CompX International Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023 (52 weeks); comparison is with fiscal 2022. This is an annual filing, not a standalone fourth-quarter report. CompX manufactures security products and recreational marine components.
Financial and operating performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $161.3 million | $166.6 million | Down 3% |
| Gross margin | $49.2 million; 30.5% | $48.8 million; 29.3% | Margin up 1.2 percentage points |
| Operating income | $25.4 million; 15.8% of sales | $25.4 million; 15.3% of sales | Essentially unchanged |
| Interest income | $4.2 million | $1.9 million | Higher, mainly from interest rates and investment balances |
| Net income | $22.6 million; $1.84 per share | $20.9 million; $1.69 per share | Up 8% |
| Operating cash flow | $25.8 million | $16.9 million | Up $8.9 million |
| Capital expenditures | $1.1 million | $3.7 million | Lower |
Security Products sales rose 6% to $121.2 million and operating income increased 10% to $24.9 million. Marine Components sales fell 23% to $40.1 million and operating income fell 25% to $7.2 million, reflecting weaker towboat demand. Gross margin improved in both segments, but lower marine sales offset Security Products growth at the consolidated revenue level.
Cash and cash equivalents were $41.4 million and marketable securities were $35.4 million at year-end, totaling $76.7 million. Current assets were $126.6 million versus current liabilities of $17.2 million. The balance sheet reports no debt; it does report a $10.6 million note receivable from affiliate Valhi. Total liabilities were $18.8 million and stockholders’ equity was $168.8 million.
Changes, outlook, and notable items
- Revenue declined from 2022’s elevated level as Marine Components sales weakened; Security Products sales reached a record, supported in part by a government security customer pilot project.
- Management expects 2024 sales to be lower in both segments. It expects continued sluggishness across Security Products markets and further towboat-market weakness for Marine Components. Management anticipates lower Marine Components margins from reduced fixed-cost coverage; Security Products gross margin is expected to be comparable, but operating margin is expected to decline.
- The company has no additional orders or known future orders for the 2023 government-customer pilot project. The customer represented 24% of 2023 sales, including 11% related to the pilot project, creating customer-concentration and project-continuation exposure.
- Marine Components ended 2023 with elevated inventory (175 days versus 95 days in 2022), reflecting advance raw-material orders and rapidly softening towboat demand. Management expects inventory to align with current demand by mid-2024.
- Management expects 2024 capital expenditures of approximately $3.0 million and an effective tax rate comparable to 2023’s 24%. It believes cash on hand and operating cash flow can meet liquidity needs over the next 12 months and obligations over five years.
- The board declared a first-quarter 2024 dividend of $0.30 per share. Future dividends remain discretionary. 2023 regular dividends totaled $12.3 million; 2022 included a $21.5 million special dividend.
- Raw-material prices were generally stable or softer in 2023; management expects relative stability in 2024. Material costs were about 48% of cost of sales, with commodity-related raw materials about 13%.
- Purchase obligations totaled $18.3 million, mostly payable in 2024. The company is party to ordinary-course claims and disputes that management does not expect to have a material adverse effect. As a member of Contran’s consolidated tax group, CompX is jointly and severally liable for group federal taxes, with NL agreeing to indemnify it for amounts above CompX’s allocated liability.
- CompX is approximately 87% owned by NL Industries and has related-party arrangements, including the Valhi loan and shared services and insurance. The auditor issued an unqualified opinion on the financial statements; goodwill impairment assessment for Security Products was identified as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether the government security pilot project results in further orders, and the effect of its 11% contribution to 2023 sales.
- Whether towboat demand, OEM production schedules, and Marine Components’ sales and margins recover or weaken further in 2024.
- Progress in reducing Marine Components’ elevated inventory and the risk of excess or slow-moving materials.
- The terms, credit exposure, and repayment timing of the $10.6 million Valhi receivable, which bears interest at prime plus 1% and is payable on demand, but not before December 31, 2025.
- Dividend sustainability, given the board’s discretion and management’s forecast for lower 2024 sales.
- Goodwill valuation: $23.7 million is assigned to Security Products, and the annual 2023 impairment review used a qualitative assessment rather than a quantitative test.