Servotronics Announces Fourth Quarter and Full-Year 2023 Financial Results
- Revenue surged by 46.1% to $12.3 million in Q4 2023 compared to $8.4 million in Q4 2022.
- Gross profit rose by 326.1% to $2.7 million, with a gross margin of 22.2% in Q4 2023.
- Operating income increased by $2.0 million, driven by revenue and gross profit growth.
- Net income from continuing operations was $0.4 million in Q4 2023 compared to a loss of $(1.2) million in Q4 2022.
- Full-year sales grew by 24.0% to $43.6 million in 2023, with improved gross margins and reduced operating losses.
- SG&A costs increased due to one-time expenses related to corporate restructuring and consulting costs.
- Servotronics' CFO highlighted the focus on strengthening the financial position post divestiture of the CPG segment.
- The company aims for strong year-over-year revenue growth and a return to annual profitability in 2024.
- None.
Insights
The reported 46% top-line growth in the fourth quarter for Servotronics is a robust indicator of demand for the company's products, particularly in the aerospace sector. A 1700 basis point increase in gross margin is a significant improvement, showing enhanced operational efficiencies and a successful shift in the company's strategy post the divestiture of the Consumer Products Group. The consistent SG&A costs despite the increase in revenue suggest disciplined cost management. However, the increase in interest expense by 566.7% is a red flag that may indicate higher debt levels or borrowing costs, which could impact future profitability.
Investors should note the operational pivot towards the core aerospace market, which appears to have paid dividends in the short term. The reported net income from continuing operations contrasts positively with the net loss from the previous year, suggesting a turnaround in financial health. However, the increase in working capital driven by accounts receivable growth could be a double-edged sword, potentially reflecting either efficient sales growth or a lag in cash collections, which needs careful monitoring.
From a market perspective, Servotronics' focus on the commercial aerospace market taps into an industry on the rebound as global travel recovers post-pandemic. Long-term contracts with key customers provide a stable revenue base and visibility into future sales, which is attractive for investors. The company's ability to increase production output to meet customer demands is a competitive advantage that could lead to market share gains.
However, the increased R&D costs, while potentially beneficial for future innovation, might pressure short-term margins if not managed effectively. Investors should weigh the potential for innovation-driven growth against the immediate financial impact. The company's optimism for steady improvements in quarterly revenue throughout 2024 suggests confidence in sustained market demand, which could be a positive signal for future performance.
The reported income tax expense in 2023, as opposed to a tax benefit in 2022, is indicative of the changes in the company's taxable income situation. The valuation allowances recorded against deferred tax assets suggest a conservative approach to tax asset recognition, possibly reflecting management's uncertainty about future profitability. If these allowances reverse, it could provide a future tax shield, benefiting net income. Investors should be aware of the potential impact of these tax positions on future earnings.
Moreover, the mention of expected reversal of these allowances to offset future taxable income implies management's confidence in returning to profitability. This tax strategy could be a lever for enhancing future earnings, yet it's contingent on the company's ability to generate consistent taxable income.
-- Continued robust market demand results in
-- Gross margin rose 1700 basis points compared to prior-year quarter driven by higher volumes --
As previously announced, during the third quarter, the Company sold the assets of The Ontario Knife Company and divested the Consumer Products Group (CPG) business segment. Accordingly, the financial results of the CPG segment have been classified as a discontinued operation for all periods presented. Unless otherwise noted, all financial results are based on the results from continuing operations, comprised of the Company's servo-control business.
Highlights for the fourth quarter financial results include:
- Revenues of
$12.3 million 46.1% from$8.4 million 49.5% . - Gross profit improved
326.1% to$2.7 million 22.2% of revenue, in the fourth quarter, up significantly from$0.6 million 7.6% of revenue, in the fourth quarter of 2022. This was the result of increased volumes and improved operational efficiencies. - Operating income improved by
$2.0 million 136.0% , compared to the fourth quarter of 2022, driven by revenue and gross profit growth, as selling, general and administrative (SG&A) costs remained consistent. - Net income from continuing operations was
$0.4 million $0.15 $(1.2) million $0.48
Servotronics has continued to operate in line with its long-term strategy of increasing sales volumes in key end markets, developing its people, improving operational efficiencies, and assuring quality products and services. These efforts have resulted in strong performance for the second half of 2023 consistent with management expectations as previously communicated.
"2023 was a year of transformation and stabilization for Servotronics, as our team overcame challenges and reshaped the Company with a focus on our core aerospace markets," said Chief Executive Officer Bill Farrell. "We have been able to significantly increase our production output to meet customer demands while controlling costs and improving margins. I am incredibly proud of the team's accomplishments in 2023 and we aim for further improvements in our financial results in the coming year."
Fourth Quarter Business Results (from Continuing Operations):
000's | Three Months Ended | ||||||
Dec 31, 2023 | Dec 31, 2022 | Change | |||||
Revenue | $ 12,338 | $ 8,446 | $ 3,892 | 46.1 % | |||
Cost of goods sold | 9,594 | 7,802 | 1,792 | 23.0 % | |||
Gross Profit | 2,744 | 644 | 2,100 | 326.1 % | |||
Gross Margin | 22.2 % | 7.6 % | 14.6 % | ||||
SG&A Expenses | 2,209 | 2,129 | 80 | 3.8 % | |||
as a % of Revenue | 17.9 % | 25.2 % | -7.3 % | ||||
Operating Income (Loss) | 535 | (1,485) | 2,020 | 136.0 % | |||
Operating Margin | 4.3 % | -17.6 % | 21.9 % | ||||
Interest Expense | (120) | (18) | (102) | 566.7 % | |||
Tax (Expense)/Benefit | (36) | 336 | (372) | -110.7 % | |||
Net Income (Loss) | $ 379 | $ (1,167) | $ 1,546 | ||||
Highlights for the full-year financial results from Continuing Operations include the following:
- Sequentially higher quarterly sales resulting in annual sales growth of
24.0% to$43.6 million $35.2 million - Consolidated gross profit was
$7.8 million 17.9% of revenue in 2023, compared with$5.6 million 15.8% for 2022. Gross margins were driven by significant increases in volume and increased production output, partially offset by customer and product mix. - SG&A costs increased to
$9.9 million 22.7% in 2023, from$8.1 million 22.9% for 2022. The increase was primarily driven by significant one-time costs of approximately of$1.2 million - Operating loss improved
15.4% to a loss of( from a loss of$2.1) million ( in 2022. The reduction in operating loss was driven by the sales growth and higher gross profit, mostly offset by an increase in one-time SG&A costs.$2.5) million - Income tax expense was
( compared to a benefit of$1.1) million $0.6 million - Net loss for the year was
$3.5 million $1.44 $2.1 million $0.87
Servotronics' Chief Financial Officer Rob Fraass commented, "The Company is focused on strengthening our financial position post divestiture of the CPG business segment, as evidenced by improvements in our working capital during the second half of 2023, and the new asset-based credit facility we secured earlier this year. We believe our liquidity is adequate to support our strategic growth."
Servotronics negative cash flow from operations of
Mr. Farrell concluded, "Our fourth quarter performance is a testament to our commitment to executing on our strategic objectives and creating value for all our stakeholders. As we look ahead to 2024, we are optimistic for a strong year-over-year revenue growth each quarter and a return to annual profitability. Similar to 2023, we expect quarterly revenue to see steady improvements as the year unfolds."
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
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 | |||||
( | |||||
Years Ended December 31, | |||||
(in thousands except share and per share data) | 2023 | 2022 | |||
(Reclassified) | |||||
Current assets: | |||||
Cash | $ 95 | $ 3,812 | |||
Cash, restricted | 150 | - | |||
Accounts receivable, net | 12,065 | 8,453 | |||
Inventories, net | 14,198 | 14,286 | |||
Prepaid and other current assets | 1,507 | 615 | |||
Assets related to discontinued operation | 1,552 | 6,112 | |||
Total current assets | 29,567 | 33,278 | |||
Property, plant and equipment, net | 6,978 | 7,355 | |||
Deferred income taxes, net | - | 1,048 | |||
Other non-current assets | 42 | 173 | |||
Noncurrent assets related to discontinued operation | - | 3,440 | |||
Total Assets | $ 36,587 | $ 45,294 | |||
Liabilities and Shareholders' Equity | |||||
Current liabilities: | |||||
Line of credit | $ 2,103 | $ - | |||
Current portion of equipment financing and capital leases | - | 501 | |||
Current portion of postretirement obligation | 97 | 87 | |||
Accounts payable | 2,061 | 1,840 | |||
Accrued employee compensation and benefits costs | 1,003 | 1,057 | |||
Accrued warranty | 542 | 581 | |||
Other accrued liabilities | 1,909 | 396 | |||
Liabilites related to discontinued operation | 213 | 1,745 | |||
Total current liabilities | 7,928 | 6,207 | |||
Post retirement obligation | 4,165 | 3,975 | |||
Shareholders' equity: | |||||
Common stock, par value | |||||
shares; issued 2,629,052 shares; outstanding | |||||
2,514,775 (2,483,318 - 2022) shares | 525 | 523 | |||
Capital in excess of par value | 14,617 | 14,556 | |||
Retained earnings | 12,954 | 23,741 | |||
Accumulated other comprehensive loss | (2,389) | (2,337) | |||
Employee stock ownership trust commitment | (56) | (157) | |||
Treasury stock, at cost 87,525 (104,464 - 2022) shares | (1,157) | (1,214) | |||
Total shareholders' equity | 24,494 | 35,112 | |||
Total Liabilities and Shareholders' Equity | $ 36,587 | $ 45,294 | |||
SERVOTRONICS, INC. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||
( | |||
Years Ended December 31, | |||
(in thousands except per share data) | 2023 | 2022 | |
Revenue | $ 43,629 | $ 35,185 | |
Costs of goods sold, inclusive of depreciation and amortization | 35,824 | 29,616 | |
Gross profit | 7,805 | 5,569 | |
Operating expenses: | |||
Selling, general and administrative | 9,918 | 8,067 | |
Operating loss | (2,113) | (2,498) | |
Other (expense)/income: | |||
Interest expense, net | (336) | (203) | |
Gain on sale of equipment | - | 36 | |
Total other (expense)/income, net | (336) | (167) | |
Loss from continuing operations before income taxes | (2,449) | (2,665) | |
Income tax (expense)/benefit | (1,098) | 565 | |
Loss from continuing operations, net of tax | (3,547) | (2,100) | |
Loss from discontinued operation before income taxes | (7,240) | (22) | |
Income tax (expense)/benefit | - | 5 | |
Loss from discontinued operation, net of tax (see Note 2) | (7,240) | (17) | |
Net loss | $ (10,787) | $ (2,117) | |
Basic and diluted loss per share: | |||
Continuing operations | $ (1.44) | $ (0.87) | |
Discontinued operation | (2.93) | (0.01) | |
Basic and diluted loss per share | $ (4.37) | $ (0.88) | |
SERVOTRONICS, INC. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
( | |||
Years Ended December 31, | |||
(in thousands) | 2023 | 2022 | |
Cash flows related to operating activities: | |||
Loss from continuing operations | $ (3,547) | $ (2,100) | |
Adjustments to reconcile net loss to net cash used | |||
by operating activities: | |||
Depreciation and amortization | 1,083 | 951 | |
Stock based compensation | 120 | 191 | |
Increase (decrease) in allowance for credit losses | 5 | (8) | |
Decrease in inventory reserve | (15) | (28) | |
(Decrease) increase in warranty reserve | (39) | 70 | |
Deferred income taxes | 1,072 | (589) | |
Gain on sale of equipment | - | (36) | |
Change in assets and liabilities: | |||
Accounts receivable | (3,617) | (2,239) | |
Inventories | 103 | 1,411 | |
Prepaid and other current assets | (909) | 741 | |
Accounts payable | 221 | 1,410 | |
Accrued employee compensation and benefit costs | (54) | (473) | |
Post retirement obligations | 148 | 186 | |
Employee stock ownership trust commitment | 101 | 101 | |
Other accrued liabilities | 1,513 | 61 | |
Net cash used by operating activities from continuing operations | (3,815) | (351) | |
Cash flows related to investing activities: | |||
Capital expenditures - property, plant and equipment | (689) | (1,234) | |
Proceeds from sale of assets | - | 38 | |
Net cash used by investing activities from continuing operations | (689) | (1,196) | |
Cash flows related to financing activities: | |||
Advances on line of credit, net of payments | 2,103 | - | |
Principal payments on long-term debt | - | (4,250) | |
Principal payments on equipment financing lease obligations | (501) | (275) | |
Net cash provided (used) by financing activities from continuing | 1,602 | (4,525) | |
Discontinued Operation | |||
Cash (used) provided by operating activites | (2,823) | 536 | |
Cash provided by investing activities | 2,158 | (85) | |
Net cash (used) provided by operating and investing activities from | (665) | 451 | |
Net decrease in cash and restricted cash | (3,567) | (5,621) | |
Cash and restricted cash at beginning of year | 3,812 | 9,433 | |
Cash and restricted cash at end of year | $ 245 | $ 3,812 | |
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SOURCE Servotronics, Inc.
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