CVD Equipment Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. The company designs and manufactures custom equipment, gas-control systems, and materials products. Its fiscal year ends December 31.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $3.37 million | $6.04 million |
| Gross profit / margin | $0.32 million / 9.5% | $1.94 million / 32.1% |
| Operating income (loss) | ($1.62 million) | $0.11 million |
| Net income (loss) | ($1.51 million) | $1.66 million |
| Basic and diluted EPS | ($0.23) | $0.25 |
| Operating cash flow | ($1.57 million) | ($0.68 million) |
Revenue fell 44.3% year over year. CVD Equipment segment revenue was $2.0 million, SDC revenue $0.8 million, and Materials revenue $0.6 million. Gross margin contracted substantially as lower sales left fixed costs and payroll spread over less revenue. Q1 2020 net income included a $1.5 million tax benefit under the CARES Act; Q1 2021 recorded no income-tax expense or benefit.
- Cash and liquidity: Cash and equivalents were $5.93 million at March 31, down from $7.70 million at year-end. Reported working capital was $12.3 million, versus $8.1 million at year-end; the increase includes assets and liabilities reclassified as held for sale.
- Debt: The balance sheet included approximately $2.0 million of debt on the 355 Building and $2.4 million under the PPP loan; the 555 Building mortgage of approximately $9.2 million was classified as a liability held for sale. The 355 Building mortgage matures in March 2022. The company reported compliance with its mortgage financial covenant.
- Other balance-sheet items: Assets held for sale were $16.2 million; contract assets were $1.03 million and contract liabilities $0.73 million. The company had $0.7 million of tax receivable outstanding.
Material changes and management actions
- The Board appointed Emmanuel Lakios CEO in January 2021 and shifted strategic focus toward the core equipment business. Management decided to eliminate further investment in the Tantaline product line, citing forecast losses and negative cash flow, and expects to avoid approximately $1.5–$2.0 million in additional costs. Potential employee-related and lease-termination costs were estimated at approximately $400,000.
- The company agreed to sell its 555 Building to Steel K, LLC for $24.36 million. Closing remained subject to conditions and contingencies; the buyer could request an extension of up to 60 days. Proceeds are intended to repay the approximately $9.2 million mortgage, cover sale costs, and provide working capital. Tantaline’s move to the 355 Building was completed in April; MesoScribe consolidation had begun.
- Sales declines were concentrated in CVD Equipment (down $2.1 million) and SDC (down $0.8 million); Materials increased $0.3 million. One customer accounted for 30.7% of Q1 2021 revenue.
- General and administrative expense increased to $1.70 million from $1.55 million, primarily reflecting higher legal costs, including costs related to the building sale and corporate matters.
Outlook, risks, and contingencies
Management said cash and expected operating cash flow should be sufficient for working capital and capital expenditures for the next 12 months after filing, but stated that a prolonged or worsening environment could require further expense reductions. The company could not predict COVID-19’s impact on the remainder of 2021 and warned that effects could be material. Reduced aerospace activity and lower new orders were cited as significant pressures. Management also noted volatility in the timing and estimates of long-term equipment contracts; changes in estimated costs or completion progress can materially affect reported revenue and results.
The company applied for forgiveness of its $2.416 million PPP loan in April 2021 and anticipated all or substantially all would be forgiven; forgiveness was not reported as completed. The 555 Building sale had not closed as of the filing. Management reported no legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls. The filing’s Item 1A states “None,” while its MD&A describes the business and pandemic-related uncertainties above.
Key facts for investors to verify
- Whether and when the 555 Building sale closes, final transaction costs, mortgage payoff, and net proceeds available for working capital.
- Whether the PPP loan is forgiven and the amount, if any, that remains payable.
- New orders, backlog conversion, customer concentration, and recovery in aerospace demand.
- Execution and savings from the Materials strategy changes, including any additional restructuring or impairment costs.
- Cash burn, covenant compliance, and refinancing or repayment plans for the 355 Building mortgage due in March 2022.
- Contract cost-to-complete estimates and collection of contract assets and the remaining tax receivable.