CVD Equipment Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unless stated otherwise, financial amounts below are in millions of dollars. The filing is unaudited.
Business context and reporting period
CVD designs and manufactures chemical vapor deposition, thermal-process, and gas-delivery equipment for industrial, research, energy, and aerospace applications. It is prioritizing equipment markets tied to electrification and aerospace, and is reducing its non-core materials activities. Its segments are CVD Equipment, Stainless Design Concepts (SDC), and CVD Materials.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $5.07 | $5.81 | $13.76 | $10.46 |
| Gross profit | $1.39 | $1.44 | $3.82 | $2.21 |
| Gross margin | 27.4% | 24.8% | 27.8% | 21.1% |
| Operating loss | $(1.23) | $(0.75) | $(1.42) | $(1.72) |
| Net loss | $(1.11) | $(0.84) | $(1.15) | $(1.84) |
| Loss per diluted share | $(0.16) | $(0.12) | $(0.17) | $(0.27) |
Q2 revenue decreased 12.7%, mainly because of lower PVT equipment revenue and the Tantaline sale, partly offset by stronger SDC sales. Gross margin improved, but operating expenses rose 19.7% to $2.62 million, including a $0.16 million Tantaline disposition loss and a $0.11 million MesoScribe impairment. The resulting operating and net losses were larger than in Q2 2022.
First-half revenue increased 31.6%, driven by equipment sales, PVT150 revenue, and SDC demand. Gross profit rose 73.1%, with higher sales and improved mix supporting margin expansion. Operating expenses also increased 33.5%; the operating loss narrowed to $1.42 million. Other income was $0.28 million, primarily reflecting higher interest income and improved foreign-exchange results.
Cash flow, balance sheet, and debt
| Metric | June 30, 2023 | December 31, 2022 |
|---|---|---|
| Cash and cash equivalents | $13.03 | $14.37 |
| Working capital | $16.6 | $15.5 |
| Total assets | $36.78 | $37.91 |
| Total liabilities | $8.06 | $8.51 |
| Total long-term debt, including current maturities | $0.39 | $0.43 |
For the six months, operating activities used $0.83 million of cash; investing activities used $0.54 million, including a $0.31 million cash outflow associated with the Tantaline disposition; financing activities provided $0.04 million. Cash declined by $1.33 million. Inventory increased to $4.15 million from $2.54 million, partly for PVT150 production and a system order whose revenue is recognized upon transfer. The $1.53 million employee retention credit receivable was collected in July 2023. Debt relates to equipment financing at 6% interest.
Material changes, outlook, and risks
- Orders and backlog: First-half bookings were approximately $15.8 million, down about 6% from $16.7 million a year earlier. Backlog was $18.8 million at June 30, up from $17.8 million at year-end. It included $4.5 million of remaining performance obligations, $12.1 million of point-in-time system sales, and $2.2 million of non-system orders. The company expects substantially all $4.5 million of over-time contract revenue to be recognized within 12 months; the point-in-time orders are also expected to be recognized within that period.
- Product and market commentary: Aerospace bookings included approximately $8.7 million of multiple-system orders expected to ship over the following 12 months; a battery nanomaterial system order was approximately $1.8 million. Eight of ten PVT150 systems in a follow-on order shipped in Q2, with the balance expected in the second half. No new PVT150 orders were received in the first half, and the company described order timing as uncertain.
- Portfolio actions: Tantaline was sold in May 2023 for nominal consideration at closing, with a five-year earn-out tied to possible net income; the sale generated a $0.16 million recorded loss. In August 2023, the company agreed to sell certain MesoScribe assets and license related intellectual property for $0.9 million, payable in installments and subject to performance metrics and milestones. It plans to complete remaining MesoScribe orders and cease those operations by year-end 2023.
- Liquidity outlook: Management believes cash, operating cash flows, receivable collections, backlog revenue, inventory sales, and customer deposits will be adequate for working-capital and capital needs for the next 12 months. This is management’s expectation, not a formal earnings or revenue forecast.
- Risks and contingencies: The company cites geopolitical developments, possible limits on sourcing materials and selling into certain markets, supply-chain delays, and inflation in material and labor costs. These factors can delay manufacturing and revenue recognition. Revenue on many custom systems depends on estimates of costs to complete, which may change materially. Customer concentration remains notable: two customers represented 46% of accounts receivable at quarter-end; four customers each represented at least 10% of Q2 revenue.
- Other items: The company reversed $0.2 million of previously accrued 2023 bonuses in Q2, reducing expenses across several lines. It maintained a full valuation allowance against net deferred tax assets. No legal proceedings were reported, and management stated that disclosure controls were effective.
Important facts for investors to verify
- Whether the $18.8 million backlog converts to revenue and cash on expected schedules, particularly the point-in-time system orders.
- Whether PVT150 demand broadens beyond the existing customer, given the absence of new first-half orders and the inventory built in anticipation of potential orders.
- Whether the MesoScribe sale installments and contingent milestones produce the full $0.9 million purchase price, and how the planned wind-down affects costs and results.
- Whether cash use, working-capital investment, and the company’s 12-month liquidity expectation remain consistent with actual collections, customer deposits, and operating performance.
- How customer concentration, supply-chain conditions, and changes in contract cost estimates affect revenue timing and margins.