Servotronics Announces Fourth Quarter and Full-Year 2023 Financial Results
-- Continued robust market demand results in 46% top-line growth in the fourth quarter --
-- Gross margin rose 1700 basis points compared to prior-year quarter driven by higher volumes --
ELMA, N.Y., March 22, 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 fourth quarter and full-year ended December 31, 2023.
As previously announced, during the third quarter, the Company sold the assets of The Ontario Knife Company and divested the Consumer Products Group (CPG) business segment. Accordingly, the financial results of the CPG segment have been classified as a discontinued operation for all periods presented. Unless otherwise noted, all financial results are based on the results from continuing operations, comprised of the Company's servo-control business.
Highlights for the fourth quarter financial results include:
Revenues of $12.3 million, up 46.1% from $8.4 million in the fourth quarter of 2022, driven by significantly higher volumes, as units shipped increased by 49.5%.
Gross profit improved 326.1% to $2.7 million, or 22.2% of revenue, in the fourth quarter, up significantly from $0.6 million, or 7.6% of revenue, in the fourth quarter of 2022. This was the result of increased volumes and improved operational efficiencies.
Operating income improved by $2.0 million, or 136.0%, compared to the fourth quarter of 2022, driven by revenue and gross profit growth, as selling, general and administrative (SG&A) costs remained consistent.
Net income from continuing operations was $0.4 million, or $0.15 per diluted share in the fourth quarter of 2023, compared to a net loss from continuing operations of $(1.2) million, or ($0.48) per diluted share in the fourth quarter of 2022.
Servotronics has continued to operate in line with its long-term strategy of increasing sales volumes in key end markets, developing its people, improving operational efficiencies, and assuring quality products and services. These efforts have resulted in strong performance for the second half of 2023 consistent with management expectations as previously communicated.
"2023 was a year of transformation and stabilization for Servotronics, as our team overcame challenges and reshaped the Company with a focus on our core aerospace markets," said Chief Executive Officer Bill Farrell. "We have been able to significantly increase our production output to meet customer demands while controlling costs and improving margins. I am incredibly proud of the team's accomplishments in 2023 and we aim for further improvements in our financial results in the coming year."
Highlights for the full-year financial results from Continuing Operations include the following:
Sequentially higher quarterly sales resulting in annual sales growth of 24.0% to $43.6 million for 2023, from $35.2 million in 2022 driven by strong demand in the commercial aerospace market, with continued benefits of long-term contracts with key customers and recovering production volumes.
Consolidated gross profit was $7.8 million, or 17.9% of revenue in 2023, compared with $5.6 million, or 15.8% for 2022. Gross margins were driven by significant increases in volume and increased production output, partially offset by customer and product mix.
SG&A costs increased to $9.9 million, or 22.7% in 2023, from $8.1 million, or 22.9% for 2022. The increase was primarily driven by significant one-time costs of approximately of $1.2 million relating to the proxy contest, corporate restructuring and consulting costs, and liquidity/refinancing costs that did not occur in 2022, along with higher research and development costs driven by increased customer project activity.
Operating loss improved 15.4% to a loss of ($2.1) million from a loss of ($2.5) million in 2022. The reduction in operating loss was driven by the sales growth and higher gross profit, mostly offset by an increase in one-time SG&A costs.
Income tax expense was ($1.1) million compared to a benefit of $0.6 million in 2022, due to valuation allowances recorded against deferred tax assets in 2023. These allowances are expected to reverse and result in the deferred tax assets offsetting future taxable income.
Net loss for the year was $3.5 million, or a loss of ($1.44) per diluted share in 2023, compared to net loss of $2.1 million, or a loss of ($0.87) per diluted share, in 2022.
Servotronics' Chief Financial Officer Rob Fraass commented, "The Company is focused on strengthening our financial position post divestiture of the CPG business segment, as evidenced by improvements in our working capital during the second half of 2023, and the new asset-based credit facility we secured earlier this year. We believe our liquidity is adequate to support our strategic growth."
Servotronics negative cash flow from operations of ($3.8) million for 2023 was driven primarily by higher accounts receivable resulting from the significant sales growth during the second half of 2023, compared to ($0.3) million for 2022. Working capital (excluding cash and discontinued operation) in 2023 increased $1.2 million compared to 2022, driven by accounts receivable growth as inventory remained consistent.
Mr. Farrell concluded, "Our fourth quarter performance is a testament to our commitment to executing on our strategic objectives and creating value for all our stakeholders. As we look ahead to 2024, we are optimistic for a strong year-over-year revenue growth each quarter and a return to annual profitability. Similar to 2023, we expect quarterly revenue to see steady improvements as the year unfolds."
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
