2021 Year End Income and Revenues
Servotronics Announces 2021 Financial Results Including EPS of $1.68, Record Operating Cash Flow, Lower Total Operating Costs and Expenses, and Enhanced Balance Sheet Strength
— Anticipated first quarter 2022 total revenue growth on improving Advanced Technology Group sales is attributed to process improvements and maintenance of production capabilities, including Servotronics’ highly skilled workforce, over the last two years —
ELMA, N.Y., March 31, 2022 — Servotronics, Inc. (NYSE American – SVT) a designer and manufacturer of servo-control components and other advanced technology products today reported financial results for the fourth quarter and twelve months ended December 31, 2021 including net income growth and record high levels of operating cash flow and year-end cash.
The company reported net income of $4.1 million, or $1.68 per diluted share, in 2021, its highest level since 2015 and up from $100,000, or $0.04, in 2020.
Net income in 2021 reflected the impact of $1.9 million in legal settlement expenses associated with the resolution of previously disclosed commercial litigation, which were offset by $9.6 million in other income from Paycheck Protection Program (“PPP”) loan forgiveness and employee retention credits (“ERC”). The federal PPP and ERC stimulus programs supported successful efforts to prevent involuntary workforce reductions since the outset of the Covid-19 pandemic, as part of a strategy to recruit and retain the Servotronics advanced manufacturing employees who are essential to the company’s ability to meet and exceed commercial, government, defense, and other customers’ high standards for quality, reliability and on-time delivery.
“We attribute fourth quarter 2021 revenue stability and expected first quarter 2022 revenue growth to our commitment to use what we viewed as a temporary delay in Servotronics’ largest-customer orders over the last two years as an opportunity for improvement,” said Chief Operating Officer James C. Takacs. “We implemented a number of process-improvement initiatives, preserved inventories of essential material and components for our proprietary products, and maintained our production capabilities, including our advanced manufacturing and engineering workforce in Western New York. In 2021, we also reduced total operating costs and expenses, and enhanced the company’s cash position, positioning Servotronics to rapidly respond to a recovery in Advanced Technology Group orders, deliver on long-term contracts, and pursue new markets for our products in 2022 and beyond.”
As publicly announced in 2021, Servotronics Board of Directors commenced a national search for a new chief executive officer. The Board has also initiated the process of recruiting diverse, highly-qualified independent directors with experience relevant to its businesses and operations. Both of these important initiatives are well underway.
Consolidated annual revenues were $40.6 million in 2021 compared to $49.8 million the year prior, reflecting a reduction in units shipped by its Advanced Technology Group (ATG) and Consumer Products Group (CPG) segments, which primarily resulted from the impact of the pandemic on key customers.
Fourth quarter consolidated revenues remained relatively stable, at $10.6 million in each of 2021 and 2020. Fourth quarter ATG revenues grew to $8.2 million in 2021, up 8.3% from 2020, reflecting a recovery in units shipped. This offset fourth quarter CPG revenue declining to $2.4 million, down 22.0% from the last three months of 2020.
Servotronics expects to report first quarter 2022 consolidated revenue growth, over the first and fourth quarters of 2021, driven primarily by increases in ATG revenue and units shipped under long-term prime contracts and subcontracts. The company signed two new long-term contracts in 2021 and one in the first quarter of 2022 with ATG customers.
Consolidated gross margin was $6.0 million or 14.8% of revenue in 2021, compared to $8.2 million or 16.5% for 2020. ATG gross margin stability at 18.1% in 2021, up 10 basis points from the year prior, was offset by a CPG gross margin of 2.7% in 2021, down 720 basis points from the year prior.
For the fourth quarter, consolidated gross margin increased to $1.4 million or 12.8% of revenue in 2021, approximately doubling from the $673,000 or 6.4% reported in 2020.
The company believes that its production resources and maintenance of a highly skilled advance manufacturing workforce have positioned Servotronics well for recovering orders, which will be critical to reducing per-unit costs and sustainably enhancing gross margin. As the ATG revenue volume increases it is expected that the utilization of the production resources will improve and improve gross margin percentages similar to the first half of 2020. The company also expects to see improvement in the CPG gross margin percentages.
The company’s total annual operating costs and expenses declined on lower revenue to $45.9 million in 2021, down 7.5% from $49.6 million the year prior to their lowest level since 2018. Fourth quarter total operating costs and expenses declined on lower revenue to $11.7 million in 2021, down 0.7% from $11.8 million in 2020.
Annual operating costs and expenses in 2021 declined in spite of the third quarter accrual of $1.9 million for legal settlements resolving two previously disclosed and unrelated commercial litigation matters. This included $1.8 million to resolve litigation commenced in July 2013 with Aero, Inc. and $90,000 to resolve litigation commenced in March 2016 with an independent contractor for one of the company’s wholly-owned subsidiaries.
Annual operating costs and expenses in 2021 also reflected initiatives designed to recruit and retain advanced manufacturing and engineering employees in what has been widely recognized as one of the most competitive U.S. labor markets in generations. For example, 2021 wage enhancements included, but were not limited to, higher minimum starting pay for new hourly employees, higher second-shift hourly pay, safety certification compensation, and implementation of a pay raise across the entire workforce. In addition, benefits enhancements include expanded time off policies, hybrid scheduling, and flexibility including an optional four-day, 40-hour work week.
Servotronics generated all-time-high annual operating cash flow of $4.6 million in 2021, up 455.8% from 2020. The company’s total cash balance grew by 60.8% in 2021 to a record yearend cash balance of $9.5 million on December 31. Total working capital grew by 9.6% in 2021 to $34.1 million on December 31, primarily due to the increase in our cash position.
The company believes its cash generating capability and financial condition, together with available credit facilities, will be adequate to meet future operating and investing needs. Its credit facilities include but are not limited to a $6.0 million line of credit, of which $4.25 million was outstanding at December 31, 2021.
During the fourth quarter of 2021 the company completed a previously disclosed remediation plan addressing internal controls over financial reporting related to inventory and postretirement benefits. The company continues to implement a remediation plan to address internal control deficiencies related to the assessment and documentation of certain entity-level controls and the design and implementation of certain IT general controls including information technology policies, risk assessments, offsite backup, and monitoring that were identified as of December 31, 2021 and had no material impact on Servotronics’ financial position, results of operations or cash flows.
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.
This news release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements the Company makes regarding expected operating results, the utilization of production resources and liquidity to fund its business operations. 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 operation’s and personnel, and on commercial activity and demand across our and our customers’ businesses, and on global supply chains 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 American
1110 Maple Street ♦ P.O. Box 300 ♦ Elma, New York 14059-0300 ♦ 716-655-5990 ♦ FAX 716-655-6012