-- Revenue and gross margin reflect solid
improvement over prior year --
-- Results impacted by CPG divestiture,
including asset impairment charges --
ELMA,
N.Y., Aug. 10, 2023 /PRNewswire/ --
Servotronics, Inc. (NYSE American – SVT) a designer and
manufacturer of servo-control components and other advanced
technology products today reported financial results for the second
quarter ended June 30, 2023.
As previously announced, during the second quarter, the Company
decided to divest its Ontario Knife Company (OKC) assets, which
comprise the primary assets of the Consumer Products Group (CPG).
Accordingly, the financial results of the segment have been
classified as discontinued operations for all periods presented.
Unless otherwise noted, all financial results presented are based
on continuing operations. In addition, the Company has
presented certain non-GAAP financial information, including
non-GAAP adjusted operating income and adjusted operating margin,
which management believes better reflects Servotronics' ongoing
operations.
Highlights for the second quarter financial results include the
following:
- Consolidated revenues were $10.6
million, up 21.7% from $8.7
million in the second quarter of 2022.
- Gross profit increased to $1.6
million or 14.6% of revenue in the second quarter, up from
$1.0 million, or 11.7% of revenue in
the second quarter of 2022.
- Selling, general and administrative (SG&A) costs increased
$1.4 million to $3.3 million in the second quarter of 2023
compared to $2.0 million in the
second quarter of 2022. The increase in SG&A was primarily the
result of non-recurring costs.
- Operating loss for the quarter was $1.7
million compared with an operating loss of $0.9 million in the second quarter of 2022, with
the increase due primarily to the non-recurring SG&A costs
noted above.
- The Company recorded a $2.6
million valuation allowance on its net deferred tax assets,
resulting in income tax expense of $1.5
million in the 2023 second quarter, compared to an income
tax benefit of $0.2 million in the
2022 second quarter.
- Non-GAAP adjusted operating loss improved to $0.7 million, or 6.9% of sales compared to
adjusted operating loss of $0.9
million, or 10.1% of sales in the second quarter of
2022.
- Net loss from continuing operations was $3.3 million, or ($1.33) per diluted share in the second quarter
of 2023 compared to a net loss from continuing operations of
$0.8 million, or ($0.32) per diluted share in the second quarter
of 2022. The change was primarily due to the impact of the
non-recurring SG&A charges and deferred tax valuation allowance
noted above.
"The second quarter marked several significant milestones in
Servotronics' strategic transformation. We began the process to
divest the assets of the CPG segment, allowing us to focus on our
core Advanced Technology Group business. On the financial
front, we welcomed a new Chief Financial Officer and refinanced our
line of credit. While progressing our strategic plan, we also
successfully defended the Company through a proxy contest at our
annual meeting," said Chief Executive Officer William F. Farrell, Jr. "I am very pleased with
the team and everything we accomplished in the second quarter. We
are now well positioned to capitalize on positive market trends in
the commercial aerospace market that will support our efforts to
deliver sustainable growth and improved operating results."
CPG Divestiture
As part of the Company's strategic review, the Board and
management team decided to pursue the sale of the assets of
OKC. The strategic review highlighted the key factors that
drove the decision to sell the assets which included the history of
slower growth in revenues, operating losses and a lack of strategic
fit with the core Advanced Technology Group (ATG) business, and
misalignment with the Company's key end markets.
The sale of the CPG business involved a specific process of
soliciting potential buyers for the assets, evaluation of offers
for the assets and determining the best alternative for
Servotronics. Ultimately, the Company accepted the cash offer
of $2.1 million from Blue Ridge
Knives as it maximized the value of the assets of the
business. The sale proceeds were less than the carrying value
of the assets on Servotronics' balance sheet, resulting in a
non-cash loss on the sale of $3.2
million. In addition, the estimated loss on the wind
down of the CPG operations as well as results of operating the
business during the quarter resulted in the loss from discontinued
operations of $6.2 million in the
second quarter of 2023.
Business Results
|
000's
|
Three Months
Ended
|
|
June 30,
2023
|
Mar 31,
2023
|
Dec 31,
2022
|
June 30,
2022
|
|
Revenue
|
$
10,649
|
$
9,060
|
$
8,446
|
$
8,749
|
|
|
|
|
|
|
Cost of goods
sold
|
9,092
|
8,072
|
8,212
|
7,723
|
|
Gross Profit
|
1,557
|
988
|
234
|
1,026
|
|
Gross Margin
|
14.6 %
|
10.9 %
|
2.8 %
|
11.7 %
|
|
|
|
|
|
|
SG&A
Expenses
|
3,269
|
2,179
|
1,702
|
1,908
|
|
Less: Nonrecurring
Expenses
|
(973)
|
(201)
|
-
|
-
|
|
Adjusted SG&A
Expenses
|
2,296
|
1,978
|
1,702
|
1,908
|
|
as a % of
Revenue
|
21.6 %
|
21.8 %
|
20.2 %
|
21.8 %
|
|
|
|
|
|
|
Operating
Loss
|
(1,712)
|
(1,192)
|
(1,468)
|
(882)
|
|
Less: Nonrecurring
Expenses
|
(973)
|
(201)
|
-
|
-
|
|
Adjusted Operating
Loss
|
$
(739)
|
$
(991)
|
$
(1,468)
|
$
(882)
|
|
Adjusted Operating
Margin
|
-6.9 %
|
-10.9 %
|
-17.4 %
|
-10.1 %
|
Revenues increased to $10.6
million in the 2023 second quarter, up 21.7% from the second
quarter of 2022, due primarily to favorable pricing and increased
sales volume driven by the continued recovery of the commercial
aircraft market.
For the second quarter, gross profit increased 51.8% to
$1.6 million, or 14.6% of sales, up
from $1.0 million, or 11.7% of sales
in the prior-year period. Gross profit benefited from increased
sales volumes. In addition, the Company is implementing
continuous improvement, value stream and lean initiatives to create
more efficient production processes to improve product flow, reduce
the amount of work-in-process and scrap inventory, leading to
increased production output.
Second-quarter SG&A expenses increased approximately
$1.4 million compared to the
prior-year period. SG&A expenses were primarily driven by
approximately $1.0 million of
non-recurring expenses during the quarter including severance,
costs related to refinancing credit lines, and costs related to the
successful defense of the contested proxy at the Company's annual
meeting of shareholders.
Non-GAAP adjusted operating loss for the second quarter of 2023,
which excludes those non-recurring SG&A costs, improved to
$0.7 million loss compared with
$0.9 million loss in the 2022 second
quarter. Net loss from continuing operations for the second
quarter was $3.3 million, or
($1.33) per diluted share compared to
net loss from continuing operations of $0.8
million, or ($0.32) per
diluted share in the second quarter of 2022.
Mr. Farrell concluded, "We took several decisive actions during
the second quarter that will bring us closer to achieving our
strategic plan for Servotronics. While these actions had an
unfavorable effect on our second-quarter GAAP results with a number
of non-recuring charges, we are seeing progress in improving our
operating results and expect continued improvements in the second
half of 2023. We generated a 52% increase in gross profit on a 22%
increase in sales, highlighting our efforts to improve operating
efficiencies within the business which we believe will drive
operating leverage. I am confident that Servotronics will
continue to gain share in our key markets and provide superior
returns to our shareholders as we execute on our strategic
priorities and maintain integrity, accountability, and transparency
throughout all aspects of our business."
ABOUT SERVOTRONICS
Servotronics designs, develops and manufactures servo controls
and other components for various commercial and government
applications including aircraft, jet engines, missiles,
manufacturing equipment and other aerospace applications at its
operating facilities in Elma and
Franklinville, New York.
FORWARD-LOOKING STATEMENTS
This news release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. When used in this release, the words "project,"
"believe," "plan," "anticipate," "expect" and similar expressions
are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words.
Forward-looking statements involve numerous risks and uncertainties
which may cause the actual results of the Company to be materially
different from future results expressed or implied by such
forward-looking statements. There are a number of factors that will
influence the Company's future operations, including: uncertainties
in today's global economy, including political risks, adverse
changes in legal and regulatory environments, and difficulty in
predicting defense appropriations, the introduction of new
technologies and the impact of competitive products, the vitality
of the commercial aviation industry and its ability to purchase new
aircraft, the willingness and ability of the Company's customers to
fund long-term purchase programs, and market demand and acceptance
both for the Company's products and its customers' products which
incorporate Company-made components, the Company's ability to
accurately align capacity with demand, the availability of
financing and changes in interest rates, the outcome of pending and
potential litigation, the severity, magnitude and duration of the
COVID-19 pandemic, including impacts of the pandemic and of
businesses' and governments' responses to the pandemic on our
operations and personnel, and on commercial activity and demand
across our and our customers' businesses, and on global supply
chains, the ability of the Company to obtain and retain key
executives and employees and the additional risks discussed in the
Company's filings with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis
only as of the date hereof. The Company assumes no obligation to
update forward-looking statements, whether as a result of new
information, future events or otherwise.
SERVOTRONICS, INC. (SVT) IS LISTED ON NYSE
America
|
SERVOTRONICS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
($000's omitted except share and per share
data)
|
|
|
|
|
June 30,
|
December 31,
|
|
|
|
2023
|
2022
|
|
|
|
(Unaudited)
|
(Reclassified)
|
|
Current assets:
|
|
|
|
Cash
|
$
716
|
$
3,812
|
|
Cash,
restricted
|
180
|
-
|
|
Accounts receivable,
net
|
11,141
|
8,453
|
|
Inventories,
net
|
15,098
|
14,286
|
|
Prepaid income
taxes
|
139
|
138
|
|
Other current
assets
|
996
|
477
|
|
Assets related to
discontinued operation
|
4,174
|
9,528
|
|
|
Total current
assets
|
32,444
|
36,694
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
7,242
|
7,355
|
|
|
|
|
|
|
Deferred income taxes,
net
|
-
|
1,072
|
|
|
|
|
|
|
Other non-current
assets
|
172
|
172
|
|
|
|
|
|
|
Total Assets
|
$
39,858
|
$
45,293
|
|
|
|
|
|
|
Liabilities and Shareholders'
Equity
|
|
|
|
Current liabilities:
|
|
|
|
Line of
credit
|
$
3,697
|
$
-
|
|
Current portion of
eqiupment financing and capital leases
|
-
|
501
|
|
Current portion of post
retirement obligation
|
87
|
87
|
|
Accounts
payable
|
2,904
|
1,840
|
|
Accrued employee
compensation and benefits costs
|
1,358
|
1,057
|
|
Accrued
warranty
|
579
|
581
|
|
Other accrued
liabilities
|
290
|
394
|
|
Liabilities related to
discontinued operation
|
2,763
|
1,745
|
|
|
Total current
liabilities
|
11,678
|
6,205
|
|
|
|
|
|
|
|
|
|
|
|
Post retirement
obligation
|
4,016
|
3,975
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
Common stock, par value
$0.20; authorized 4,000,000
|
|
|
|
shares; issued
2,629,052 shares; outstanding
|
|
|
|
2,496,211 (2,483,318 -
2022) shares
|
524
|
523
|
|
Capital in excess of
par value
|
14,587
|
14,556
|
|
Retained
earnings
|
12,694
|
23,741
|
|
Accumulated other
comprehensive loss
|
(2,312)
|
(2,336)
|
|
Employee stock
ownership trust commitment
|
(157)
|
(157)
|
|
Treasury stock, at cost
91,570 (104,464 - 2022) shares
|
(1,172)
|
(1,214)
|
|
|
Total shareholders'
equity
|
24,164
|
35,113
|
|
|
|
|
|
|
Total Liabilities and Shareholders'
Equity
|
$
39,858
|
$
45,293
|
|
SERVOTRONICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
($000's omitted except per share data)
|
|
|
|
Three Months Ended
|
Six Months Ended
|
|
|
June 30,
|
June 30,
|
|
|
2023
|
2022
|
2023
|
2022
|
|
|
|
|
|
|
|
Revenue
|
$
10,649
|
$
8,749
|
$
19,709
|
$
17,916
|
|
|
|
|
|
|
|
Costs of goods sold,
inclusive of depreciation
|
|
|
|
|
|
and
amortization
|
9,092
|
7,723
|
17,168
|
14,218
|
|
Gross profit
|
1,557
|
1,026
|
2,541
|
3,698
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Selling, general and
administrative
|
3,269
|
1,908
|
5,444
|
4,001
|
|
Total operating costs
and expenses
|
12,361
|
9,631
|
22,612
|
18,219
|
|
Operating loss
|
(1,712)
|
(882)
|
(2,903)
|
(303)
|
|
|
|
|
|
|
|
Other (expense)/income:
|
|
|
|
|
|
Interest
expense
|
(89)
|
(74)
|
(142)
|
(144)
|
|
Gain on sale of
equipment
|
-
|
-
|
-
|
26
|
|
Total other expense, net
|
(89)
|
(74)
|
(142)
|
(118)
|
|
|
|
|
|
|
|
Loss from continuing operations before income
taxes
|
(1,801)
|
(956)
|
(3,045)
|
(421)
|
|
Income tax
(provision)/benefit
|
(1,479)
|
167
|
(1,063)
|
80
|
|
Loss from continuing operations
|
(3,280)
|
(789)
|
(4,108)
|
(341)
|
|
Loss from discontinued
operation, net of tax (Note 2)
|
(6,220)
|
(21)
|
(6,940)
|
(144)
|
|
Net loss
|
$
(9,500)
|
$
(810)
|
$ (11,048)
|
$
(485)
|
|
|
|
|
|
|
|
Basic and diluted loss per
share
|
|
|
|
|
|
Continuing
operations
|
$
(1.33)
|
$
(0.32)
|
$
(1.67)
|
$
(0.14)
|
|
Discontinued
operation
|
(2.53)
|
(0.01)
|
(2.82)
|
(0.06)
|
|
Basic and diluted loss
per share
|
$
(3.86)
|
$
(0.33)
|
$
(4.49)
|
$
(0.20)
|
|
SERVOTRONICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
($000's omitted)
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2023
|
2022
|
|
Cash flows related to operating
activities:
|
|
|
|
Loss from continuing
operations
|
$
(4,108)
|
$
(341)
|
|
Adjustments to
reconcile net loss to net cash used
|
|
|
|
by operating
activities:
|
|
|
|
Depreciation and amortization
|
517
|
485
|
|
Stock based compensation
|
74
|
67
|
|
Decrease in allowance for credit losses
|
(25)
|
(3)
|
|
Increase (decrease) in inventory reserve
|
14
|
(46)
|
|
Decrease in warranty reserve
|
(2)
|
(15)
|
|
Deferred income taxes
|
1,072
|
-
|
|
Gain on sale of equipment
|
-
|
(26)
|
|
Change in assets and
liabilities:
|
|
|
|
Accounts
receivable
|
(2,663)
|
(2,785)
|
|
Inventories
|
|
(826)
|
1,506
|
|
Prepaid income
taxes
|
(1)
|
680
|
|
Other current
assets
|
(519)
|
(488)
|
|
Accounts
payable
|
1,064
|
995
|
|
Accrued employee
compensation and benefit costs
|
301
|
(159)
|
|
Post retirement
obligations
|
66
|
61
|
|
Other accrued
liabilities
|
(105)
|
(5)
|
|
|
|
|
|
|
|
Net cash used in operating activities from continuing
operations
|
(5,141)
|
(74)
|
|
|
|
|
|
|
|
Cash flows related to investing
activities:
|
|
|
|
Capital expenditures -
property, plant and equipment
|
(403)
|
(428)
|
|
Proceeds from sale of
assets
|
-
|
38
|
|
|
|
|
|
|
|
Net cash used in investing activities from continuing
operations
|
(403)
|
(390)
|
|
|
|
|
|
|
|
Cash flows related to financing
activities:
|
|
|
|
Advances on line of
credit, net of payments
|
3,697
|
-
|
|
Principal payments on
long-term debt
|
-
|
(4,250)
|
|
Principal payments on
equipment financing lease obligations
|
(501)
|
(140)
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
from continuing operations
|
3,196
|
(4,390)
|
|
|
|
|
|
|
|
Discontinued Operation
|
|
|
|
Cash (used in) provided
by operating activities
|
(568)
|
241
|
|
Net cash (used in) provided by operating activities
from discontinued operation
|
(568)
|
241
|
|
|
|
|
|
|
|
Net decrease in cash
and restricted cash
|
(2,916)
|
(4,613)
|
|
|
|
|
|
|
|
Cash and restricted
cash at beginning of period
|
3,812
|
9,433
|
|
|
|
|
|
|
|
Cash and restricted cash at end of
period
|
$
896
|
$
4,820
|
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SOURCE Servotronics, Inc.