CVD Equipment Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Unaudited consolidated results; comparisons are with Q1 2015 unless otherwise noted. The company operates CVD and SDC divisions, supplying specialized equipment and manufacturing services.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $5.00 million | $9.69 million |
| Gross profit / margin | $1.53 million / 30.7% | $3.76 million / 38.8% |
| Operating income (loss) | ($533,000) | $1.21 million |
| Net income (loss) | ($338,000) | $668,000 |
| Basic and diluted EPS | ($0.05) | $0.11 |
| Cash used in operating activities | $532,000 | $4.16 million |
Revenue decreased 48.4%. The CVD division was the principal source of the decline; SDC revenue also fell. Management attributed lower gross margin primarily to lower revenue. Operating expenses decreased 19.1% to $2.07 million, including lower R&D, selling and shipping, and general and administrative costs.
Balance sheet, cash flow and liquidity
- At March 31, 2016, cash and cash equivalents were $12.33 million, down from $13.07 million at December 31, 2015. Working capital was $19.7 million, versus $19.9 million at year-end.
- Total assets were $40.44 million and stockholders’ equity was $33.05 million. Total debt was approximately $3.67 million, including $475,000 current maturities.
- The company paid $180,000 of long-term debt and spent $31,000 on capital expenditures during the quarter. Operating cash use was substantially lower than in Q1 2015; the prior-year period included a $4.925 million litigation-settlement accrual cash-flow adjustment.
- A $7 million revolving credit facility remained unused and available through September 1, 2018. The company reported compliance with its financial covenants. Its mortgage is secured by the Central Islip facility and includes a $3 million balloon payment.
Orders, outlook and risks
- Bookings were $2.27 million, down 56.2%, and ending backlog was $3.39 million, down from $16.56 million a year earlier. Management cautioned that orders can be uneven and backlog does not assure future revenue or profit.
- One customer represented 58.8% of Q1 revenue. That customer accounted for 11.8% of quarter-end backlog, compared with 58.4% of backlog a year earlier. The company said it had nearly completed a large aerospace pilot-production contract and was focused on follow-on business and opportunities with new and existing customers.
- Management stated that cash and operating cash flow should be sufficient for working capital and capital expenditures over the next 12 months. No specific revenue or earnings guidance was provided. Additional capital may be sought for acquisitions; equity financing could dilute existing shareholders.
- R&D spending fell amid attrition in laboratory staff; management said independent CVD product development was temporarily reduced while customer-related development continued. Forward-looking results are subject to competition, financing availability, profitability and expansion uncertainties.
- The filing reported no legal proceedings or off-balance-sheet arrangements. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting. The company also disclosed that cash held at financial institutions exceeded FDIC insurance limits by approximately $10.9 million.
Important facts for investors to verify
- Whether the company wins follow-on orders from the major aerospace customer and rebuilds its materially lower backlog.
- Whether revenue concentration in one customer and the decline in bookings affect future utilization, margins and cash generation.
- Debt repayment and the mortgage’s $3 million balloon-payment terms, alongside continued covenant compliance.
- The filing’s contract-in-progress note and segment disclosures contain amounts that do not fully reconcile with the balance sheet or statement of operations; confirm the underlying reported values before relying on those details.