Executive Summary / Key Takeaways

• CVD Equipment (CVV) is strategically concentrating on high-growth, specialized advanced materials markets, including aerospace and defense, high-power electronics, and EV battery materials, following the divestiture of non-core assets.
• The company leverages its proprietary Chemical Vapor Deposition (CVD) and Physical Vapor Transport (PVT) technologies to offer custom solutions, particularly for next-generation jet engines and 200mm silicon carbide (SiC) wafers, establishing a competitive edge in these demanding niches.
• Recent financial performance presents a mixed picture: H1 2025 revenue grew 19.2% year-over-year with improved gross margins of 28.1%, yet Q2 2025 saw a revenue decline of 19.4% and a net loss, reflecting project timing and market uncertainties.
• CVV faces significant headwinds from global overcapacity in the 150mm SiC wafer market, geopolitical tariffs impacting component costs, and inherent volatility in emerging growth sectors, necessitating disciplined cost management and operational efficiency.
• Despite these challenges, a robust backlog of $13.2 million and a healthy cash position of $7.0 million at June 30, 2025, provide sufficient liquidity for the next 12 months, with future profitability hinging on securing new orders and optimizing production of complex "first article" systems.

A Specialized Player in Advanced Materials

CVD Equipment Corporation, founded in 1982, has evolved over four decades into a specialized provider of advanced materials processing solutions. Headquartered in Central Islip, New York, with its Stainless Design Concepts (SDC) division in Saugerties, the company designs, develops, and manufactures chemical vapor deposition (CVD), physical vapor transport (PVT), and thermal process equipment. This foundational expertise, delivered under brands like FirstNano, underpins its strategic focus on high-value, niche markets.

The company has undergone significant strategic streamlining to sharpen its market focus. In May 2023, it divested its Tantaline product line, and in 2024, it wound down its MesoScribe segment, which provided electronic printing services and products. These actions were deliberate steps to concentrate resources on its core CVD and SDC segments, targeting growth opportunities in aerospace and defense, microelectronics (including high-power electronics), energy storage (battery materials), and advanced industrial applications. This focused approach positions CVV to capitalize on critical industry trends.

Broad industry trends are fueling demand for CVV's specialized equipment. In aerospace, the push for lighter, more durable ceramic matrix composites (CMCs) in next-generation jet engines aims to reduce jet fuel consumption. The "electrification of everything" drives demand for high-power silicon carbide (SiC) semiconductors in electric vehicles (EVs), energy storage, power conversion, and AI data centers, where high energy efficiency and power density are paramount. In industrial applications, there is a growing need for advanced protective coatings. CVV's strategy is to serve these demanding sectors with custom, high-performance solutions.

Technological Edge: Precision and Customization

CVV's core competitive advantage lies in its proprietary CVD and PVT technologies, which enable the precise deposition and growth of advanced materials. These technologies offer tangible benefits over conventional methods, particularly in specialized applications where material properties are critical. For instance, its chemical vapor and filtration systems are integral to producing ceramic matrix composites (CMCs) for commercial jet engines, directly contributing to the objective of reducing jet fuel consumption through lighter, more heat-resistant components. The CVI/CVD3500 system, for which CVV received a $3.5 million follow-on order in November 2024, is a key offering in this aerospace segment.

In high-power electronics, CVV's PVT150 and PVT200 systems are designed for silicon carbide crystal growth, specifically for 200mm wafers. SiC semiconductors are crucial for the high energy efficiency and power density required in AC-DC power supply units for AI data centers, as well as for EVs and other power conversion applications. While precise quantitative performance metrics for CVV's systems versus alternatives are not publicly detailed, the strategic order for a PVT200 system in early 2024, shipped in Q3 2024 for customer evaluation, underscores its potential to meet the stringent requirements of this rapidly evolving market. The company is actively evaluating market conditions to expand its product offerings in power electronics.

For industrial applications, the CVD4000 SiC coating reactor system, which saw its first unit shipped in early July 2025 as part of a $10 million multi-system order, applies silicon carbide protective coatings on OEM components. This technology extends the lifespan and performance of critical industrial parts. In the EV battery energy storage market, CVV is pursuing opportunities for its powder coat systems, which can be used in advanced anode materials. The company has successfully provided systems for silicon nanowire growth on carbon to a customer, 1D, which possesses an "exceptional portfolio, a very deep and broad portfolio of IP" in this area. CVV also continues to support FirstNano systems for microelectronic and carbon nanotube applications.

The company's R&D efforts are focused on developing more standardized products and enhancing existing offerings. A key operational insight is that the initial "first article" systems, while crucial for technological advancement, often incur higher engineering and rework costs, impacting gross margins. However, the learning derived from these initial builds is "ported" into subsequent similar class products, leading to improved efficiency and profitability on later systems. This approach allows CVV to continuously refine its offerings and maintain a competitive edge. For investors, this technological differentiation and focus on high-value, custom solutions translate into a potential for higher average selling prices, improved margins over time, and a stronger market position in specialized, high-growth niches.

Financial Performance: Growth Amidst Volatility

CVV's recent financial performance reflects both the strategic shifts and the inherent volatility of its target markets. For the six months ended June 30, 2025, total revenue increased by 19.2% to $13.4 million, compared to $11.3 million in the prior year period. This growth was primarily driven by the CVD Equipment segment, which saw revenues rise by $2.7 million, or 37.8%, largely due to higher contract revenues from ongoing projects and increased non-system sales. Consolidated gross profit for H1 2025 improved significantly to $3.7 million, with a gross margin of 28.1%, up from 20.7% in H1 2024.

However, the second quarter of 2025 presented a more challenging picture. Revenue declined by 19.4% year-over-year to $5.1 million, down from $6.3 million in Q2 2024. This decrease was primarily attributed to lower system revenues from contracts in progress in both the CVD Equipment and SDC segments. The CVD Equipment segment's revenue fell by 17.1% to $3.4 million, while the SDC segment's revenue decreased by 25.1% to $1.7 million due to fewer contracts in progress. Consequently, Q2 2025 gross profit decreased by $0.5 million, with gross margin contracting to 20.9%. The company reported a net loss of $1.1 million, or $0.15 per share, for the quarter. This contrasts with Q1 2025, which saw revenue of $8.3 million, a gross margin of 32.4%, and a net income of $360,000, marking the third consecutive quarter of net income at that time.

The company's order backlog at June 30, 2025, stood at $13.2 million, a slight decrease from $13.8 million at March 31, 2025. This backlog includes approximately $12.0 million related to remaining performance obligations on contracts in progress or not yet started. Total bookings for Q2 2025 were $4.5 million, supported by strong demand in the SDC segment for gas delivery equipment. However, total bookings for the first half of 2025 were $7.3 million, significantly lower than the $16.9 million recorded in the first half of 2024. This fluctuation underscores the project-based nature of CVV's business and the dynamic market conditions it serves.

Operational efficiency, particularly on complex "first article" systems, plays a crucial role in profitability. While the initial PVT200 system incurred higher costs due to necessary rework, subsequent systems of that type and similar large industrial orders are expected to be "much favorably" executed, leading to improved gross margins. This learning and technology transfer are vital for sustaining profitability. The company also recorded non-cash charges totaling $1.3 million in fiscal year 2024 to reduce the carrying value of PVT150 inventory, reflecting the challenging market for 150mm silicon carbide systems.

Liquidity and Capital Management

Despite the fluctuations in quarterly performance, CVV maintains a prudent approach to liquidity and capital management. At June 30, 2025, cash and cash equivalents totaled $7.0 million, a decrease from $12.6 million at December 31, 2024. This reduction was primarily driven by a net loss of $0.7 million for the six months ended June 30, 2025, an increase in accounts receivable of $3.6 million (due to achieving contract milestones), and a net change in contract assets and liabilities of $2.6 million, partially offset by non-cash items of $0.9 million.

The company's net working capital at June 30, 2025, was $13.9 million, comparable to $13.8 million at December 31, 2024. Net cash used in operating activities for the first half of 2025 was $5.4 million. Investing activities for the same period included $49,000 in capital expenditures for property and equipment and a $51,000 investment in a captive insurance company. Management expresses confidence that its existing cash, anticipated cash flows from operations, collection of receivables, revenue from its current backlog, and deposits on significant orders will be sufficient to fund its working capital and capital expenditure requirements for at least the next 12 months. This disciplined approach to financial health has been acknowledged by investors, with one analyst noting the "nice, robust levels" of cash and effective working capital management.

Competitive Landscape and Strategic Positioning

CVV operates in a highly specialized segment of the advanced materials and semiconductor equipment market, positioning itself as a provider of custom, high-precision solutions. This differentiates it from industry giants like Applied Materials (AMAT), Lam Research (LRCX), and ASML Holding (ASML), which primarily focus on high-volume, standardized equipment for mainstream semiconductor manufacturing. While these larger players dominate in scale, R&D investment, and global market share, CVV's strength lies in its agility and ability to tailor solutions for unique customer requirements in niche applications.

CVV's proprietary CVD and PVT technologies, coupled with its service-oriented approach, foster strong customer relationships and loyalty, particularly in areas requiring custom quartz-ware and specialized process development. For instance, its established relationships and installed base at three out of four major gas turbine engine component manufacturers highlight its deep penetration in the aerospace sector. This allows CVV to capture high-value contracts that may not fit the standardized offerings of larger competitors.

However, CVV's smaller scale presents vulnerabilities. Its gross profit margin of 26.28% (TTM) and operating profit margin of -2.61% (TTM) are qualitatively lower than those of major competitors like TICKER:AMAT (47% gross, 29% operating TTM) and TICKER:LRCX (49% gross, 32% operating TTM), reflecting higher per-unit costs and less favorable economies of scale. This can impact its ability to compete on price or volume in broader markets. The silicon carbide (SiC) market, for example, is particularly challenging due to global overcapacity of 150mm wafers and declining prices, leading to a rapid industry shift to 200mm production. CVV's PVT200 system is designed for this larger wafer size, but its success is contingent on a broader market recovery. The battery materials market, outside of specific silicon nanowire applications, is also "much more heavily populated with competitors," indicating intense competition.

CVV's strategic response to this competitive environment is to double down on its niche focus. By leveraging its technological expertise and porting lessons learned from initial complex projects to subsequent systems, it aims to improve operational efficiency and maintain gross margins "north of 30%." This strategy seeks to maximize profitability within its specialized segments rather than directly challenging the scale of its larger rivals.

Risks and Outlook: Overcoming Headwinds

CVV's outlook, while cautiously optimistic about its strategic direction, acknowledges significant external headwinds. Management consistently expects order and revenue levels to fluctuate due to the dynamic nature of its emerging growth markets, end-user conditions, and the timing of product adoption. This inherent volatility means that quarter-to-quarter results can vary significantly.

Geopolitical factors and tariffs pose a notable risk. The company operates in a challenging global economic environment, with U.S. federal administration tariffs on imports potentially increasing component costs and reducing gross margins. While CVV has taken mitigation steps, such as strategically sourcing components and building safety stock for its SDC segment, the full impact remains uncertain. For example, a 45% tariff on some Chinese components, while partially offset by lower initial costs, still adds inflationary pressure. Geopolitical conflicts also risk restricting raw material procurement and impacting sales into certain regions.

The silicon carbide wafer market remains a key area of uncertainty. Global overcapacity and declining prices, particularly for 150mm wafers, have led to inventory write-downs for CVV. The success of its PVT200 system, currently under customer evaluation, is highly dependent on a recovery in wafer demand and pricing in the broader market. Reduced U.S. government funding for universities also contributed to lower bookings and revenue in Q2 2025, highlighting exposure to public sector spending.

Despite these risks, management's outlook is grounded in a commitment to achieving consistent profitability and positive cash flow. This hinges on securing new equipment orders, effectively mitigating inflationary pressures, and maintaining disciplined control over operating expenses and capital expenditures. The remaining two CVD4000 SiC coating reactor systems from the $10 million industrial order are planned for shipment over the next 12 months, providing a visible revenue stream. The company's objective to maintain gross margins above 30% by optimizing production processes, particularly after the initial "first article" systems, is a critical operational target.

Conclusion

CVD Equipment Corporation is undergoing a focused transformation, shedding non-core assets to concentrate on high-growth, specialized advanced materials markets. Its core investment thesis rests on its ability to leverage proprietary CVD and PVT technologies to deliver custom, high-value solutions in aerospace and defense, high-power electronics, and EV battery materials. These niche markets, driven by secular trends like fuel efficiency and electrification, offer significant long-term potential for a company with CVV's specialized expertise.

While recent financial performance has shown volatility, with strong year-to-date revenue growth and margin expansion offset by a challenging Q2 2025, the underlying strategic direction is clear. The company's ability to convert its technological leadership and niche market penetration into consistent financial performance will depend on securing new orders, maintaining operational efficiency on complex projects, and effectively managing external headwinds such as tariffs and silicon carbide market overcapacity. CVV's robust liquidity and disciplined cost management provide a stable foundation as it pursues growth opportunities, making it a compelling, albeit volatile, play for investors seeking exposure to the advanced materials sector.