SIFCO Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2022; the fiscal year ends September 30. The company manufactures forged and machined components primarily for aerospace and energy markets and reports one business segment. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Nine months ended June 30, 2022 |
|---|---|---|
| Net sales | $21.5 million | $65.3 million |
| Gross profit and margin | $0.4 million; 1.7% | $1.8 million; 2.8% |
| Operating income (loss) | $(2.5) million | $(7.4) million |
| Net income (loss) | $(2.7) million; $(0.46) per diluted share | $(2.7) million; $(0.47) per diluted share |
| Adjusted EBITDA | $(0.7) million | $(1.8) million |
For the nine months, operating cash flow was $0.7 million, capital expenditures were $2.5 million, and cash declined to $0.1 million from $0.3 million at September 30, 2021. Current assets were $42.6 million and current liabilities were $31.1 million.
Total debt was $17.1 million at June 30, 2022, versus $21.2 million at September 30, 2021. Revolver borrowings were $10.1 million; reported availability under the revolving facility was $14.1 million. Shareholders’ equity was $47.0 million.
Changes versus comparable periods
- Third-quarter sales fell 15.3% from $25.3 million; nine-month sales fell 13.3% from $75.3 million.
- Third-quarter gross margin declined to 1.7% from 13.0%; nine-month gross margin fell to 2.8% from 13.2%. Lower volume, idle costs, and higher material and energy costs pressured results.
- The third quarter shifted from net income of $0.3 million in 2021 to a $2.7 million loss. Nine-month results shifted from $1.8 million of income to a $2.7 million loss.
- Nine-month commercial revenue increased to $29.7 million from $26.5 million, while military revenue fell to $35.5 million from $48.8 million. Rotorcraft sales declined, with management citing delayed orders and program volume reductions.
- Nine-month operating cash flow decreased to $0.7 million from $3.5 million. Prior-year results included $2.5 million of insurance recovery; the current period included a $5.1 million gain from forgiveness of the PPP loan.
Outlook, commentary, and risks
- Management said expected operating cash flows and available credit should meet anticipated cash needs for the next 12 months. It anticipated $1.0 million to $1.5 million of remaining fiscal 2022 capital expenditures; capital commitments were $1.9 million at June 30.
- Backlog was $69.4 million, down from $78.1 million a year earlier. Orders may be modified or cancelled with limited charges, and management cautioned that backlog may not indicate future sales. Remaining performance obligations were also $69.4 million, with most expected to be completed within 12 months.
- Management cited COVID-19-related order and material delays, supply-chain constraints, and uncertainty in commercial aerospace recovery. Russia-Ukraine conflict-related energy and raw-material price volatility is an additional risk. The company also identified dependence on military spending and major customers, cost inflation, workforce availability, and its ability to recover backlog as risks.
- The credit agreement was amended to use SOFR-based rates and revise certain covenant and borrowing-base terms. Availability exceeded the threshold requiring covenant calculations at quarter-end; if availability falls below that threshold, a fixed-charge coverage ratio of at least 1.1 to 1.0 applies.
- Qualitative factors at the Orange, California location triggered a long-lived asset recoverability test; assets were found recoverable, but management said it will continue monitoring for impairment indicators.
Important facts for investors to verify
- Whether order timing, material availability, and production volumes improve enough to restore gross margins.
- Current revolver availability, covenant headroom, borrowing costs, and the company’s ability to maintain liquidity given minimal cash and negative Adjusted EBITDA.
- Backlog conversion, cancellations, and customer concentration, particularly in military and rotorcraft programs.
- Whether energy, material, and other inflationary costs persist and can be passed through to customers.
- The effect of the PPP forgiveness gain and prior-year insurance recovery when assessing recurring earnings and cash generation.