Business Overview and History
CVD Equipment Corporation (NASDAQ:CVV) is a leading provider of chemical vapor deposition (CVD) and thermal process equipment, serving the advanced materials markets for over 40 years. The company designs, develops, and manufactures a broad range of state-of-the-art equipment and process solutions used to develop, produce, and grow materials and coatings for commercial applications and research.
CVD Equipment was founded in 1982 and is headquartered in Central Islip, New York. The company has established a strong reputation in the industry, leveraging its expertise to serve customers in diverse end markets, including aerospace, semiconductor, energy, and industrial applications.
Over the years, CVD Equipment has strategically expanded its product portfolio and capabilities to meet the evolving needs of its customers. In 2010, the company acquired Stainless Design Concepts (SDC), a designer and manufacturer of ultra-high purity gas and chemical delivery control systems. This acquisition strengthened CVD Equipment’s ability to provide integrated solutions to its customers.
In 2015, the company further diversified its offerings by establishing the CVD Materials segment, which provides material coatings for aerospace, medical, electronic, and other applications. While not considered a core business, this segment has contributed to the company’s overall revenue and diversification efforts.
The company has faced significant challenges in recent years. In 2020, CVD Equipment reported a net loss of $6.1 million, driven by a $3.6 million impairment charge and a $3 million loss on unusual items. To address these issues, the company underwent a restructuring in 2021, which included the sale of its Tantaline subsidiary. This strategic move allowed CVD Equipment to focus on its core business segments – CVD Equipment, Stainless Design Concepts (SDC), and CVD Materials.
The restructuring efforts showed initial positive results, with the company reporting net income of $4.8 million in 2021. However, this turnaround was largely due to a $6.9 million gain on the sale of property, plant and equipment, rather than operational improvements. As the company continued to navigate the impact of the COVID-19 pandemic on its operations and customer base, it faced ongoing challenges, reporting a net loss of $4.2 million in 2023.
Despite these obstacles, CVD Equipment has maintained its position as a leading provider of advanced materials processing equipment. The company’s product portfolio includes systems for chemical vapor deposition, physical vapor transport, and other thermal processes used in the semiconductor, aerospace, and energy storage industries, among others. These long-standing relationships with customers in key markets have helped CVD Equipment weather the ups and downs of the business cycle.
Financial Performance and Ratios
CVD Equipment’s financial performance has been mixed in recent years. In the fiscal year 2023, the company reported total revenue of $24.11 million, a decrease from $25.81 million in the prior year. Net income for the fiscal year 2023 was a loss of $4.18 million, compared to a loss of $224,000 in 2022. Operating cash flow for 2023 was -$206,000, while free cash flow was -$624,000.
For the third quarter of 2024, the company reported revenue of $8.194 million, a 31.4% increase compared to the same period in 2023. This increase was due to higher revenues from the CVD Equipment, SDC, and CVD Materials segments. Net income for Q3 2024 was $203,000, with operating cash flow of $32,000 and free cash flow of -$5,000. The increase in revenue supported an improvement in operating performance and system gross margins, though this was partially offset by a $1 million non-cash charge to reduce the net realizable value of PVT150 inventory.
The company’s gross profit margin has fluctuated, declining from 25.6% in the third quarter of 2023 to 22.4% in the third quarter of 2024. This was primarily due to the aforementioned $1 million non-cash charge to reduce the net realizable value of its PVT150 inventory.
CVD Equipment operates through three main product segments: CVD Equipment, Stainless Design Concepts (SDC), and CVD Materials. The CVD Equipment segment, which is the company’s core business, accounted for 65.2% of total revenue in the first nine months of 2024, down from 68.4% in the same period in 2023. The decrease in revenue was primarily due to lower sales of the company’s PVT150 systems and lower revenue from spare parts, partially offset by increases in revenue from aerospace contracts in progress.
The SDC segment contributed 30.6% of total revenue in the first nine months of 2024, up from 26.1% in the prior year period. The 10.1% increase in revenue for this segment was driven by higher demand for its gas delivery system products.
The CVD Materials segment represented 4.0% of total revenue in the first nine months of 2024, down from 5.5% in the prior year period. The decrease of 29.5% was principally due to the disposition of the company’s Tantaline subsidiary in May 2023 and the wind-down of its MesoScribe operations.
Gross profit for the first nine months of 2024 was $4.30 million, with a gross profit margin of 22.1%, compared to $5.42 million and a margin of 27.1% in the same period of 2023. The decrease was primarily the result of lower revenue, lower gross margins on CVD Equipment contracts, and the $1.0 million non-cash charge to reduce certain PVT inventory to net realizable value, partially offset by improved margins in the SDC segment and from final MesoScribe sales.
The company does not disclose performance by geographic markets, likely because it primarily sells its products in the United States.
Liquidity
CVD Equipment’s liquidity position remains relatively strong, with a current ratio of 2.99 and a quick ratio of 2.60 as of September 30, 2024. The company’s cash and cash equivalents stood at $10.01 million as of the same date, down from $14.03 million at the end of 2023.
The company’s debt-to-equity ratio is 0.012, indicating a low level of debt. CVD Equipment had a $432,000 equipment loan entered into in September 2022, payable in 60 equal monthly installments of $8,350 with a 6% interest rate.
Operational Highlights and Challenges
During the third quarter of 2024, CVD Equipment reported a 31.4% increase in revenue compared to the prior-year period, driven by higher sales in its CVD Equipment, SDC, and CVD Materials segments. The company also successfully shipped a PVT200 system to a new customer, marking a strategic order for silicon carbide crystal growth.
However, the company continues to face challenges in the 150mm silicon carbide market, where it has observed lower-than-anticipated industry-wide adoption rates and overcapacity, leading to the $1 million inventory charge. To address this, CVD Equipment is focusing on its new PVT200 system, which is designed for 200mm silicon carbide wafer production, as well as diversifying its product offerings to support the broader electrification and power electronics markets.
In November 2024, the company received a $3.5 million follow-on order for a Chemical Vapor Infiltration (CVI) system from an existing aerospace customer, further strengthening its position in the aerospace and defense industry.
The company’s order backlog increased from $18.4 million at the end of 2023 to $19.8 million at September 30, 2024, consisting of approximately $17.0 million in remaining performance obligations on contracts in progress and $2.8 million in other customer orders. CVV’s revenues and orders have historically fluctuated based on changes in order rates as well as other factors in its manufacturing process that impact the timing of revenue recognition.
Guidance and Outlook
CVD Equipment has not provided specific financial guidance for the upcoming fiscal year. However, the company has stated that its focus remains on building critical customer relationships, achieving profitability, carefully managing costs and cash flow, and simultaneously pursuing growth opportunities in its target markets.
The company’s year-to-date revenue for the first 9 months of 2024 was $19.5 million, which was 2.8% lower than the prior year period. Orders for the first 9 months of 2024 were $21 million, compared to $19.9 million for the first 9 months of 2023. The backlog as of September 30, 2024 was $19.8 million, which was 7.6% higher than their 2023 year-end backlog.
CVD Equipment noted that their order and revenue levels continue to fluctuate given the nature of the emerging growth end markets they serve. The company’s CFO, Richard Catalano, stated that CVV’s return to consistent profitability is dependent on receiving new equipment orders, their ability to mitigate inflationary pressures, and managing capital expenditures and operating expenses. Catalano also expressed confidence that CVV’s current cash and projected cash flow from operations will be sufficient to meet their working capital and capital expenditure requirements for the next 12 months.
Industry Trends
CVD Equipment operates in the advanced materials and process equipment markets, which are experiencing growth due to increasing demand for applications such as electric vehicles, aerospace, and industrial uses. However, the company has faced fluctuations in revenue and orders due to the nature of these emerging growth end markets.
Conclusion
CVD Equipment Corporation is a diversified player in the advanced materials market, with a long history of providing innovative solutions to its customers. While the company has faced some operational challenges, it remains focused on strategic initiatives to drive growth, improve profitability, and strengthen its financial position. The company’s diverse product portfolio, spanning CVD Equipment, Stainless Design Concepts, and CVD Materials segments, provides a foundation for addressing various market needs.
Despite recent fluctuations in financial performance, CVD Equipment has maintained a strong liquidity position and a low debt-to-equity ratio. The company’s focus on developing new technologies, such as the PVT200 system for 200mm silicon carbide wafer production, demonstrates its commitment to staying at the forefront of industry trends.
Investors will want to monitor the company’s progress in key areas, such as the transition to 200mm silicon carbide production, the continued diversification of its product portfolio, and customer base expansion. Additionally, the company’s ability to manage costs, improve gross margins, and capitalize on growth opportunities in emerging markets will be crucial for its future success.
As CVD Equipment navigates the challenges and opportunities in the advanced materials and process equipment markets, its long-standing industry relationships, technological expertise, and strategic focus on profitability and growth position it to potentially benefit from the ongoing trends in electrification, aerospace, and industrial applications. However, investors should remain aware of the inherent volatility in the company’s end markets and the potential impact on its financial performance in the short to medium term.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.