Servotronics Announces 2022 Financial Results
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, 2022.
Highlights for the full year financial results include the following:
Annual sales growth of 8.0% to $43.8 million for 2022, from $40.6 million in 2021 driven by improved demand in the commercial aerospace market, with steady incoming order flow and the benefits of long-term contracts with key customers.
Consolidated gross profit was $5.9 million or 13.6% of revenue in 2022, compared with $6.0 million or 14.8% for 2021. Gross margins were adversely impacted by investments in staffing to prepare for anticipated order activity in 2023 and industry-wide supply chain constraints that created inefficiencies within the Company's operations.
Selling, General and Administrative costs decreased to $8.4 million or 19.2% of revenue in 2022, down from $11.3 million or 25.5% of revenue in the year prior. The decrease in SG&A was primarily driven by lower legal fees and legal settlements of approximately $1.9 million in 2021 which did not recur in 2022.
Operating loss improved significantly for the year, decreasing 53.4% to a loss of $2.5 million, from a loss of $5.3 million in 2021. The reduction in operating loss was driven by reductions in SG&A costs.
Net loss for the year was $2.1 million, or a loss of ($0.88) per diluted share in 2022 compared to net income of $4.1 million, or $1.68 per diluted share in 2021. Net income in the prior year included the impact of the forgiveness of the Company's Paycheck Protection Plan loan, employee retention credit and the New York State Shared Work Program which increased pre-tax income by approximately $10.6 million. The prior year also included $1.9 million for legal settlements which negatively impacted pre-tax income.
"We are proud of the progress our team has made as we transform Servotronics to be a leader within our industry. During the past year we have made strides to improve our culture focused on integrity and accountability. There also have been additions to our leadership team which will help us accelerate growth and profitability," said Chief Executive Officer William F. Farrell, Jr. "Our new strategic vision is guiding our actions as we focus on driving improved performance in 2023 and beyond."
Financial results for 2022 were adversely impacted by investments in staffing and inventory to prepare for anticipated order activity in 2023 as well as industry-wide supply chain constraints which caused operating inefficiencies. Internal and external supply chain improvement efforts have been initiated and the Company expects to see improvements in the first half of 2023.
A summary of fourth-quarter financial results includes the following:
Consolidated revenues were $10.4 million in 2022, down slightly from $10.6 million in 2021.
Gross profit decreased to $0.6 million or 5.9% of revenue in 2022, down from $1.4 million, or 12.8% of revenue in 2021. The reduction in gross profit was impacted by unfavorable product mix as well as increased operating costs due to higher labor costs, and increased expendable tools and equipment expenses to support the 2023 demand.
SG&A costs decreased $0.3 million, or 11.5% to $2.2 million in the fourth quarter of 2022 compared to $2.5 million in the fourth quarter of 2021. The improvement in SG&A was the result of lower legal fees partially offset by increased compensation and benefit costs due to higher headcount.
Operating loss increased by approximately $0.4 million compared to the fourth quarter of 2021 due primarily to the decrease in gross profit partially offset by improvements in SG&A costs.
Net loss for the fourth quarter of 2022 was $1.3 million, or a loss of ($0.54) per diluted share compared to a net loss of $0.9 million, or ($0.38) per diluted share in the fourth quarter of 2021.
Business Segment Results
Fourth quarter ATG revenues grew to $8.4 million in 2022, up 3.2% from $8.2 million in the fourth quarter of 2021, reflecting improving demand within the commercial aerospace market as well as increased pricing, partially offset by unfavorable product mix. The growth in the ATG segment slightly offset the fourth quarter CPG revenue decline of 16.3% to $2.0 million, from $2.4 million in 2021. The CPG revenue decrease was the result of lower volume and unfavorable product mix partially offset by increased pricing.
For the fourth quarter, ATG gross profit declined to $0.2 million, or 2.8% of sales in 2022, down from $1.5 million, or 17.9% of sales in 2021. CPG gross profit increased to $0.4 million or 19.2% of sales from a loss of $0.1 million, or 4.9% of sales in 2021. Gross profit at ATG was impacted by an unfavorable product mix as well as increased operating costs due to higher labor costs, partially offset by benefits from the recovery of business within the commercial aircraft market with increased volume and price increases. CPG gross profit increased due to an improvement in operating performance and a decrease in operating costs.
Fourth quarter SG&A expenses decreased approximately $0.3 million or 11.5% in 2022 compared to the fourth quarter of 2021. SG&A expenses at ATG decreased approximately $0.4 million, or 18.0%, due to lower legal fees offset by increased compensation and benefits due to additional headcount, and increased recruiting costs. SG&A expenses at CPG increased approximately $0.1 million, or 18.9%, due to an increase in compensation and benefits and outbound freight. Net loss for the fourth quarter was $1.3 million, or a loss of ($0.54) per diluted share in 2022 compared to net loss of $0.9 million, or ($0.38) per diluted share in the fourth quarter of 2021.
Servotronics generated operating cash flow of $0.3 million in 2022, down from $4.6 million in 2021. The company's total cash balance decreased to $4.0 million on December 31, 2022 compared to $9.5 million at the end of the prior year, due primarily to $4.5 million of debt repayment and the 2022 net loss. Working capital other than cash decreased by $1.5 million during 2022 primarily due to an increase in accounts payable. Sequentially, the Company has increased investments in inventory in preparation for the continued recovery of the commercial aircraft market impacting the ATG business expected in 2023.
Chief Executive Officer William F. Farrell, Jr. concluded, "We are pleased with the accomplishments of our team during the past year which position us closer to achieving our near-term and long-term goals. This momentum has carried into 2023 and we believe we are in a solid position to grow revenues and enhance overall profitability. While we expect the supply chain issues to be largely resolved by the second half of the year, the actions we are taking to make improvements should have a lasting impact on our operations. The commercial aerospace industry is poised for a multi-year recovery that will drive our operations, while our team and renewed culture positions Servotronics for steady improvement as the year unfolds."
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
SOURCE Servotronics, Inc.
