Servotronics Announces Third Quarter 2023 Financial Results

News provided by

Nov 09, 2023, 16:15 ET

-- Actions to increase production to meet strong market demand drove 31% top-line growth --

-- Gross margin rose 770 basis points compared to prior-year quarter driven by higher volumes and production improvements --

ELMA, N.Y., Nov. 9, 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 third quarter and nine months ended September 30, 2023.

Servotronics achieved significant growth in revenue, gross margin and operating income in the third quarter of 2023. This is aligned with prior expectations of a strong second half of 2023. The Company continues to execute against its long-term strategic plan and has expanded production output to meet growing industry demand. A solid backlog and improved operational efficiencies have positioned the Company for continued sequential growth for the remainder of 2023 and into 2024.

As previously announced, during the second quarter, the Company divested and is winding down the assets of the Consumer Products Group (CPG) business segment. Accordingly, the financial results of the CPG segment have been classified as discontinued operations for all periods presented. Unless otherwise noted, all financial results are based on the results of continuing operations.

Highlights for the third quarter financial results include:

Revenues were $11.6 million, up 31.3% from $8.8 million in the third quarter of 2022.
Gross profit more than doubled to $2.5 million or 21.6% of revenue in the third quarter, up from $1.2 million, or 13.9% of revenue in the third quarter of 2022.
Operating income improved by $1.0 million compared to the third quarter of 2022.
Net income from continuing operations was $0.2 million, or $0.07 per diluted share in the third quarter of 2023, compared to a net loss from continuing operations of $0.6 million, or ($0.24) per diluted share in the third quarter of 2022.

"Ongoing investments in our people, operations, and product quality strengthened our output in the third quarter to meet the growing demand for Servotronics products. With our strong backlog we expect continued top-line growth in the fourth quarter of the year and into 2024," said Chief Executive Officer William F. Farrell, Jr. "I am incredibly proud of our team and the strides taken towards achieving our long-term goals. As we focus on executing our strategic growth and profitability improvement plan, we will continue to capitalize on opportunities in the strong aerospace market and will drive improved operating results, all leading to enhanced shareholder value."

Business Results

000's	Three Months Ended
	Sep 30, 2023	Sep 30, 2022	$ Change	% Change
Revenue	$ 11,582	$ 8,823	$ 2,760	31.3 %

Cost of goods sold	9,083	7,596	1,483	19.5 %
Gross Profit	2,499	1,227	1,272	103.7 %
Gross Margin	21.6 %	13.9 %		7.7 %

SG&A Expenses	2,219	1,918	301	15.7 %
as a % of Revenue	19.2 %	21.7 %	10.9 %

Operating Income (Loss)	$ 280	$ (691)	$ 971	140.5 %
Operating Margin	2.4 %	(7.8 %)

Interest Expense	(98)	(50)	(48)	96.0 %
Tax Benefit/(Expense)	-	154	(154)	(100.0 %)
Net Income (Loss) from Continuing Operations	$ 182	$ (587)	$ 769	(131.0 %)

Servotronics' Chief Financial Officer Robert A. Fraass commented, "Our financial results in the third quarter demonstrate the potential operating leverage embedded in our operating model. The Servotronics team's efforts to increase output, along with our lean initiatives and focus on continuous improvement, enabled us to generate a significant increase in gross profit on a 31% increase in sales."

Revenues increased to $11.6 million in the 2023 third quarter, up 31.3% from the third quarter of 2022, due primarily to increased sales volume driven by the growth of the commercial aircraft market and increased unit volumes achieved during the period.

For the third quarter, gross profit increased 103.7% to $2.5 million, or 21.6% of sales, up from $1.2 million, or 13.9% of sales in the prior-year period. Gross profit benefited from increased sales volumes resulting in favorable production efficiencies and lower overhead costs.

Third-quarter SG&A expenses increased approximately $0.3 million compared to the prior-year period. SG&A expenses were driven primarily by increased sales & marketing personnel costs and higher R&D costs attributable to projects focused on expanding the product portfolio.

Net income from continuing operations was $0.2 million compared to a net loss from continuing operations of $0.6 million in the third quarter of 2022.

During the third quarter, Servotronics executed the sale of assets of The Ontario Knife Company on August 1, 2023 and closed operations. The third quarter loss from discontinued operations was $0.4 million, and the Company will continue to wind down and divest the Consumer Products Group business segment, which should be substantially complete by the end of 2023.

Mr. Farrell concluded, "The third quarter results demonstrate another step towards achieving our short-term strategic objectives. We will continue to grow as we achieve production rates aligned with our aerospace customers while we also diversify into new markets. The efforts of the Servotronics' team are resulting in operational gains which will create value for all stakeholders. I look forward to seeing additional progress over the upcoming quarters."

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)

			September 30,	December 31,
			2023	2022
			(Unaudited)	(Reclassified)
Current assets:
	Cash		$ 158	$ 3,812
	Cash, restricted		150	-
	Accounts receivable, net		12,297	8,453
	Inventories, net		15,048	14,286
	Prepaid income taxes		139	138
	Other current assets		727	477
	Assets related to discontinued operation		1,981	9,528
		Total current assets	30,500	36,694

Property, plant and equipment, net			7,172	7,355

Deferred income taxes, net			-	1,072

Other non-current assets			42	173

Total Assets			$ 37,714	$ 45,294

Liabilities and Shareholders' Equity
Current liabilities:
	Line of credit		$ 2,164	$ -
	Current portion of eqiupment financing and capital leases		-	501
	Current portion of post retirement obligation		87	87
	Accounts payable		2,958	1,840
	Accrued employee compensation and benefits costs		1,286	1,057
	Accrued warranty		544	581
	Other accrued liabilities		925	396
	Liabilities related to discontinued operation		1,741	1,745
		Total current liabilities	9,705	6,207

Post retirement obligation			3,996	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		525	523
	Capital in excess of par value		14,603	14,556
	Retained earnings		12,489	23,741
	Accumulated other comprehensive loss		(2,295)	(2,337)
	Employee stock ownership trust commitment		(157)	(157)
	Treasury stock, at cost 91,570 (104,464 - 2022) shares		(1,152)	(1,214)
		Total shareholders' equity	24,013	35,112

Total Liabilities and Shareholders' Equity			$ 37,714	$ 45,294

SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($000's omitted except per share data)

		Three Months Ended		Nine Months Ended
		September 30,		September 30,
		2023	2022	2023	2022

Revenue		$ 11,582	$ 8,823	$ 31,291	$ 26,739

Costs of goods sold, inclusive of depreciation
	and amortization	9,083	7,596	26,252	21,814
Gross profit		2,499	1,227	5,039	4,925

Operating expenses:
Selling, general and administrative		2,219	1,918	7,663	5,919
Total operating costs and expenses		11,302	9,514	33,915	27,733
Operating income/(loss)		280	(691)	(2,624)	(994)

Other (expense)/income:
Interest expense		(98)	(50)	(239)	(194)
Gain on sale of equipment		-	-	-	26
Total other (expense)/income, net		(98)	(50)	(239)	(168)

Income/(loss) from continuing operations before income taxes		182	(741)	(2,863)	(1,162)
Income tax benefit/(expense)		-	154	(1,063)	234
Income/(loss) from continuing operations		182	(587)	(3,926)	(928)
(Loss)/income from discontinued operation, net of tax (Note 2)		(386)	271	(7,326)	127
Net loss		$ (204)	$ (316)	$ (11,252)	$ (801)

Basic and diluted income/(loss) per share
Continuing operations		$ 0.07	$ (0.24)	$ (1.59)	$ (0.38)
Discontinued operation		(0.16)	0.11	(2.97)	0.05
Basic and diluted loss per share		$ (0.09)	$ (0.13)	$ (4.56)	$ (0.33)

SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($000's omitted)

			Nine Months Ended
			September 30,
			2023	2022
Cash flows related to operating activities:
	Loss from continuing operations		$ (3,926)	$ (928)
	Adjustments to reconcile net loss to net cash used
	by operating activities:
		Depreciation and amortization	790	751
		Stock based compensation	110	126
		Decrease in allowance for credit losses	8	5
		Increase (decrease) in inventory reserve	34	(112)
		(Decrease) increase in warranty reserve	(37)	32
		Deferred income taxes	1,077	24
		Gain on sale of equipment	-	(26)
Change in assets and liabilities:
	Accounts receivable		(3,852)	(3,772)
	Inventories		(796)	1,928
	Prepaid income taxes		(1)	527
	Other current assets		(250)	(233)
	Accounts payable		1,118	1,467
	Accrued employee compensation and benefit costs		229	(66)
	Post retirement obligations		59	86
	Other accrued liabilities		529	44

Net cash used in operating activities from continuing operations			(4,908)	(147)
Cash flows related to investing activities:
	Capital expenditures - property, plant and equipment		(606)	(879)
	Proceeds from sale of assets		-	38

Net cash used in investing activities from continuing operations			(606)	(841)

Cash flows related to financing activities:
	Advances on line of credit, net of payments		2,164	-
	Principal payments on long-term debt		-	(4,250)
	Principal payments on equipment financing lease obligations		(501)	(210)

Net cash provided by (used in) financing activities from continuing operations			1,663	(4,460)
Discontinued Operation
	Cash (used in) provided by operating activites		(1,753)	151
	Cash provided by investing activities		2,100	-
Net cash provided by operating and investing activities from discontinued operation			347	151
Net decrease in cash and restricted cash			(3,504)	(5,297)
Cash and restricted cash at beginning of period			3,812	9,433
Cash and restricted cash at end of period			$ 308	$ 4,136