management cited competition, access to financing, uncertainty about future profitability and possible expansion as factors that could cause actual results to differ from forward-looking statements.
- The company reported no legal proceedings or off-balance-sheet arrangements. It was evaluating the impact and adoption method for the upcoming revenue-recognition standard.
Important facts for investors to verify
- Whether the unusually large aerospace-customer exposure persists and whether related receivables are collected on schedule.
- Whether Q1 revenue growth and gross-margin improvement are sustainable, given the filing’s warning that interim results may not indicate full-year performance.
- Whether operating cash flow improves as receivables convert to cash and equipment orders progress.
- Future capital needs, including potential acquisition financing and any resulting shareholder dilution.