CVD Equipment Corporation — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; comparison is FY2022. This filing does not provide separate fourth-quarter results. The company designs and manufactures deposition, crystal-growth, thermal-processing and gas-delivery equipment, and reported through CVD Equipment, SDC and CVD Materials.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $24.1 million | $25.8 million |
| Gross profit / margin | $5.1 million / 21% | $6.6 million / 26% |
| Operating loss | $4.9 million | $1.8 million |
| Net loss | $4.2 million; $0.62 per share | $0.2 million; $0.03 per share |
| Cash from operating activities | Use of $0.2 million | Provided $0.2 million |
- Revenue fell 7%. Segment revenue was $16.3 million for CVD Equipment (down 2%), $7.1 million for SDC (up 9%), and $1.2 million for CVD Materials (down 63%), before eliminations.
- Gross margin contracted by five percentage points. Management cited significant cost overruns on one contract, lower PVT150 revenue and lower CVD Materials revenue.
- Operating expenses rose 18% to $10.0 million. R&D increased to $2.6 million, or 10.8% of revenue, as the company invested in growth products; selling expense rose to $1.6 million.
- Other income, net, was $0.7 million versus $1.6 million in 2022. The prior year included $1.5 million of employee retention credits, collected in July 2023; FY2023 interest income was $0.6 million.
- Cash and cash equivalents were $14.0 million, versus $14.4 million; working capital was $14.3 million, versus $15.5 million. Total debt was $0.35 million, including $0.08 million current. Total assets were $35.0 million and total liabilities $8.8 million.
- Operating cash use reflected the net loss and a $1.9 million inventory increase, partly offset by receivable collections and receipt of the employee retention credit. Inventory rose to $4.5 million from $2.5 million.
Material changes and business developments
- Bookings declined 22% to approximately $25.8 million, mainly because 2022 included $8.8 million of PVT150 orders and 2023 had none. Year-end backlog increased to $18.4 million from $17.8 million; one aerospace customer represented 49.2% of backlog.
- CVD Equipment revenue was affected by lower PVT150 sales, partly offset by aerospace orders. The company says it had delivered 30 PVT150 systems to one customer through year-end; it received no further orders from that customer in 2023.
- SDC revenue increased with higher demand. CVD Materials revenue declined following the Tantaline sale and the planned MesoScribe wind-down.
- The company sold Tantaline in May 2023 for a nominal amount at closing, with a potential earn-out tied to net income through 2027; it recorded a $0.2 million loss on disposition. It agreed to sell certain MesoScribe assets and license related intellectual property for $0.9 million, subject to installments and milestones. It received $0.6 million in 2023 and expects to complete the transaction in 2024.
Outlook, risks and unusual items
- No formal revenue or earnings guidance is provided. Management expects cash, projected operating cash flows and other anticipated receipts to fund working capital and capital needs for the 12 months after filing.
- After year-end, the company reported a first PVT200 order from a second PVT-equipment customer, an approximately $10 million multisystem order for silicon-carbide protective coatings, and additional aerospace orders. These are developments, not FY2023 revenue or guaranteed future results.
- Management’s strategy centers on equipment for electrification, high-power electronics, battery materials, aerospace and industrial markets. MesoScribe is expected to fulfill remaining orders through the end of 2024 and then cease remaining operations.
- Key risks include customer and backlog concentration, lengthy and variable sales cycles, cancellations or delays, contract cost-estimation risk, competition, and supply-chain delays and inflation. The company says fixed-price contracts can expose margins to increased labor and material costs; geopolitical developments may affect sourcing and exports.
- Revenue recognition on system contracts depends on estimates of costs to complete. The auditor identified this as a critical audit matter; the filing says approximately $18.2 million of 2023 revenue was recognized over time. Cost overruns or revised estimates could materially affect margins or require contract-loss recognition.
- Other notable items: a $0.1 million MesoScribe impairment charge; a fully reserved net deferred tax asset; and no dividends. The auditor gave an unqualified opinion on the financial statements. Management assessed internal control over financial reporting as effective; the auditor did not attest to that assessment.
Important facts for investors to verify
- Whether the new PVT200 and approximately $10 million coating orders convert to profitable revenue on schedule, and whether further PVT orders follow.
- How the major contract cost overrun affected expected costs, remaining margins and the company’s contract-estimation assumptions.
- Whether the $18.4 million backlog is fulfilled, remains profitable and can be diversified, given the 49.2% concentration with one aerospace customer.
- Whether supply constraints, inflation and higher inventory continue to affect delivery timing, cash generation and gross margin.
- Whether the MesoScribe asset transaction closes and the planned wind-down is completed, and whether Tantaline generates any earn-out proceeds.
- Cash and working-capital trends, customer collections, and the company’s ability to fund operations while reporting losses.