Servotronics Announces Third Quarter 2024 Financial Results

News provided by

Nov 08, 2024, 08:45 ET

-- Strong revenue growth despite industry-wide challenges --

ELMA, N.Y., Nov. 8, 2024 /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, 2024.

Highlights of the third-quarter financial results are as follows:

Revenues were $12.4 million, up 7.3% from $11.6 million in the third quarter of 2023, driven by higher volumes and improved pricing.
Gross profit of $2.3 million, or 18.2% of sales, down 9.2% from $2.5 million, or 21.6% in the third quarter of 2023, due to unfavorable product mix and higher overhead costs driven primarily by fewer research & development (R&D) projects.
Selling, general & administrative (SG&A) costs down 10.8%, or 323 basis points (as a % of revenue), compared to the third quarter of 2023 due to continued focus on aligning costs with sales growth, and lower R&D project costs.
Legal costs for pending settlement with the Company's former CEO of approximately $0.6 million resulting from employment contract disputes originating in 2021, expected to be finalized in the fourth quarter of 2024.
Adjusted (exclusive of legal settlement costs) operating income of $0.3 million consistent with the third quarter of 2023, driven by higher sales and lower SG&A costs, partially offset by lower gross profit.
Positive results for the quarter were partially offset by ongoing, industry-wide supply chain, quality and labor force challenges impacting customer production output and resulting in reforecasting of demand for the Company's products.

"I am very pleased with our revenue growth for the third quarter and the way our team has managed through the current ongoing challenges that we are experiencing as a key supplier to the commercial aerospace industry. Production delays within the industry resulted in deferral of some deliveries of our products impacting revenue, profit, and inventory. We are working closely with our customers to align our operations with their needs for the remainder of the year. Overall, demand for our products and services remains very strong and we are optimistic about the future of our business as the industry returns to growth," said Chief Executive Officer William F. Farrell, Jr.

Summary of Results from Continuing Operations

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(Dollars in thousands)	2024	2023	% Change	2024	2023	% Change

Revenues	$ 12,430	$ 11,582	7.3 %	$ 35,149	$ 31,291	12.3 %
Gross profit	2,268	2,499	(9.2) %	7,066	5,039	40.2 %
Gross margin	18.2 %	21.6 %	(3.4) %	20.1 %	16.1 %	4.0 %

Selling, general and administrative	1,979	2,219	(10.8) %	6,394	7,663	(16.6) %
Legal settlement	570	-	100.0 %	570	-	100.0 %
Total operating expenses	2,549	2,219	14.9 %	6,964	7,663	(9.1) %
Operating (loss) income	(281)	280	(200.4) %	102	(2,624)	103.9 %
Net (loss) income	$ (453)	$ 182	(348.9) %	$ (251)	$ (3,926)	93.6 %

Non-GAAP measures for comparison:
Operating (loss) income per above	$ (281)	$ 280	(200.4) %	$ 102	$ (2,624)	103.9 %
Addback: legal settlement	570	-	100.0 %	570	-	100.0 %
Adjusted operating income (loss)	$ 289	$ 280	3.2 %	$ 672	$ (2,624)	125.6 %

Net (loss) income per above	$ (453)	$ 182	(348.9) %	$ (251)	$ (3,926)	93.6 %
Addback: legal settlement	570	-	100.0 %	570	-	100.0 %
Adjusted net income (loss)	$ 117	$ 182	(35.7) %	$ 319	$ (3,926)	108.1 %

Servotronics' Chief Financial Officer Robert A. Fraass commented, "I am encouraged by our significant improvement in operating cash flow compared to 2023, however, the recent volatility in the industry will continue to apply pressure on our working capital needs. Actively managing this remains a major focus during the fourth quarter and moving into 2025."

The Company's operating cash flows increased by approximately $4.9 million for the year compared to the same period in 2023 primarily driven by the prior year's significant net loss and higher accounts receivable.

Mr. Farrell concluded, "Our overall customer demand and backlog remain strong, and our operational advancements are driving higher revenue and improved operating results in the current year. We believe the customer delays we are seeing are temporary and we are managing our way through them. We remain steadfast on achieving our strategy of long-term growth and increasing shareholder value."

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 report, 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, 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,
	2024		2023
	(Unaudited)		(Audited)
Current Assets:
Cash	$	46	$	95
Cash, restricted		150		150
Accounts receivable, net		12,598		12,065
Inventories, net		15,408		14,198
Prepaid and other current assets		810		1,507
Assets related to discontinued operation		1,466		1,552
Total current assets		30,478		29,567

Property, plant and equipment, net		7,143		6,978
Other non-current assets		42		42
Total Assets	$	37,663	$	36,587

Liabilities and Shareholders' Equity
Current Liabilities:
Line of credit	$	3,169	$	2,103
Current portion of post-retirement obligation		97		97
Accounts payable		2,954		2,061
Accrued employee compensation and benefits costs		927		1,003
Accrued warranty		413		542
Other accrued liabilities		1,046		1,909
Liabilities related to discontinued operation		27		213
Total Current Liabilities		8,633		7,928

Post-retirement obligation		4,210		4,165
Other long-term liabilities		427		-
Total Liabilities		13,270		12,093

Shareholders' Equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,629,052 shares; outstanding 2,527,484 (2,514,775 - 2023) shares		525		525
Capital in excess of par value		14,796		14,617
Retained earnings		12,631		12,954
Accumulated other comprehensive loss		(2,331)		(2,389)
Employee stock ownership trust commitment		(56)		(56)
Treasury stock, at cost 74,816 (87,525 - 2023) shares		(1,172)		(1,157)
Total shareholders' equity		24,393		24,494

Total Liabilities and Shareholders' Equity	$	37,663	$	36,587

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,
	2024		2023		2024		2023

Revenue	$	12,430	$	11,582	$	35,149	$	31,291

Costs of goods sold, inclusive of depreciation and amortization		10,162		9,083		28,083		26,252
Gross profit		2,268		2,499		7,066		5,039

Operating expenses
Selling, general and administrative		1,979		2,219		6,394		7,663
Legal settlement (Note 9)		570		-		570		-
Total operating expenses		2,549		2,219		6,964		7,663

Operating (loss) income		(281)		280		102		(2,624)

Other expense
Interest & other expense, net		172		98		353		239
Total other expense		172		98		353		239

(Loss) income from continuing operations before income taxes		(453)		182		(251)		(2,863)
Income tax expense		-		-		-		(1,063)
(Loss) income from continuing operations, net of tax		(453)		182		(251)		(3,926)

Loss from discontinued operation before income taxes		(43)		(386)		(72)		(7,326)
Income taxes		-		-		-		-
Loss from discontinued operation, net of tax (Note 2)		(43)		(386)		(72)		(7,326)

Net loss	$	(496)	$	(204)	$	(323)	$	(11,252)

Basic and diluted (loss) earnings per share:
Continuing operations	$	(0.18)	$	0.07	$	(0.10)	$	(1.59)
Discontinued operation		(0.02)		(0.16)		(0.03)		(2.97)
Basic and diluted loss per share	$	(0.20)	$	(0.09)	$	(0.13)	$	(4.56)

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

	Nine Months Ended
	September 30,
	2024		2023
Cash flows related to operating activities:
Loss from continuing operations	$	(251)	$	(3,926)
Adjustments to reconcile loss from continuing operations to net cash provided (used) by operating activities:
Depreciation and amortization		768		790
Stock based compensation		185		111
Allowance for credit losses		(90)		8
Inventory reserve		108		34
Warranty reserve		(129)		(37)
Deferred income taxes		-		1,077
Changes in assets and liabilities providing (using) cash:
Accounts receivable		(443)		(3,852)
Inventories		(1,318)		(796)
Prepaid and other current assets		697		(251)
Accounts payable		893		1,118
Accrued employee compensation and benefit costs		(18)		229
Other accrued liabilities		(863)		528
Post-retirement obligations		45		59
Other long-term liabilities		427		-
Net cash provided (used) by operating activities from continuing operations		11		(4,908)

Cash flows related to investing activities:
Purchase of property, plant and equipment, net of disposals		(933)		(606)
Net cash used by investing activities from continuing operations		(933)		(606)

Cash flows related to financing activities:
Proceeds from line of credit, net of payments		1,066		2,164
Purchase of treasury shares		(21)		-
Payments on finance lease obligations		-		(501)
Net cash provided by financing activities from continuing operations		1,045		1,663

Discontinued Operation
Cash used by operating activities		(172)		(1,753)
Cash provided by investing activities		-		2,100
Net cash (used) provided by discontinued operation		(172)		347

Net decrease in cash and restricted cash		(49)		(3,504)
Cash and restricted cash at beginning of period		245		3,812
Cash and restricted cash at end of period	$	196	$	308