Servotronics Announces Financial Results for Second Quarter 2022 Including 12% Growth in Revenue
-- Revenue expected to increase in the third quarter of 2022 driven by increasing order volume from Servotronics' Advanced Technology Group --
ELMA, N.Y., Aug. 15, 2022 /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, 2022, including 12% growth in revenue.
The company reported second quarter 2022 net loss of $(810,000), or $(0.33) per diluted share. Second quarter 2021 net income of $1,186,000, or $0.49 per diluted share, included a $1.9 million or $0.62 per share contribution to earnings from government-provided employee retention credits (ERC) related to the Covid-19 pandemic.
"Following deep market declines resulting from the pandemic, we believe we are in the early stages of a strong recovery in our business related to the commercial aircraft market. This resulted in another quarter of revenue growth, which we expect to continue in the upcoming quarters," said Chief Executive Officer William F. Farrell, Jr. "The Servotronics team is focused on delivering on our growth and improving processes while we explore new opportunities for current products and new offerings. Servotronics is positioned very well for expected top and bottom line growth in existing and new markets. It is a great time to be part of the team!"
The 12% revenue growth in the second quarter of 2022 was attributed to the recovery of business within the commercial aircraft market for the Advanced Technology Group (ATG) and a shift in product mix toward higher-priced products at both the ATG and the Consumer Products Group (CPG). Consolidated revenues grew to $11.2 million in 2022 from $10.0 million as compared to the second quarter last year. ATG revenue grew to $8.7 million in 2022, increasing 11.8% from $7.8 million last year, and CPG revenue grew to $2.5 million in 2022, increasing 12.6% from $2.2 million in 2021.
Growth in consolidated revenue is expected to continue in the third quarter and second half of 2022 as compared to the same periods last year. This will be driven primarily by anticipated increases in ATG revenue and units shipped under long-term prime contracts and subcontracts.
($000s, unaudited) | 2Q22 | 1Q22 | FY22 to date | 4Q21 | 3Q21 | 2Q21 | 1Q21 | FY21 |
Revenue | ||||||||
ATG | $ 8,748 | $ 9,168 | $ 17,916 | $ 8,182 | $ 8,449 | $ 7,823 | $ 7,223 | $ 31,677 |
CPG | 2,482 | 2,000 | 4,482 | 2,373 | 2,466 | 2,205 | 1,837 | 8,881 |
Consolidated | $ 11,230 | $ 11,168 | $ 22,398 | $ 10,555 | $ 10,915 | $ 10,028 | $ 9,060 | $ 40,558 |
Gross Margin $ | ||||||||
ATG | $ 693 | $ 2,353 | $ 3,046 | $ 1,467 | $ 1,687 | $ 1,581 | $ 1,013 | $ 5,748 |
CPG | 475 | 285 | 760 | (116) | 85 | 291 | (20) | 240 |
Consolidated | $ 1,168 | $ 2,638 | $ 3,806 | $ 1,351 | $ 1,772 | $ 1,872 | $ 993 | $ 5,988 |
Gross Margin % | ||||||||
ATG | 7.9 % | 25.7 % | 17.0 % | 17.9 % | 20.0 % | 20.2 % | 14.0 % | 18.1 % |
CPG | 19.1 % | 14.3 % | 17.0 % | -4.9 % | 3.4 % | 13.2 % | -1.1 % | 2.7 % |
Consolidated | 10.4 % | 23.6 % | 17.0 % | 12.8 % | 16.2 % | 18.7 % | 11.0 % | 14.8 % |
Second quarter consolidated gross margin dropped to $1.2 million in 2022 from $1.9 in 2021. Gross margin as a percentage of revenue dropped to 10.4% in 2022, declining from 18.7% in last year's quarter. The primary contributors to the margin reduction were the discontinuation of the New York State Shared Work Program in the second half of 2021 and non-recurring expenses at the ATG which included the acceleration of obsoleting inventory due to market changes and a customer driven process change.
Lower second quarter 2022 selling, general and administrative expenses (SG&A) were driven by lower legal and professional fees at the ATG. Second quarter SG&A was $2.1 million in 2022, decreasing 6.2% from $2.2 million last year. Second quarter SG&A as a percentage of revenue improved to 18.4% in 2022 from 22.0% last year.
Servotronics second quarter operating loss was $0.9 million, an increase of $0.6 million from an operating loss of $0.3 million last year, as current year non-recurring expenses and the discontinuation of last year's non-recurring benefits were not fully offset by an increase in sales and a decrease in SG&A.
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 CONDENSED CONSOLIDATED BALANCE SHEETS ($000's omitted except share and per share data) | ||||||
June 30, | December 31, | |||||
2022 | 2021 | |||||
(Unaudited) | (Audited) | |||||
Current assets: | ||||||
Cash | $ | 5,108 | $ | 9,546 | ||
Accounts receivable, net | 10,139 | 7,198 | ||||
Inventories, net | 18,940 | 20,132 | ||||
Prepaid income taxes | 112 | 792 | ||||
Other current assets | 1,168 | 647 | ||||
Total current assets | 35,467 | 38,315 | ||||
Property, plant and equipment, net | 10,355 | 10,557 | ||||
Deferred income taxes | 884 | 900 | ||||
Other non-current assets | 316 | 321 | ||||
Total Assets | $ | 47,022 | $ | 50,093 | ||
Liabilities and Shareholders' Equity | ||||||
Current liabilities: | ||||||
Current portion of long-term debt and finance leases | 255 | 276 | ||||
Accounts payable | 2,717 | 663 | ||||
Accrued employee compensation and benefits costs | 1,586 | 1,759 | ||||
Current portion of post retirement obligation | 136 | 136 | ||||
Other accrued liabilities | 1,225 | 1,414 | ||||
Total current liabilities | 5,919 | 4,248 | ||||
Long-term debt | 381 | 4,750 | ||||
Post retirement obligation | 5,730 | 5,729 | ||||
Shareholders' equity: | ||||||
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,614,506 | 523 | 523 | ||||
Capital in excess of par value | 14,509 | 14,500 | ||||
Retained earnings | 25,373 | 25,858 | ||||
Accumulated other comprehensive loss | (3,864) | (3,908) | ||||
Employee stock ownership trust commitment | (258) | (258) | ||||
Treasury stock, at cost 115,809 (122,839 - 2021) shares | (1,291) | (1,349) | ||||
Total shareholders' equity | 34,992 | 35,366 | ||||
Total Liabilities and Shareholders' Equity | $ | 47,022 | $ | 50,093 | ||
SERVOTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($000's omitted except per share data) (Unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Revenue | $ | 11,230 | $ | 10,028 | $ | 22,398 | $ | 19,088 | ||||
Costs of goods sold, inclusive of depreciation and amortization | 10,062 | 8,156 | 18,592 | 16,223 | ||||||||
Gross margin | 1,168 | 1,872 | 3,806 | 2,865 | ||||||||
Operating Expenses: | ||||||||||||
Selling, general and administrative | 2,071 | 2,209 | 4,253 | 4,182 | ||||||||
Total operating costs and expenses | 12,133 | 10,365 | 22,845 | 20,405 | ||||||||
Operating loss | (903) | (337) | (447) | (1,317) | ||||||||
Other (expense)/income: | ||||||||||||
Other income: employee retention credit (ERC) | — | 1,914 | — | 3,644 | ||||||||
Interest expense | (74) | (66) | (144) | (127) | ||||||||
Gain on sale of equipment | — | — | 26 | — | ||||||||
Total other (expense)/income, net | (74) | 1,848 | (118) | 3,517 | ||||||||
(Loss)/income before income taxes | (977) | 1,511 | (565) | 2,200 | ||||||||
Income tax (benefit)/provision | (167) | 325 | (80) | 473 | ||||||||
Net (loss)/income | $ | (810) | $ | 1,186 | $ | (485) | $ | 1,727 | ||||
Income per share: | ||||||||||||
Basic | ||||||||||||
Net (loss)/income per share | $ | (0.33) | $ | 0.49 | $ | (0.20) | $ | 0.72 | ||||
Diluted | ||||||||||||
Net (loss)/income per share | $ | (0.33) | $ | 0.49 | $ | (0.20) | $ | 0.72 | ||||
SERVOTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($000's omitted) (Unaudited) | ||||||
Six Months Ended | ||||||
June 30, | ||||||
2022 | 2021 | |||||
Cash flows related to operating activities: | ||||||
Net (loss)/income | $ | (485) | $ | 1,727 | ||
Adjustments to reconcile net (loss)/income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 622 | 714 | ||||
Stock based compensation | 67 | 56 | ||||
Increase in allowance doubtful accounts | — | 9 | ||||
Decrease in inventory reserve | (79) | (19) | ||||
(Decrease)/increase in warranty reserve | (15) | 10 | ||||
Gain on sale of equipment | (26) | — | ||||
Change in assets and liabilities: | ||||||
Accounts receivable | (2,941) | (272) | ||||
Other receivables - ERC | — | (999) | ||||
Inventories | 1,271 | 2,118 | ||||
Prepaid income taxes | 680 | 285 | ||||
Other current assets | (521) | (361) | ||||
Accounts payable | 2,054 | (264) | ||||
Accrued employee compensation and benefit costs | (173) | 559 | ||||
Post retirement obligations | 61 | 57 | ||||
Other accrued liabilities | (173) | 246 | ||||
Net cash provided by operating activities | 342 | 3,866 | ||||
Cash flows related to investing activities: | ||||||
Capital expenditures - property, plant and equipment | (428) | (13) | ||||
Proceeds from sale of assets | 38 | — | ||||
Net cash used by investing activities | (390) | (13) | ||||
Cash flows related to financing activities: | ||||||
Principal payments on long-term debt | (4,250) | (774) | ||||
Principal payments on equipment financing lease obligations | (140) | (177) | ||||
Proceeds from equipment note and equipment financing lease obligations | — | 384 | ||||
Proceeds from line of credit | — | 500 | ||||
Purchase of treasury shares | — | (81) | ||||
Net cash used by financing activities | (4,390) | (148) | ||||
Net (decrease)/increase in cash | (4,438) | 3,705 | ||||
Cash at beginning of period | 9,546 | 5,935 | ||||
Cash at end of period | $ | 5,108 | $ | 9,640 | ||
SERVOTRONICS, INC. AND SUBSIDIARIES BUSINESS SEGMENTS ($000's omitted) (Unaudited) | |||||||||||||||||||
($000's omitted except per share data) | |||||||||||||||||||
ATG | CPG | Consolidated | |||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||
June | June | June | |||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
Revenues from unaffiliated customers | $ | 8,748 | $ | 7,823 | $ | 2,482 | $ | 2,205 | $ | 11,230 | $ | 10,028 | |||||||
Cost of goods sold, inclusive of depreciation and | (8,055) | (6,242) | (2,007) | (1,914) | (10,062) | (8,156) | |||||||||||||
Gross margin | 693 | 1,581 | 475 | 291 | 1,168 | 1,872 | |||||||||||||
Gross margin % | 7.9 | % | 20.2 | % | 19.1 | % | 13.2 | % | 10.4 | % | 18.7 | % | |||||||
Selling, general and administrative | (1,575) | (1,761) | (496) | (448) | (2,071) | (2,209) | |||||||||||||
Total operating costs and expenses | (9,630) | (8,003) | (2,503) | (2,362) | (12,133) | (10,365) | |||||||||||||
Operating loss | (882) | (180) | (21) | (157) | (903) | (337) | |||||||||||||
Other income: employee retention credit (ERC) | — | 1,573 | — | 341 | — | 1,914 | |||||||||||||
Interest expense | (74) | (65) | — | (1) | (74) | (66) | |||||||||||||
Total other (expense)/income, net | (74) | 1,508 | — | 340 | (74) | 1,848 | |||||||||||||
(Loss)/income before income taxes | (956) | 1,328 | (21) | 183 | (977) | 1,511 | |||||||||||||
Income tax (benefit)/provision | (173) | 285 | 6 | 40 | (167) | 325 | |||||||||||||
Net (loss)/income | $ | (783) | $ | 1,043 | $ | (27) | $ | 143 | $ | (810) | $ | 1,186 | |||||||
Capital expenditures, net | $ | 313 | $ | — | $ | — | $ | (1) | $ | 313 | $ | (1) | |||||||
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SOURCE Servotronics, Inc.