SIFCO Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2021; comparable period is the three months ended December 31, 2020. SIFCO manufactures forged and machined components primarily for aerospace and energy markets and reports one business segment. Financial amounts below are in millions unless noted.
Financial results
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $19.2 | $25.1 |
| Gross profit (margin) | $0.0 (approximately 0.0%) | $3.9 (15.6%) |
| Operating income (loss) | ($3.7) | $2.3 |
| Net income (loss) | ($3.7) | $3.0 |
| Diluted EPS | ($0.64) | $0.51 |
| Adjusted EBITDA (non-GAAP) | ($1.7) | $1.9 |
| Cash from operations | $1.2 | $3.1 |
| Capital expenditures | $0.5 | $3.7 |
At December 31, 2021, cash was $0.7, current assets were $45.3 and current liabilities were $36.2. Total debt was $20.7, including $9.3 outstanding on the revolver; long-term debt was $3.6. Revolving availability was $12.2 under a $35.0 commitment. The company reported $16.0 of lease liabilities separately. The filing states that availability exceeded the threshold for covenant testing, so no covenant calculation was required.
Changes and operating context
- Sales declined $5.8 million, or about 23%, year over year. Rotorcraft revenue fell $4.2 million and energy power-generation revenue fell $2.9 million; fixed-wing revenue was roughly flat, while commercial product and other revenue rose $1.1 million.
- Commercial sales were $8.4 million and military sales were $10.9 million. Both declined year over year, with management citing order delays and difficulty obtaining materials on time.
- Cost of goods sold was 99.9% of sales versus 84.4% in the prior-year quarter. Management attributed the near break-even gross result to lower volume and higher costs, including $1.2 million of idle expense and $0.3 million of higher natural-gas costs.
- Net loss compared with prior-year net income also reflects the prior period’s $2.5 million insurance-recovery gain and a favorable, nonrecurring tax benefit. The prior-year cash-flow comparison also included $3.5 million of insurance proceeds from the Orange facility fire claim.
- Operating cash flow was supported by receivable collections and higher accounts payable, but partly offset by the net loss and a $2.7 million inventory increase. Cash rose from $0.3 million at September 30 to $0.7 million at December 31.
- Backlog was $75.7 million, down from $81.1 million a year earlier. The company cautions that orders may be modified or canceled and backlog may not indicate future sales; most remaining performance obligations were expected to be completed within 12 months.
Outlook, risks and notable items
- Management said expected operating cash flow and borrowing capacity should cover anticipated cash needs for the next 12 months. Remaining FY2022 capital expenditures were expected to be $3.0–$4.0 million, principally for production capabilities and cost reductions.
- COVID-19 continued to cause customer-order and material-supply delays and weigh on aerospace and energy demand. Employees furloughed at one plant during the quarter had returned to work by the filing date.
- In January 2022, the SBA approved forgiveness of the full $5.025 million PPP loan, including accrued interest; $0.261 million previously repaid was reimbursed. The company expected to derecognize the liability in fiscal Q2 2022 upon legal release.
- Other stated risks include commodity-price increases and recovery, reliance on military spending and major customers, workforce availability, pension funding, international and geopolitical exposure, cybersecurity, and the uncertain effects of the pandemic. The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether sales, gross margins and production volumes recover from customer-order and material-supply delays, especially in rotorcraft and energy markets.
- Whether inventory growth, idle costs and working-capital demands continue to pressure cash generation and liquidity.
- That PPP forgiveness was completed and the expected liability removal and reimbursement were reflected in the subsequent quarter.
- Whether revolver availability remains above the covenant-testing threshold and the company maintains access to financing.
- Whether planned FY2022 capital spending and the reported backlog translate into the expected deliveries and cash flows.