CVD Equipment Corporation — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; comparisons are with FY2010. This is an annual report, not a standalone Q4 report. CVD designs and manufactures customized and standard process equipment, including chemical vapor deposition systems, gas-control systems and furnaces, for research and industrial customers.
Financial results
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $30.99 million | $16.26 million |
| Gross profit / margin | $11.45 million / 36.9% | $5.88 million / 36.2% |
| Operating income | $4.76 million | $0.95 million |
| Income before tax | $4.79 million | $0.74 million |
| Income tax expense | $1.01 million | $0.21 million |
| Net income | $3.78 million | $0.53 million |
| Basic / diluted earnings per share | $0.69 / $0.67 | $0.11 / $0.11 |
| Cash provided by operations | $4.19 million | $3.81 million |
Revenue rose 90.6%; net income increased to $3.78 million from $0.53 million. Gross margin improved modestly, though management said it would have been 39.6% absent $660,000 of inventory write-downs and disposal of $175,000 of idle inventory. Operating income was about 15.3% of revenue and net income about 12.2% (calculated from reported figures).
CVD/First Nano was the main growth driver: reported outside-customer revenue increased 107.5% to $25.66 million. SDC revenue increased 64.6% to $4.33 million, while Conceptronic revenue decreased 20.3% to $1.00 million. CVD/First Nano represented 82.8% of consolidated revenue, according to management’s discussion.
Cash, liquidity and debt
- At December 31, 2011, cash and cash equivalents were $18.14 million, versus $6.25 million a year earlier; working capital was $22.95 million, versus $11.11 million.
- Operating cash flow was $4.19 million. Investing activities used $1.56 million, including $1.00 million placed in restricted cash; financing activities provided $9.26 million.
- Year-end long-term debt was $3.17 million, including current maturities of $0.62 million. The company reported covenant compliance. Its HSBC agreement included a $7 million revolving facility and a $2.1 million term loan; the filing does not clearly state year-end unused revolver availability.
- The May 2011 public offering of 967,950 shares generated net proceeds of approximately $9.39 million. Shares outstanding increased to 5,958,785 at year-end from 4,819,325.
- Management said cash, operating cash flow and credit facilities should meet working-capital and capital-expenditure needs for the next 12 months. A later event: on March 16, 2012, the company purchased a facility for $7.2 million, financed in part with a $6 million HSBC loan.
Business outlook, risks and unusual items
- Backlog increased 62.9% to approximately $16.20 million at year-end from $9.94 million. Management cited demand related to energy, aerospace, medical, LEDs and nanomaterials; backlog may take up to two years to complete and can be delayed or canceled. It is not a guarantee of revenue or profit.
- No numerical earnings or revenue guidance is provided. Management described growth opportunities in thin-film coatings and solar, energy, electronics and nanotechnology applications, while noting that actual results may differ from forward-looking statements.
- Customer concentration increased materially: one customer generated 43.2% of FY2011 revenue and another 8.4%; neither was among the customers with the largest shares in FY2010. Foreign sales fell to 12% of revenue from 37%.
- Litigation with Taiwan Glass remained unresolved. CVD seeks $5.816 million for an alleged contract breach; Taiwan Glass denies the claims and seeks unspecified damages. CVD reported $975,000 of returned equipment as idle inventory because it could not yet use or sell it. The filing does not provide a clear estimate of the litigation’s ultimate financial outcome.
- Management recorded inventory write-downs and an idle-inventory disposal during 2011. It also reported higher legal, staffing and trade-show costs. Other income included refunds for prior-year tax overpayments.
- Risks include competition from larger firms, dependence on customer orders, project timing and estimates under percentage-of-completion accounting, and potential dilution from additional equity financing. The filing marks Item 1A risk factors “Not applicable,” while separately discussing risks and uncertainties in its forward-looking-statement disclosures.
Investor facts to verify
- Whether the 43.2% customer concentration persists, and the status and recoverability of the $975,000 idle inventory and Taiwan Glass claim.
- Backlog conversion, cancellations, delivery timing and margins, particularly given the large increase in uncompleted-contract balances.
- Whether reported gross margins normalize after inventory charges and whether Conceptronic’s weaker performance continues.
- Year-end availability and covenant terms of the HSBC revolving facility, plus the debt and cash-flow impact of the March 2012 facility purchase.
- Share dilution from the 2011 offering, outstanding equity awards and any further use of the effective shelf registration.