CVD Equipment Corporation — FY 2014 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2014, compared with FY 2013. CVD designs and manufactures custom and standard equipment and process solutions, including chemical vapor deposition systems and ultra-high-purity gas and chemical controls. It operates through CVD/First Nano and Stainless Design Concepts (SDC), serving research and industrial customers in markets such as aerospace, semiconductors, medical, solar and advanced materials.
Key financial results
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $28.0 million | $17.9 million |
| Gross profit / margin | $11.5 million / approximately 41% | $6.7 million / 37.5% |
| Operating loss | $3.8 million | $1.8 million |
| Net loss | $2.47 million; $0.40 per diluted share | $0.56 million; $0.09 per diluted share |
| Cash from operating activities | $1.55 million | Used $1.07 million |
| Cash and cash equivalents at year-end | $12.0 million | $11.2 million |
| Working capital at year-end | $16.4 million | $18.4 million |
| Total long-term debt, including current maturities | $4.57 million | $5.29 million |
- Revenue increased 56.5%. CVD/First Nano net revenue rose 83% to $23.8 million; SDC net revenue declined 14% to $4.2 million. CVD/First Nano generated 85% of consolidated revenue.
- Bookings rose to a record $45.1 million from $13.5 million, and year-end backlog increased to $21.1 million from $3.9 million. Management said a significant portion of backlog was expected to be completed within 12 months, though some orders could take up to two years.
- Receivables increased to $6.5 million from $2.9 million, largely in line with higher sales. Inventory was $4.8 million, versus $4.5 million.
- Cash from investing activities was a $0.21 million outflow and cash from financing activities was a $0.62 million outflow. Capital expenditures were $0.62 million.
Material changes and unusual items
- Gross margin improved from 37.5% to approximately 41%, which management attributed to higher order levels, efficiencies at the larger Central Islip facility and more trained personnel.
- The company recorded a $4.925 million Taiwan Glass litigation settlement expense in FY 2014. The settlement was agreed in January 2015 and paid in 2015; the liability was accrued at year-end. Management also reported approximately $1.8 million of related legal fees in 2014 and approximately $6.7 million in total Taiwan Glass-related costs for the year.
- Despite higher revenue and gross profit, operating and net losses widened, principally reflecting the settlement and legal costs and higher general and administrative expenses. FY 2013 results included $1.28 million of bad-debt expense related primarily to a solar-industry customer’s insolvency and an $0.89 million gain on sale of a former facility.
- Foreign sales were 20.2% of revenue, compared with 27.3% in FY 2013. One customer represented 50.2% of FY 2014 revenue, versus 23.7% in FY 2013; the same customer represented 70.9% of year-end backlog.
Liquidity, debt and outlook
The company had $12.0 million of cash and $16.4 million of working capital at year-end. Its $7 million HSBC revolving facility had no borrowings outstanding at December 31, 2014 and was extended through August 5, 2015. Outstanding debt consisted of a term loan and mortgage; the mortgage is secured by the Central Islip property, and the credit obligations are secured by specified assets. The company reported compliance with its financial covenants. Management believed cash, cash equivalents and operating cash flow would be sufficient for working capital and capital expenditure needs for the next 12 months.
No specific revenue or earnings guidance was provided. Management cited aerospace orders as a key driver of bookings and said the larger facility and increased engineering and production personnel improved capacity to meet demand. It cautioned that backlog is not assurance of future revenue or profit because orders may be delayed or cancelled. The company also noted competition, customer concentration, financing availability, uncertainty about future profitability and expansion, and the risks inherent in forward-looking statements.
Contingencies and other matters
- A separate arbitration claim by Development Specialists, as assignee for former customer Stion, alleged contract and other claims relating to a custom furnace and sought approximately $6.9 million plus interest, fees and other relief. CVD denied the allegations, said it intended to defend itself, and had filed a motion to dismiss. The filing does not provide a clear estimate of any potential loss.
- The company reported effective disclosure controls and internal control over financial reporting as of December 31, 2014. The auditor issued an unqualified opinion on the financial statements; it did not audit or opine on internal control effectiveness.
Most important facts for investors to verify
- Whether the highly concentrated aerospace-related customer orders convert to revenue on schedule, and the customer’s ability to meet its commitments.
- Subsequent cash, working-capital and operating results, particularly collection of the increased receivables and execution of the $21.1 million backlog.
- The status and potential financial impact of the Stion arbitration, including the requested approximately $6.9 million and any subsequent rulings or settlement.
- Cash and covenant capacity after the Taiwan Glass settlement payment, and the status and terms of the revolving facility beyond its August 2015 extension date.
- Reported figures differ slightly in places: the MD&A gives FY 2014 loss per share as $0.41, while the audited statements report $0.40; the filing also presents slightly different FY 2014 gross-margin percentages. The audited statements report $0.40 per share and consolidated gross profit of $11.525 million on revenue of $27.990 million.