Servotronics Announces First Quarter 2023 Financial Results

-- Sales and gross margin reflect sequential improvement over fourth quarter of 2022 --

ELMA, N.Y., May 15, 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 first quarter ended March 31, 2023.

Highlights for the first quarter financial results include the following:

• Consolidated revenues were $10.8 million, down 3.3% from $11.2 million in the first quarter of 2022. Sequentially, consolidated revenues were up 3.5% from $10.4 million as compared to the fourth quarter of 2022.
• Gross profit decreased to $0.9 million or 8.5% of revenue in the first quarter, down from $3.0 million, or 26.5% of revenue in the first quarter of 2022 which included an unusually favorable product mix. Sequentially, gross profit increased 48.8% from $0.6 million, or 5.9% of revenues, in the fourth quarter of 2022.
• Selling, General and Administrative ("SG&A") costs increased $0.3 million to $2.8 million in the first quarter of 2023 compared to $2.5 million in the first quarter of 2022.
• Operating loss for the quarter was $1.9 million compared with operating income of $0.5 million in the first quarter of 2022.
• Net loss was $1.5 million, or a loss of ($0.63) per diluted share in the first quarter of 2023 compared to net income of $0.3 million, or $0.13 per diluted share in the first quarter of 2022 which, as previously noted, benefited from unusually favorable product mix.

"As we noted when reporting our fourth quarter results, our business continued to be affected by supply chain issues which are evident in our first quarter results," said Chief Executive Officer William F. Farrell, Jr. "We generated solid sequential improvement in sales and gross margin in the first quarter, but unfavorable product mix and continued inflationary pressures on our operating costs also impacted our overall results. However, as also expected when we reported our 2022 year-end results, we have started to see some progress and continue to anticipate improvement in these conditions to be apparent in our financial results in the second half of the year.  We are confident in the outlook for our key end markets, and demand has remained resilient in our ATG segment, with increasing unit sales volume during the quarter. Further, to address long-term performance concerns of our CPG segment, we have recently announced a review of strategic alternatives for the group with the intention of generating the maximum value for our shareholders as this is completed over the coming quarters."

Business Segment Results

First quarter ATG revenues declined to $9.0 million in 2023, down 1.2% from the first quarter of 2022, driven primarily from an unfavorable product mix partially offset by increases in pricing and higher volumes. CPG revenues decreased 12.9%, to $1.7 million, from $2.0 million in the prior-year period.  The CPG revenue decline was the result of an unfavorable product mix and reduced volume.

For the first quarter, ATG gross profit declined to $1.0 million, or 10.9% of sales, down from $2.4 million, or 25.7% of sales in the prior year period which benefited significantly from unusually favorable product mix. Current year ATG gross profit was unfavorably impacted by product mix, higher operating costs, and reduced productivity, partially offset by increased volume and improved pricing. The increased operating costs include investments in staffing to support growing customer demand. CPG gross profit was a loss of $0.1 million or (4.0%) of sales from $0.3 million, or 14.3% of sales in the first quarter of 2022.  CPG gross profit declined due to unfavorable product mix partially offset by favorable operating variances.

($000s)	1Q23	4Q22	3Q22	2Q22	1Q22	FY22	FY21
Revenue
ATG	$9,060	$8,446	$8,823	$8,748	$9,168	$35,185	$31,677
CPG	1,742	1,986	2,168	2,482	2,000	8,636	8,881
Consolidated	10,802	10,432	10,991	11,230	11,168	43,821	40,558
Gross Profit
ATG	$984	$234	$850	$693	$2,353	$4,130	$5,748
CPG	(69)	381	673	475	285	1,814	240
Consolidated	915	615	1,523	1,168	2,638	5,944	5,988
Gross Margin
ATG	10.9 %	2.8 %	9.6 %	7.9 %	25.7 %	11.7 %	18.1 %
CPG	(4.0 %)	19.2 %	31.0 %	19.1 %	14.3 %	21.0 %	2.7 %
Consolidated	8.5 %	5.9 %	13.9 %	10.4 %	23.6 %	13.6 %	14.8 %

First-quarter SG&A expenses increased approximately $0.3 million compared to the prior-year period. SG&A expenses at CPG increased approximately $0.2 million due to higher compensation and benefits and increased outbound freight and professional fees.  SG&A expenses at ATG increased by $0.1 million due to higher R&D and insurance expense.

Net loss for the first quarter was $1.5 million, or a loss of ($0.63) per diluted share compared to net income of $0.3 million, or $0.13 per diluted share in the first quarter of 2022. The significant change is primarily due to significantly favorable product mix last year and investments in staffing in the current year to support growing customer demand.

Operating cash flow for the quarter was a use of $2.8 million as compared to a use of $0.5 million in the prior-year period.  The higher cash usage was a direct result of the lower net income, along with an increase in inventory and accounts receivable compared to the prior year. As a result, the Company's total cash balance declined to $1.2 million on March 31, 2023. 

Mr. Farrell concluded, "While certain of our first-quarter results were an improvement over the fourth quarter, our team continues to focus on improving our operations and driving profitability.  Our actions are shaped by the four key objectives of our strategic vision: profitable growth, people centric culture, operational excellence, and quality.  Our revitalized culture of integrity, accountability, and transparency will continue to propel Servotronics as we bring in new talent and leaders to drive continuous improvement in every aspect of our operations. While we have made considerable progress so far, we realize there is much work left to do, so we will continue to prioritize growth and profitability which will help drive sustainable long-term value for all of our stakeholders."

ABOUT SERVOTRONICS

The Company is composed of two groups – the Advanced Technology Group (ATG) and the Consumer Products Group (CPG). The ATG primarily designs, develops and manufactures servo controls and other components for various commercial and government applications (i.e., aircraft, jet engines, missiles, manufacturing equipment, etc.). The CPG designs and manufactures cutlery, bayonets, pocket knives, machetes and combat knives, survival, sporting, agricultural knives and other edged products for both commercial and government applications.

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)
			March 31,	December 31,
			2023	2022
			(Unaudited)	(Audited)
Current assets:
	Cash		$                                       671	$                                    4,004
	Cash, restricted		500	$                                            -
	Accounts receivable, net		10,746	9,469
	Inventories, net		20,007	19,044
	Prepaid income taxes		138	138
	Other current assets		1,619	597
		Total current assets	33,681	33,252
Property, plant and equipment, net			10,790	10,656
Deferred income taxes			1,067	1,072
Other non-current assets			311	314
Total Assets			$                                  45,849	$                                  45,294
Liabilities and Shareholders' Equity
Current liabilities:
	Current portion of long-term debt		$                                       939	$                                          -
	Current portion of equipment financing and capital leases		-	501
	Current portion of postretirement benefits		87	87
	Accounts payable		4,085	3,113
	Accrued employee compensation and benefits costs		1,377	1,163
	Accrued warranty		594	581
	Other accrued liabilities		1,150	762
		Total current liabilities	8,232	6,207
Long-term debt			-	-
Post retirement obligation			3,998	3,975
Shareholders' equity:
	Common stock, par value $0.20; authorized 4,000,000
	shares; issued 2,629,052 shares; outstanding
	2,484,042 (2,483,318 - 2022) shares		523	523
	Capital in excess of par value		14,573	14,556
	Retained earnings		22,194	23,741
	Accumulated other comprehensive loss		(2,324)	(2,337)
	Employee stock ownership trust commitment		(157)	(157)
	Treasury stock, at cost 103,739 (104,464 - 2022) shares		(1,190)	(1,214)
		Total shareholders' equity	33,619	35,112
Total Liabilities and Shareholders' Equity			$                                  45,849	$                                  45,294

 

SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($000's omitted except per share data)
		Three Months Ended
		March 31,
		2023	2022
Revenue		$          10,802	$          11,168
Costs and expenses:
Cost of goods sold, inclusive of depreciation and amortization		9,887	8,211
Gross profit		915	2,957
Operating expenses:
Selling, general and administrative		2,826	2,501
Total operating expenses		2,826	2,501
Operating (loss)/income		(1,911)	456
Other (expense)/income:
Interest expense		(53)	(70)
Gain on sale of equipment		-	26
Total other expense, net		(53)	(44)
(Loss)/income before income taxes		(1,964)	412
Income tax benefit/(provision)		417	(87)
Net (loss)/income		$          (1,547)	$              325
Income per share:
Basic
Net income per share		$            (0.63)	$             0.13
Diluted
Net income per share		$            (0.63)	$             0.13

 

SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($000's omitted)
				Three Months Ended
				March 31,
				2023	2022
Cash flows related to operating activities:
	Net (Loss) Income			$                              (1,547)	$                                   325
	Adjustments to reconcile net (loss) income to net cash
	used by operating activities:
		Depreciation and amortization		306	313
		Gain on sale of equipment		-	(26)
		Stock based compensation		55	25
		(Decrease)/increase in allowance for credit losses		(10)	65
		(Decrease)/increase in inventory reserve		(175)	168
		Increase in warranty reserve		13	-
		Deferred income taxes		2	-
Change in assets and liabilities:
	Accounts receivable			(1,267)	(2,171)
	Inventories			(788)	(222)
	Prepaid income taxes			-	199
	Other current assets			(1,022)	(783)
	Accounts payable			972	1,669
	Accrued employee compensation and benefit costs			200	(72)
	Post retirement obligation			39	34
	Other accrued liabilities			388	(68)
	Accrued income taxes			-	-
Net cash used by operating activities				(2,834)	(544)
Cash flows related to investing activities:
	Capital expenditures - property, plant and equipment			(437)	(115)
	Proceeds from sale of assets			-	38
Net cash used by investing activities				(437)	(77)
Cash flows related to financing activities:
	Principal payments on equipment financing lease/note obligations			(501)	(70)
	Proceeds from line of credit, net			939	-
Net cash provided (used) by financing activities				438	(70)
Net decrease in cash and restricted cash				(2,833)	(691)
Cash and restricted cash at beginning of period				4,004	9,546
Cash and restricted cash at end of period				$                                1,171	$                                8,855

 

SERVOTRONICS, INC. AND SUBSIDIARIES BUSINESS SEGMENTS
		($000's omitted except per share data)
		ATG		CPG		Consolidated
		Three Months Ended		Three Months Ended		Three Months Ended
		March 31,		March 31,		March 31,
		2023	2022	2023	2022	2023	2022
Revenues from unaffiliated customers		$         9,060	$         9,168	$         1,742	$         2,000	$        10,802	$        11,168
Cost of goods sold, inclusive of depreciation		(8,076)	(6,496)	(1,811)	(1,715)	(9,887)	$        (8,211)
Gross profit (loss)		984	2,672	(69)	285	915	2,957
	Gross margin %	10.9 %	29.1 %	(4.0) %	14.3 %	8.5 %	26.5 %
Operating expenses:
Selling, general and administrative		(2,175)	(2,093)	(651)	(408)	(2,826)	(2,501)
Total operating costs and expenses		(10,251)	(8,589)	(2,462)	(2,123)	(12,713)	(10,712)
Operating (loss)/income		(1,191)	579	(720)	(123)	(1,911)	456
Other (expenses)/income:
Interest expense		(53)	(70)	-	-	(53)	(70)
Gain on sale of equipment		-	26	-	-	-	26
Total other expenses, net		(53)	(44)	-	-	(53)	(44)
(Loss)/income before income tax provision		(1,244)	535	(720)	(123)	(1,964)	412
Income tax benefit/(provision)		264	(113)	153	26	417	(87)
Net (loss)/income		$          (980)	$            422	$          (567)	$            (97)	$        (1,547)	$            325
Total assets		$        36,096	$        42,382	$         9,753	$         9,546	$        45,849	$        51,928
Capital expenditures, net		$            302	$              77	$            135	$              -	$            437	$              77
Foreign derived sales		$         2,023	$         2,962	$              63	$              37	$         2,086	$         2,999

 

 

 

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SOURCE Servotronics, Inc.