Earnings season has kicked off, and the reports are flying in. Think of these Weekly Updates as your shortcut for staying on top of it: a fast rundown of the latest results across the microcaps we're monitoring, with the beats, the duds, and everything on our radar.
CVU (Quarterly Results): Q2 sales +16% to $17.6M and a swing to $0.05 EPS from a $(0.10) loss, with margins holding post-A-10 and funded backlog past $100M, though thin cash and an ATM make dilution a risk.
ISSC (Quarterly Results): Q3 sales +10.7% to $26.7M and adjusted EPS +106% to $0.33, with 40%+ organic growth.
MDP.TO (Quarterly Results): Q1 revenue +16% to $28.6M with EPS flat at $0.02, an unremarkable quarter, but the call removed several risks.
The following will cover stocks that are either in our microcap quality indices (MSMqi) or in our research journal (stocks that don’t quite qualify for the MSMqi but might be close).
Quarterly Results
CVU announced Q2 results with sales of $17.6 million vs. $15.2 million in the prior year and EPS of $0.05 vs. a loss of $(0.10) in the prior year. Total backlog was $533 million, including more than $100 million funded and $433 million unfunded.
We are pleasantly surprised by CVU’s gross margins. The company printed 22.0% gross margins in Q2, roughly in line with the 25.8% it printed in Q1. Exiting the money-losing A-10 program last year clearly helped stabilize things.
The backlog is also encouraging: funded backlog crossed $100M, and two “growth” programs, the NGJ Low-Band jammer pod and a new hypersonic missile-wing contract, are already showing up in revenue, earlier than we’d expected.
The thing we’re now watching is liquidity. Cash is down to $0.8M, and the credit line is nearly maxed, leaving little cushion. CVU has an at-the-market (ATM) offering in place, so we think dilution is on the table.
Note: Stock is in our Research Journal Index
Quarterly Results
ISSC announced Q3 results with sales of $26.7M vs $24.1M (+10.7%) in the prior year, and Adj. EPS of $0.33 vs. $ 0.16 (+106.3%) in the prior year.
Although the revenue growth seems a little disappointing, it is actually far stronger than it looks. The prior-year quarter included an abnormal $12.6M of F-16 revenue, inflated by a Honeywell production pull-forward ahead of ISSC moving that line into its Exton facility. This year F-16 normalized to $5.7M, a $6.9M year-over-year decline.
During the conference call, management actually mentioned that excluding F-16 revenue, the company achieved a 40% organic growth rate:
“Excluding the F-16 revenue from both periods and the new acquisitions, our business grew by over 40% during the third quarter.”
That 40% is almost certainly not a sustainable run-rate; it is measured against a soft prior-year comparison, but it is a clear signal that our original 7.5% organic growth rate assumption was likely too conservative.
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