CVD Equipment Corporation — FY2015 Form 10-K
Reporting period: Year ended December 31, 2015; filed March 30, 2016. This is an annual report, not a report limited to the fourth quarter. CVD designs and manufactures chemical vapor deposition, gas-control and related process equipment through its CVD/First Nano and Stainless Design Concepts divisions.
Financial performance and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $39.0 million | $28.0 million |
| Gross profit / margin | $15.1 million / 38.9% | $11.5 million / 41.2% |
| Operating income (loss) | $4.6 million | $(3.8) million |
| Net income (loss) | $3.2 million; $0.51 diluted EPS | $(2.5) million; $(0.40) diluted EPS |
| Cash from operations | $1.9 million | $1.5 million |
| Capital expenditures | $0.25 million | $0.62 million |
- Revenue increased 39.2%, driven by CVD/First Nano, whose reported division revenue rose 48.9% to $35.5 million. SDC revenue declined 16.1% to $3.5 million.
- Gross margin fell 2.1 percentage points. Management attributed the decline to execution of a large, lower-margin contract.
- Bookings dropped 47.0% to $24.0 million; year-end backlog fell 71.0% to $6.1 million. Management linked the decline to concentrating resources on the company’s largest-ever contract, whose installation was nearing completion.
- Cash and cash equivalents were $13.1 million, versus $12.0 million a year earlier. Working capital was $19.9 million, versus $16.6 million.
- Total debt was $3.85 million, including $0.58 million current maturities. The $7 million revolving facility had no borrowings outstanding; it was extended through September 1, 2018. The company reported compliance with its financial covenants.
- Operating cash flow was positive, but included a $3.4 million reduction in accounts receivable and a $1.9 million inventory reduction; cash increased $1.1 million after investing and financing outflows.
Material changes, outlook and risks
- Operating results returned to profitability from a 2014 loss, reflecting higher revenue and lower litigation costs. FY2015 operating expenses included a $995,000 settlement expense; the 2014 comparison included a $4.925 million litigation settlement expense. The company reported settling both matters during 2015, paying $4.925 million to Taiwan Glass and $995,000 to Development Specialists, Inc.
- Revenue was highly concentrated: one customer accounted for 49.6% of FY2015 sales and another for 13.7%. One customer represented $4.3 million, or 65.6%, of year-end backlog.
- Exports represented 9.0% of FY2015 revenue, down from 20.2% in 2014. The company said sales were denominated in U.S. dollars.
- Management said cash and operating cash flow should be sufficient for working-capital and capital-expenditure needs over the next 12 months. It also stated that it anticipates continued revenue and operational growth and is pursuing follow-on business and new customers; no quantified revenue or earnings guidance was provided.
- Key risks include customer concentration and order cancellations, volatile and lengthy sales cycles, intense competition, the lower backlog, execution and acceptance of large customized systems, and the ability to maintain margins and manage capacity. The filing also identifies technology, supplier, staffing, nanotechnology, product-liability, regulatory, cybersecurity and financing risks.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2015. The independent auditor issued an unqualified opinion on the financial statements; it did not audit or opine on internal control effectiveness.
Important facts for investors to verify
- Whether follow-on orders replace the large contract being completed, given the 71% year-over-year backlog decline.
- Customer concentration, including the major customer’s future purchasing plans and the collectability of related receivables and contract balances.
- Actual profitability and cash conversion on the large, lower-margin contract, including final costs, customer acceptance and any remaining revenue recognition.
- Debt maturities, mortgage terms and covenant compliance; the mortgage includes a $3.0 million balloon payment at maturity.
- The effect of the new customer-revenue accounting standard, which management was still evaluating, and the material deferred-tax balances and tax-credit assumptions.