SIFCO INDUSTRIES INC

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company’s operations, future results and prospects. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) the impact on business conditions in general, and on the demand for product in the aerospace and energy (or "A&E") industries in particular, of the global economic outlook, including the continuation of military spending at or near current levels and the availability of capital and liquidity from banks, the financial markets and other providers of credit; (2) the future business environment, including capital and consumer spending; (3) competitive factors, including the ability to replace business that may be lost at comparable margins; (4) metals and commodities price increases and the Company’s ability to recover such price increases; (5) successful development and market introduction of new products and services; (6) continued reliance on consumer acceptance of regional and business aircraft powered by more fuel efficient turboprop engines; (7) continued reliance on military spending, in general, and/or several major customers, in particular, for revenues; (8) the impact on future contributions to the Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market value of plan assets; (9) stable governments, business conditions, laws, regulations and taxes in economies where business is conducted; (10) the ability to successfully integrate businesses that may be acquired into the Company’s operations; (11) cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners; (12) our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulations; (13) the ability to maintain a qualified workforce; (14) the adequacy and availability of our insurance coverage; (15) our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers; (16) our ability to …

Excerpt shortened here; the source contains the full paragraph.

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company’s operations, future results and prospects. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) the impact on business conditions in general, and on the demand for product in the aerospace and energy (or "A&E") industries in particular, of the global economic outlook, including the continuation of military spending at or near current levels and the availability of capital and liquidity from banks, the financial markets and other providers of credit; (2) the future business environment, including capital and consumer spending; (3) competitive factors, including the ability to replace business that may be lost at comparable margins; (4) metals and commodities price increases and the Company’s ability to recover such price increases; (5) successful development and market introduction of new products and services; (6) continued reliance on consumer acceptance of regional and business aircraft powered by more fuel efficient turboprop engines; (7) continued reliance on military spending, in general, and/or several major customers, in particular, for revenues; (8) the impact on future contributions to the Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market value of plan assets; (9) stable governments, business conditions, laws, regulations and taxes in economies where business is conducted; (10) the ability to successfully integrate businesses that may be acquired into the Company’s operations; (11) cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners; (12) our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulations; (13) the ability to maintain a qualified workforce; (14) the adequacy and availability of our insurance coverage; (15) our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers; (16) our ability to …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

SIFCO’s total backlog at December 31, 2023 was $130.1 million, of which $103.6 million are anticipated to be complete within the next 12 months, compared with total backlog of $84.2 million as of December 31, 2023. Orders may be subject to modification or cancellation by the customer with limited charges. Recovery in the A&E markets has resulted in increased bookings. Backlog information may not be indicative of future sales.

Current wording

SIFCO’s total backlog at March 31, 2024 was $137.8 million, of which $105.3 million are anticipated to be complete within the next 12 months, compared with total backlog of $96.7 million as of March 31, 2023. Orders may be subject to modification or cancellation by the customer with limited charges. Recovery in the A&E markets has resulted in increased bookings. Backlog information may not be indicative of future sales.

Previous wording

Net sales comparative information for the first three months of fiscal 2024 and 2023 is as follows:

Current wording

Net sales comparative information for the first six months of fiscal 2024 and 2023 is as follows:

Previous wording

Net sales for the first three months of fiscal 2024 decreased $0.2 million to $21.1 million, compared with $21.3 million in the comparable period of fiscal 2023. In general, the production of the Company's products have lead times of varying lengths. Fixed wing sales decreased $0.8 million compared with the same period last year primarily due to F18 demand reduction and timing of orders on the 767 and other programs. Rotorcraft sales decreased $1.2 million compared with the same period last year primarily due to V22 demand reduction. The energy components for power generation units increased by $1.6 million due to growth in the steam turbine markets. Commercial products and other revenue were slightly higher compared with the same period last year.

Current wording

Net sales for the first six months of fiscal 2024 increased $7.1 million to $47.6 million, compared with $40.5 million in the comparable period of fiscal 2023. In general, the production of the Company's products have lead times of varying lengths. Fixed wing sales were slightly higher compared with the same period last year. Rotorcraft sales were slightly lower compared with the same period last year due to demand reduction for the V22 program. The energy components for power generation units increased by $3.0 million due to growth in the steam turbine markets. Commercial products and other revenue increased by $4.3 million due to commercial space and the 787 program.

Previous wording

Commercial net sales were 62.9% of total net sales and military net sales were 37.1% of total net sales in the first three months of fiscal 2024, compared with 47.8% and 52.2%, respectively, in the comparable period in fiscal 2023. Military net sales decreased by $3.3 million to $7.8 million in the first three months of fiscal 2024, compared with $11.1 million in the comparable period of fiscal 2023, primarily due to F18 and V22 demand reduction. Commercial net sales increased $3.0 million to $13.2 million in the first three months of fiscal 2024, compared with $10.2 million in the comparable period of fiscal 2023, primarily due to an increase in the power generation steam turbine market and commercial space.

Current wording

Commercial net sales were 64.3% of total net sales and military net sales were 35.7% of total net sales in the first six months of fiscal 2024, compared with 53.1% and 46.9%, respectively, in the comparable period in fiscal 2023. Military net sales decreased by $2.0 million to $17.0 million in the first six months of fiscal 2024, compared with $19.0 million in the comparable period of fiscal 2023, primarily due to F35 and V22 demand reduction. Commercial net sales increased $9.1 million to $30.6 million in the first six months of fiscal 2024, compared with $21.5 million in the comparable period of fiscal 2023, primarily due to an increase in the power generation steam turbine market and commercial space.

Previous wording

Cost of goods sold increased by $0.3 million, or 1.4%, to $20.3 million, or 96.5% of net sales, during the first three months of fiscal 2024, compared with $20.0 million or 94.1% of net sales, in the comparable period of fiscal 2023. The increase is primarily due to product mix, higher labor costs of $0.4 million, outside services $0.3 million and $0.1 million of hiring costs as the Company increased production to meet customer demands.

Current wording

Cost of goods sold increased by $6.6 million, or 17.5%, to $44.1 million, or 92.7% of net sales, during the first six months of fiscal 2024, compared with $37.6 million or 92.7% of net sales, in the comparable period of fiscal 2023. The increase is primarily due to higher sales volume, higher labor costs of $1.4 million and $0.2 million of hiring costs as the Company increased production to meet customer demands, partially offset by lower idle expense of $0.7 million.

Previous wording

Gross profit decreased $0.5 million to $0.7 million in the first three months of fiscal 2024, compared with $1.3 million gross profit in the comparable period of fiscal 2023. Gross profit percent of sales was 3.5% during the first three months of fiscal 2024, compared with 5.9% in the comparable period in fiscal 2023. The decrease in gross profit compared to prior fiscal year was primarily due to product mix, higher labor costs of $0.4 million, outside services $0.3 million and $0.1 million of hiring costs

Current wording

Gross profit increase $0.5 million to $3.5 million in the first six months of fiscal 2024, compared with $3.0 million gross profit in the comparable period of fiscal 2023. Gross profit percent of sales was 7.3% during the first six months of fiscal 2024 and fiscal 2023. The increase in gross profit compared to prior fiscal year was primarily due to higher volume and reduction of idle expense and outside services $0.2 million, partially offset by higher labor costs of $1.4 million and $0.2 million of hiring costs.

Previous wording

Amortization of intangibles was $0.1 million in the first three months of fiscal 2024 and fiscal 2023.

Current wording

Amortization of intangibles was $0.1 million in the first six months of fiscal 2024 and fiscal 2023.

Previous wording

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first three months of both fiscal 2024 and 2023:

Current wording

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first six months of both fiscal 2024 and 2023:

Previous wording

The Company’s effective tax rate through the first three months of fiscal 2024 was (1.5)%, compared with (2.6)% for the same period of fiscal 2023. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2024 compared with the same period of fiscal 2023. The effective tax rate differs from the U.S. federal statutory rate due primarily to the valuation allowance against the Company’s U.S. deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

Current wording

The Company’s effective tax rate through the first six months of fiscal 2024 was (2.0)%, compared with (1.9)% for the same period of fiscal 2023. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2024 compared with the same period of fiscal 2023. The effective tax rate differs from the U.S. federal statutory rate due primarily to the valuation allowance against the Company’s U.S. deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

Previous wording

Net loss was $3.4 million during the first three months of fiscal 2024, compared with net loss of $2.6 million in the comparable period of fiscal 2023. Increase in net loss is due to higher labor costs, outside services and hiring costs as the Company positions itself for increased demand.

Current wording

Net loss was $1.6 million during the second quarter of fiscal 2024, compared with net loss of $2.4 million in the comparable period of fiscal 2023. Reduction in net loss is primarily due to higher sales volume and gross margin, including reduction of Cyber incident costs and idle expense of $1.0 million and $0.7 million, respectively, partially offset by higher interest expense, labor costs and outside services as the Company increased production to meet customer demands.

Previous wording

Cash and cash equivalents was $3.2 million at December 31, 2023 and $0.4 million at September 30, 2023. At December 31, 2023, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S. subsidiaries. See Note 7, Debt - Foreign subsidiary borrowings in USD. Distributions from the Company's non-U.S. subsidiaries to the Company may be subject to adverse tax consequences.

Current wording

Cash and cash equivalents was $0.7 million at March 31, 2024 and $0.4 million at September 30, 2023. Short-term investments was $1.7 million at March 31, 2024 and zero at September 30, 2023. At March 31, 2024, the majority of the Company’s cash and cash equivalents and short-term investments were in the possession of its non-U.S. subsidiaries. See Note 7, Debt - Foreign subsidiary borrowings in USD. Distributions from the Company's non-U.S. subsidiaries to the Company may be subject to adverse tax consequences.

Previous wording

The Company’s operating activities used $2.1 million of cash in the first three months of fiscal 2024, primarily due to net operating loss of $3.4 million partially offset by depreciation and amortization of $1.6 million and change in inventory valuation accounts of $0.4 million and LIFO effect of $0.3 million. The uses of cash from working capital of $1.0 million was primarily due to increase in inventory of $4.0 million, contract asset of $0.9 million and other assets/prepaids of $0.7 million, partially offset by accounts receivable reductions of $2.2 million and increase in accrued liabilities $2.4 million. The increase in inventory is primarily driven by increase in work in process to meet heightened customer demand. The increase in accrued liabilities is primarily driven by increases in deferred revenue of $1.7 million and legal and professional fess.

Current wording

The Company’s operating activities used $5.3 million of cash in the first six months of fiscal 2024, primarily due to net operating loss of $5.0 million partially offset by non-cash adjustments for depreciation and amortization of $3.1 million and change in inventory valuation accounts of $0.7 million and LIFO effect of $0.4 million. The uses of cash for working capital of $5.0 million was primarily due to increases in inventory of $5.9 million and accounts receivable of $2.8 million, partially offset by increase in accounts payable $4.0 million. The increase in inventory is primarily due to increase in raw material and work in process to meet heightened customer demand. The increase in accounts receivable is due to increases in customer shipments. The increase in accounts payable is due to increases in raw material purchases and outside processing fees related to inventory build.

Previous wording

Cash used for investing activities was $0.5 million in the first three months of fiscal 2024 and fiscal 2023, respectively. Capital commitments as of December 31, 2023 were $0.5 million. The Company anticipates that the remaining total fiscal 2024 capital expenditures will be within the range of $3.5 million to $4.0 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Current wording

Cash used for investing activities was $3.1 million in the first six months of fiscal 2024 primarily due to purchase of short-term investments of $1.7 million and capital expenditures of $1.3 million. Cash used for investing activities was $1.4 million in the first six months of fiscal 2023 due to capital expenditures. Capital commitments as of March 31, 2024 were $0.6 million. The Company anticipates that the remaining total fiscal 2024 capital expenditures will be within the range of $3.0 million to $3.5 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Previous wording

Cash provided by financing activities was $5.5 million in the first three months of fiscal 2024, compared with $0.1 million in the first three months of fiscal 2023.

Current wording

Cash provided by financing activities was $8.8 million in the first six months of fiscal 2024, compared with $0.8 million in the first six months of fiscal 2023.

Previous wording

As discussed in Note 7, Debt, the Company's Maniago location obtained borrowings from two separate lending sources during the first three months of fiscal 2024. The first was a bond for approximately $2.2 million with a seven year term. The proceeds from this loan are shown within cash and cash equivalents on the consolidated condensed balance sheets and will be used for capital investment. A second loan for approximately $1.1 million with a term of eighteen months, will be for working capital purposes, of which only $0.8 million has been received. The Company had $1.2 million of net short-term debt borrowings in the first three months of fiscal 2024 compared with nominal net short-term debt repayments in the first three months of fiscal 2023.

Current wording

As discussed in Note 7, Debt, the Company's Maniago location obtained borrowings from two separate lending sources during the first six months of fiscal 2024. The first was a bond for approximately $2.2 million with a seven year term. The proceeds from this loan are shown within cash and cash equivalents and short-term investments on the consolidated condensed balance sheets and will be used for capital investment. A second loan for approximately $1.1 million with a term of eighteen months, will be for working capital purposes. The Company had $3.1 million of net short-term debt borrowings in the first six months of fiscal 2024 compared with $0.5 million of net short-term debt repayments in the first six months of fiscal 2023.

Previous wording

The Company had net repayments to the revolver under the Credit Agreement of $0.2 million in the first three months of fiscal 2024 compared with net borrowings of $0.4 million in the first three months of fiscal 2023. Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability. The availability at December 31, 2023 was $5.0 million, which exceeds reserve minimum threshold as of December 31, 2023, as such, no covenant calculations were required.

Current wording

The Company had net borrowings from the revolver under the Credit Agreement of $1.2 million in the first six months of fiscal 2024 compared with net borrowings of $1.8 million in the first six months of fiscal 2023. Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability. The availability at March 31, 2024 was $3.7 million, which exceeds reserve minimum threshold as of March 31, 2024, as such, no covenant calculations were required.