Final Results
8 March 2023
Somero Enterprises, Inc.
("Somero" or "the Company")
Final Results
Healthy North American market, significant contributions from Europe and Australia drive strong finish to 2022
Somero Enterprises, Inc. reports its annual results for the twelve months ended 31 December 2022.
|
|
FY22 |
FY21 |
% Change |
|
|
(US$) |
(US$) |
|
|
Revenue |
133.6m |
133.3m |
23bps |
|
Adjusted EBITDA(1,2) |
46.0m |
47.8m |
-3.8% |
|
Adjusted EBITDA margin(1,2) |
34% |
36% |
-200bps |
|
Profits before tax |
40.8m |
44.6m |
-8.5% |
|
Adjusted net income(1,3) |
31.0m |
34.8m |
-11% |
|
Diluted adjusted net income per share(1,3) |
0.55 |
0.61 |
-9.8% |
|
Cash flow from operations |
27.8m |
36.9m |
-25% |
|
Net cash(4) |
33.7m |
42.1m |
-20% |
|
Ordinary dividend per share |
0.2778 |
0.3102 |
-10% |
|
Supplemental dividend per share |
0.0770 |
0.1970 |
-61% |
Financial Highlights
· Sales surpassed record setting 2021 revenue that had grown a remarkable 50% over 2020
· Adjusted EBITDA decline reflecting the impact of strategic investments in personnel necessary to drive long-term growth
· Cash flow from operations impact from required investment in working capital to increase stock levels needed to support international markets and to offset supply chain shortages and delays
· Substantial return of cash to shareholders
· Paid US$ 29.0m in dividends during 2022 (2021: US$ 22.4m)
· US$ 2.0m share buy-back, authorized in February 2022, largely completed
Operational Highlights
· Investments for Long-term growth
· US$ 9.5m Houghton, Michigan expansion project completed in 2022, expected to be fully operational in H1 2023
· Added key personnel in 2022, prioritizing international sales and customer support roles
· Europe and Australia reported record 2022 revenues, growing 23% and 38% from 2021, respectively
· Successful introduction of the S-28EZ in 2022 was the main contributor to increased boomed screed revenue of US$ 67.2m in 2022 (2021: US$ 65.4m)
· New products launched since 2019 that target entirely new market segments combined to contribute US$ 4.2m to 2022 revenues (2021: US$ 3.2m)
· Substantial increase in activity of international customer-led product development with extensive job site visits and innovation council events
Post-Period Highlights
· Declared a 18.0 US cents per share final 2022 ordinary dividend and a 7.7 US cents per share supplemental dividend, totaling a combined US$ 14.2m, payable on May 5, 2023 to shareholders on the register at April 11, 2023
· Authorized a new share buyback program of an aggregate value of up to US$ 2m to offset dilution from on-going equity award programs, expected to be completed by the end of 2023
· Completion of US$ 9.5m expansion of Houghton, Michigan facility, providing a 35% increase in operational capacity, completed on time and on budget and is expected to be fully operational in Q1 2023.
Notes:
1. The Company uses non-US GAAP financial measures to provide supplemental information regarding the Company's operating performance. See further information regarding non-GAAP measures below.
2. Adjusted EBITDA as used herein is a calculation of the Company's net income plus tax provision, interest expense, interest income, foreign exchange gain (loss) other income (expense), depreciation, amortization, stock-based compensation and non-cash lease expense.
3. Adjusted net income as used herein is a calculation of net income plus amortization of intangibles and excluding the tax impact of stock option and RSU settlements and other special items.
4. Net cash is defined as cash and cash equivalents less borrowings under bank obligations exclusive of deferred financing costs.
Jack Cooney, CEO of Somero, said:
"2022 was an outstanding year for Somero. The Company reported record revenue, just surpassing the extraordinary levels we achieved in 2021. Europe and Australia made substantial contributions, each achieving their own record revenue totals. These excellent results were made possible by our talented, dedicated employees who worked hard to overcome persistent supply chain challenges to reliably deliver equipment and meet customers' needs, an accomplishment that sets Somero apart from other equipment suppliers in the industry.
Notwithstanding the additional strategic investment and working capital made in the year, the Company's operations were highly efficient in 2022, converting record sales into strong profits and operating cash flow providing the financial strength to make strategic investments and return substantial cash to shareholders. The Company remains committed to disciplined capital management, balancing short-term profits with reinvestment to drive long-term growth and in 2022, we are pleased to have delivered strong profits while adding personnel in key global positions and completing the Houghton, Michigan facility expansion, prudent investment with long-term benefits. On the basis of the investments we have made and the Company's continued financial strength, we believe the Company is positioned well to capture future growth from new products and in international markets for years to come."
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.
Final Results Investor Presentation
As part of its engagement with investors, management will host a live virtual presentation and Q&A on 15 March 2023 at 1630 GMT.
The presentation is open to all existing and potential shareholders and will be given by Chief Executive Officer Jack Cooney, President John Yuncza and Chief Financial Officer Enzo LiCausi .
To register to attend, please use the following link: https://bit.ly/SOM_FY_results_webinar
Questions can be submitted at any time during the live presentation. A recording will be made available via the Group's website following the conclusion of the presentation.
For further information, please contact:
Somero Enterprises, Inc. www.somero.com
Jack Cooney, CEO +1 239 210 6500
John Yuncza, President
Enzo LiCausi, CFO
Howard Hohmann, EVP Sales
finnCap Ltd (NOMAD and Broker)
Matt Goode (Corporate Finance) +44 (0)20 7220 0500
Seamus Fricker (Corporate Finance)
Tim Redfern (ECM)
Harriet Ward (ECM)
Alma PR (Financial PR Advisor) somero@almapr.co.uk
David Ison +44 (0)20 3405 0205
Pippa Crabtree
Notes to Editors
Somero Enterprises provides industry-leading concrete-levelling equipment, training, education and support to customers in over 90 countries. The Company's cutting-edge technology allows its customers to install high-quality horizontal concrete floors faster, flatter and with fewer people. Somero ® equipment that incorporates laser-technology and wide-placement methods is used to place and screed the concrete slab in all building types and has been specified for use in a wide range of commercial construction projects for numerous global blue-chip companies.
Somero pioneered the Laser Screed® market in 1986 and has maintained its market-leading position by continuing to focus on bringing new products to market and developing patent-protected proprietary designs. In addition to its products, Somero offers customers unparalleled global service, technical support, training and education, reflecting the Company's emphasis on helping its customers achieve their business and profitability goals, a key differentiator to its peers.
For more information, visit www.somero.com
Chairman's and Chief Executive Officer's Statement
Overview
2022 revenue totaled US$ 133.6m, an all-time high for the Company that marginally surpassed the extraordinary US$ 133.3m reported in 2021. A strong, healthy North America market, significant contributions from Europe and Australia, growing revenues from new products such as the S-28EZ, and the impact of 2022 price increases all were factors in delivering this record result. Most importantly, it was the stellar performance by our operational and support teams to overcome supply chain delays, including the decision to increase working capital investment to ensure adequate inventory levels internationally, to reliably deliver equipment to customers that was the Company's defining achievement in 2022, a tremendous accomplishment that sets Somero apart from other equipment providers in the industry.
Record 2022 revenues converted into strong profits and operating cash flow, funding business reinvestment and substantial dividend payments to shareholders. 2022 adjusted EBITDA totaled US$ 46.0m, down 3.8% from the record US$ 47.8m reported in 2021, a healthy level of profit that also reflects added cost from key positions filled in 2021 and 2022 that are necessary to execute the Company's growth strategy. Healthy profits converted to strong operating cash flow totaling US$ 27.8m in 2022 (2021: US$ 36.9m), reflecting increased working capital investment from a higher inventory level required to support international operations and maintain adequate safety stock to mitigate the risk of supply chain delays. 2022 operating cash flow funded a record US$ 29.0m in dividend payments and US$ 5.0m to complete the Houghton, Michigan facility expansion. With the increased working capital investment, record dividend payments and substantial capital expenditures in 2022, December 31, 2022 net cash totaled US$ 33.7m, down from the US$ 42.1m reported at the end of 2021. The Company's final 2022 results were in line with guidance provided on 31 January 2023.
Region and Product Reviews
The Company's three main markets, North America, Europe and Australia, reported combined revenue of US$ 125.1m in 2022, slightly ahead of the US$ 124.8m reported in 2021, representing 94% of total sales for the year. The Company's strategic focus is on these three markets, and we are pleased with the revenue growth in Europe and Australia during the year that offset a modest decline in North America. The Company will continue focusing on increasing the revenue contribution from international markets in the years to come.
North America
North America reported 2022 revenue of US$ 101.8m (2021: US$ 106.6m), a 4.5% decline from the record high reported last year. While supply chain challenges, including inconsistent availability of concrete persisted during the year, the underlying US non-residential construction market conditions were healthy and active. US customers managed through the supply challenges and able to complete work on a diverse span of projects ranging from large footprint operational facilities, data centers and warehousing to smaller footprint retail, school, and medical centers. This was reflected in balanced take rates across our product portfolio comparable to prior years. The high volume of work was also evident by strong parts and service revenue reported in 2022, an amount that is included in Other revenue that increased to US$ 21.6m in 2022 from US$ 20.4m in 2021. As we move into 2023, while it is difficult to predict when and to what extent the aforementioned challenges will ease, our positive 2023 outlook for North America reflects an expected continuation of the strong level of activity in US non-residential construction, a view supported by customers reporting project backlogs that extend well into 2023.
Europe
Europe reported all-time high sales in 2022 totaling US$ 14.9m 23% growth over the US$ 12.1m reported in 2021. The 2022 growth was driven by a number of factors including key sales and customer support resources added in 2021 and 2022, increased in-region stock levels, a focus on acquiring new customer relationships and increasing market penetration with new products in our target countries in the region. Increasing market penetration with new products will be a key element driving future performance in Europe, and the Company anticipates increasing near-term opportunities by broadening market awareness of the full range of products already in our portfolio as well as longer-term opportunities from future product development aimed at capitalizing on unmet market needs and industry-wide trends.
Steps taken to execute our growth strategy in 2022 included introducing the SkyScreed® 36 to the UK market in H2 2022, adding three European-based sales and customer support employees including a direct sales territory manager in Italy, and the introduction of a competitively priced entry-level ride-on screed, the EcoScreed.
Australia
Australia also reported all-time high revenue in 2022 totaling US$ 8.4m, 38% growth from the US$ 6.1m reported in 2021. The strong performance in Australia was underpinned by an active non-residential construction market and benefitted from the addition of sales and customer support staff in late 2021 and throughout 2022, from expanding the range of products offered in the region, and from strengthened customer relationships made possible by the change to a go-direct model in late 2020.
Steps taken to execute our Australia growth strategy in 2022 included the introduction of the SkyScreed® 36 to the market in late 2022, the addition of three customer support employees and one direct sales territory manager during the course of H2 2021 and 2022, and an increased volume of jobsite product demonstrations to build broader awareness of products that are new to the market, all important steps in our growth plan that highlight our commitment to strategic investment.
Rest of World
Our Rest of World region, which includes China, the Middle East, India, Southeast Asia, Latin America and Korea, reported combined 2022 sales of US$ 8.5m, equal to the 2021 total. The main contributors to 2022 revenues from this region were Latin America, India, and China.
Excluding China, the Rest of World region reported combined 2022 revenues of US$ 7.4m, a 28% increase over the US$ 5.8m reported in 2021. As expected, China reported a decline in 2022 to US$ 1.1m from the US$ 2.7m reported in 2021 due to the 2022 downsizing of the in-country China team, severe COVID-19 restrictions that limited activity and travel for large portions of the year, and an unfavorable environment for western company investment in China.
Latin America reported 2022 sales of US$ 3.6m, an increase from the US$ 2.2m reported in 2021, a positive result driven primarily by solid activity in Mexico and a positive contribution from Brazil. India reported 2022 revenue of US$ 2.6m, a record for the country and an increase over the US$ 1.9m reported in 2021. Non-residential construction activity in India is healthy and the Company experienced solid interest in our equipment, particularly compact machines best suited for smaller placements.
Products
2022 Boomed screed sales increased to US$ 67.2m from the US$ 65.4m reported in 2021, driven by the positive impact of the S-28EZ introduced at the start of 2022. Strong 2022 sales of boomed screeds resulted from the significant volume of large footprint projects in our three main markets. 2022 sales of ride-on screeds totaling US$ 19.5m (2021: US$ 21.3m), 3D Profiler Systems totaling US$ 8.7m (2021: US$ 10.0m), and the Somero Line Dragon totaling US$ 1.7m (2021: US$ 4.2m) were all down somewhat compared to 2021, a result that represents typical period to period product category fluctuation associated with variation in customer project types that trigger equipment purchases. Sales of remanufactured equipment in 2022 increased to US$ 6.9m (2021: US$ 4.8m) due to increased availability of trade-in equipment during the year. Other revenues increased to US$ 28.5m in 2022 (2021: US$ 26.7m), driven by strong part sales tied to a high utilization of equipment by customers, as well as contributions from sales of other equipment included in the category such as the Somero Broom+CureTM, S-PS50, and Copperhead.
New products also contributed to the 2022 growth. On a combined basis, new products that target new market segments including the SkyScreed® 36, S-PS50, SkyStrip® and the Somero Broom+Cure TM , all introduced since 2019, contributed US$ 4.2m in 2022 revenues, a US$ 1.0m increase from the US$ 3.2m reported in 2021. Included in this group total was US$ 1.1m in sales of the SkyScreed® 36 that increased modestly from the US$ 0.9m in 2021. The SkyScreed® 36, and the other products in this group, are highly disruptive solutions supported by a strong value proposition that deliver meaningful value to customers, but also significantly change long-established jobsite work practices and workflows resulting in a gradually building path to market acceptance.
Strategic Progress
Somero's strategy is to capture growth from new products and in our international markets. The Company began in 1986 with an industry transforming invention, the laser screed machine, and to this day Somero remains committed to leading the industry forward by developing solutions that help customers build better, safer, and more profitable businesses. Developing new products creates value for customers and expands our growth opportunity. The Company's new product releases include entirely new, disruptive products that target new market segments as well as products closely related to our current portfolio. We remain confident the long-term opportunity in these new market segments, including the high-rise structural market, far exceeds reported 2022 revenue for the Company, but understand as with all disruptive technology, gaining broad market acceptance will be a gradual process. Looking beyond our current product offering, we continue to dedicate significant organizational time and resources to engage customers directly to develop a pipeline of ideas for future solutions that address pain points. 2022 was an active year in this regard, with extensive jobsite visits and innovation council sessions both in the US and internationally.
We are pleased to report a strong contribution from our international markets in 2022, a direct result of efforts to allocate Company resources in international markets where our value proposition resonates best. The successful results in Europe and Australia reflect the benefit of investments made over the course of 2021 and 2022 to penetrate these markets and the Company continues to see good growth opportunity in these regions.
Cashflow and Balance Sheet
Somero reported operating cash flow in 2022 of US$ 27.8m, down from the record US$ 36.9m reported in 2021, but a strong result nonetheless driven by healthy profit that was offset partly by a US$ 5.3m increase in net working capital investment. The increased working capital requirement in 2022 came from a higher level of inventory required to support the Company's European and Australian operations and new products as well as to maintain adequate safety stock to mitigate supply chain delays, and we anticipate comparable inventory levels in 2023.
The Company spent US$ 5.2m in 2022 on capital expenditures, the vast majority relating to the Houghton, Michigan expansion that was completed during the year. The Company also paid record dividends in 2022 totaling US$ 29.0m (2021: US$ 22.4m), reflecting the Company's ongoing commitment to disciplined return of cash to shareholders, and repurchased US$ 1.4m in common stock under the 2021 US$ 2.0m share buyback program.
The Company ended 2022 with US$ 33.7m in net cash down from the record US$ 42.1m reported in 2021 primarily due to sizable 2022 dividend payments and increased working capital investment, but still providing a secure financial position with a December 31, 2022 net cash balance that comfortably exceeds the Board approved minimum year-end cash reserve of US$ 25.0m.
Dividend and share buyback program
Based on the Company's strong 2022 results, secure financial position, and positive outlook for 2023, we are pleased to report that the Board has declared a final 2022 ordinary dividend of US$ 0.18 per share, calculated based on the Board approved payout ratio of 50% of adjusted net income, and after reviewing anticipated future cash requirements for the business, the Board has also declared a supplemental dividend of US$ 0.077 per share, calculated as a 50% distribution of December 31, 2022 cash that exceeds the Board approved year-end US$ 25.0m minimum cash reserve. The final 2022 ordinary dividend when combined with the US$ 0.10 per share interim dividend paid in October 2022, results in a total 2022 ordinary dividend of US$ 0.28, a 10% decrease from the US$ 0.31 per share 2021 ordinary dividend. Both the final 2022 ordinary dividend and the 2022 supplemental dividend will be payable on 5 May, 2023 to shareholders on the register at 11 April, 2023.
In February 2023, the Board approved a 2023 share buyback program, pursuant to which, the Board intends to carry out a buyback US$ 2.0m of common shares in order to mitigate future dilution resulting from share issuances under the Company's equity award programs. The Company expects to complete the 2023 program, along with the remaining US$ 0.6m portion of the 2022 buyback program , by the end of 2023.
Our People
On behalf of the Board, we would like to thank our global employees for their impressive performance in 2022 to overcome substantial obstacles and deliver equipment reliably to our customers and deliver these outstanding results for our shareholders. We are fortunate to have strong employee retention, an important element of our variable cost business model, while also adding key positions to the organization that support our global growth plan. The average number of employees in 2022 was 216, a 7% increase over the average of 201 in 2021 when the Company was understaffed and working to catch up with a rapid increase in demand for our products. Over half of the net personnel increase related to operational staff to support increased volume, with the remaining non-operational staffing net increase focused primarily on global sales and customer support roles. The Board and management team remain as committed as ever to providing all our global employees with a rewarding and challenging working environment that is full of opportunity.
Facility Expansion
We completed the 50,000 square foot expansion of our Houghton, Michigan facility in 2022, a project that increases our operational capacity by 35% and our facility footprint by 50%. The expanded facility can support growth in volume and in the number of products the Company offers and improves operational efficiency and increases operational control by insourcing certain pre-assembly processes. The project was completed in line with the US$ 9.5m budgeted cost and is expected to be fully operational in Q1 2023.
Environmental, Social and Governance
The Board closely monitors environmental, social and governance topics that materially impact our stakeholders. These topics are routinely discussed to ensure Somero strikes the appropriate balance of meeting shareholder expectations and addressing the concerns of key stakeholders necessary to ensure sustainability of the business. A primary material topic is the environmental impact of our business including the use of our equipment in the construction process. In 2022, we commissioned a phase two environmental study by Colorado State University that is expected to be completed shortly. The phase two study supplements the phase one study that was completed in 2021 by Middle Tennessee State University, the results of which are outlined in a white paper available on our website. The phase one study concluded the use of our laser screed machines in non-residential construction provides a number of environmental benefits, including a reduction in required manpower and concrete used in building projects that in turn reduces carbon emissions during construction that would otherwise occur from the use of alternative manual methods.
Conclusion and Outlook
Thanks to the talent, dedication and resolve of our employees, by all measures, 2022 was a successful year under very challenging conditions. The Company reported record 2022 revenue that surpassed the extraordinary 2021 result, paid a record US$ 29.0m in dividends to shareholders, reported all-time high revenues in our primary international markets Europe and Australia, completed a major expansion of our Houghton, Michigan facility, and made prudent, strategic investments to add personnel necessary to drive global growth. There is much to be proud of as we look back.
Looking forward, the Board maintains a positive outlook for 2023 based on the healthy, active US non-residential construction market, the positive momentum in Europe and Australia, and on opportunities for growth from new products. The Board's view on the positive market conditions is supported by direct feedback from US customers reporting strong, healthy project backlogs that extend well into 2023.
With the Board's confidence in the long-term growth opportunity from new products and in new market segments, it has committed to continue making targeted investments to add product development, global sales and customer support resources to drive this growth. With these planned added resources, combined with the impact of cost and wage inflation, we expect an increase in 2023 operating costs that will modestly exceed our traditionally targeted US$ 2.0m.
The Board expects the Company to deliver strong revenues, profits, and cash flows to shareholders in 2023. While the risk of supply chain delays and concrete shortages in North America may persist, the healthy and active non-residential construction markets in the US, Europe and Australia form the foundation of the Company's 2023 expectations. With all factors considered, 2023 revenues are expected to be comparable with 2022, and with targeted added resources 2023 EBITDA is expected to be down modestly from 2022, and with 2023 working capital investment expected to remain elevated, year-end 2023 cash is expected to be at a comparable level to year-end 2022.
Notes:
(1) Net Cash is defined as total cash and cash equivalents less borrowings under bank obligations exclusive of deferred financing costs.
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FINANCIAL REVIEW |
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Summary of financial results |
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Year ended December 31, |
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||
|
|
2022 |
2021 |
|
|
US$ 000 Except per share data |
US$ 000 Except per share data |
|
|
|
|
|
Revenue |
133,590 |
133,334 |
|
Cost of sales |
57,431 |
56,454 |
|
Gross profit |
76,159 |
76,880 |
|
|
|
|
|
Operating expenses |
|
|
|
Selling, marketing and customer support |
14,289 |
12,644 |
|
Engineering and product development |
2,600 |
2,106 |
|
General and administrative |
16,170 |
16,989 |
|
Total operating expenses |
33,059 |
31,739 |
|
Operating income |
43,100 |
45,141 |
|
Other income (expense) |
|
|
|
Interest expense |
(18) |
(45) |
|
Interest income |
62 |
171 |
|
Foreign exchange impact |
(1,342) |
(239) |
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Other |
(1,001) |
(408) |
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Income before income taxes |
40,801 |
44,620 |
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|
|
|
|
Provision for income taxes |
9,682 |
9,788 |
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Net income |
31,119 |
34,832 |
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|
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|
|
Per Share |
Per Share |
|
|
US$ |
US$ |
|
Basic earnings per share |
0.56 |
0.62 |
|
Diluted earnings per share |
0.55 |
0.61 |
|
Basic adjusted net income per share (1), (3), (4) |
0.56 |
0.62 |
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Diluted adjusted net income per share (1), (3), (4) |
0.55 |
0.61 |
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Other data |
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Adjusted EBITDA (1), (2), (4) |
46,026 |
47,780 |
|
Adjusted net income (1), (3), (4) |
31,000 |
34,835 |
|
Depreciation expense |
1,322 |
1,173 |
|
Amortization of intangibles |
135 |
153 |
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Capital expenditures |
5,367 |
6,245 |
Notes:
1. Adjusted EBITDA and Adjusted net income are not measurements of the Company's financial performance under US GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with US GAAP or as an alternative to US GAAP cash flow from operating activities as a measure of profitability or liquidity. Adjusted EBITDA and Adjusted net income are presented herein because management believes they are useful analytical tools for measuring the profitability and cash generation of the business. Adjusted EBITDA is also used to determine pricing and covenant compliance under the Company's credit facility and as a measurement for calculation of management incentive compensation. The Company understands that although Adjusted EBITDA is frequently used by securities analysts, lenders, and others in their evaluation of companies, its calculation of Adjusted EBITDA may not be comparable to other similarly titled measures reported by other companies.
2. Adjusted EBITDA as used herein is a calculation of net income plus tax provision, interest expense, interest income, foreign exchange gain(loss), other income (expense), depreciation, amortization, stock-based compensation and non-cash lease expense.
3. Adjusted net income as used herein is a calculation of net income plus amortization of intangibles and excluding the tax impact of stock option and RSU settlements and other special items.
4. The Company uses non-US GAAP financial measures to provide supplemental information regarding the Company's operating performance. The non-US GAAP financial measures presented herein should not be considered in isolation from, or as a substitute to, financial measures calculated in accordance with US GAAP. Investors are cautioned that there are inherent limitations associated with the use of each non-US GAAP financial measure. In particular, non-US GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and many of the adjustments to the US GAAP financial measures reflect the exclusion of items that may have a material effect on the Company's financial results calculated in accordance with US GAAP.
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Net income to adjusted EBITDA reconciliation and |
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Adjusted net income reconciliation |
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Year ended December 31, |
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2022 |
2021 |
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US$ 000 |
US$ 000 |
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Adjusted EBITDA reconciliation |
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Net income |
31,119 |
34,832 |
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Tax provision |
9,682 |
9,788 |
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Interest expense |
18 |
45 |
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Interest income |
(62) |
(171) |
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Foreign exchange impact |
1,342 |
239 |
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Other |
1,001 |
408 |
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Depreciation |
1,322 |
1,173 |
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Amortization |
135 |
153 |
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Stock-based compensation |
1,165 |
1,052 |
|
Non-cash lease expense |
304 |
261 |
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Adjusted EBITDA |
46,026 |
47,780 |
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|
|
|
|
Adjusted net income |
|
|
|
Net income |
31,119 |
34,832 |
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Amortization |
135 |
153 |
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Tax impact of stock option & RSU settlements |
(254) |
(150) |
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Adjusted net income |
31,000 |
34,835 |
Notes:
1. Adjusted EBITDA and Adjusted net income are not measurements of the Company's financial performance under US GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with US GAAP or as an alternative to US GAAP cash flow from operating activities as a measure of profitability or liquidity. Adjusted EBITDA and Adjusted net income are presented herein because management believes they are useful analytical tools for measuring the profitability and cash generation of the business. Adjusted EBITDA is also used to determine pricing and covenant compliance under the Company's credit facility and as a measurement for calculation of management incentive compensation. The Company understands that although Adjusted EBITDA is frequently used by securities analysts, lenders, and others in their evaluation of companies, its calculation of Adjusted EBITDA may not be comparable to other similarly titled measures reported by other companies.
2. Adjusted EBITDA as used herein is a calculation of net income plus tax provision, interest expense, interest income, foreign exchange gain(loss), other income (expense), depreciation, amortization, stock-based compensation and non-cash lease expense.
3. Adjusted net income as used herein is a calculation of net income plus amortization of intangibles and excluding the tax impact of stock option and RSU settlements and other special items.
4. The Company uses non-US GAAP financial measures in order to provide supplemental information regarding the Company's operating performance. The non-US GAAP financial measures presented herein should not be considered in isolation from, or as a substitute to, financial measures calculated in accordance with US GAAP. Investors are cautioned that there are inherent limitations associated with the use of each non-US GAAP financial measure. In particular, non-US GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and many of the adjustments to the US GAAP financial measures reflect the exclusion of items that may have a material effect on the Company's financial results calculated in accordance with US GAAP.
Revenues
The Company's consolidated revenues increased modestly to US$ 133.6m (2021: US$ 133.3m). Company revenues consist primarily of sales from Boomed screed products, which include the S-28EZ, S-22EZ, S-15R, S-10A and SRS-4 Laser Screed® machines, sales from Ride-on screed products, which are drive through the concrete machines that include the S-485, S-940, and S-158C Laser Screed® machines, Remanufactured machine sales, 3-D Profiler System®, Somero Line Dragon®, SkyScreed® and Other revenues which consist primarily of revenue from sales of parts and accessories, sales of other equipment, including the Broom + CureTM, SkyStripTM, S-PS50, service, training and shipping charges.
Boomed screed sales increased to US$ 67.2m (2021: US$ 65.4m) due to continued strong demand for machines used for large slab on grade placements, particularly the S-22EZ and the S-28EZ, and higher sales prices. Ride-on screed sales decreased to US$ 19.5m (2021: US$ 21.3m) due to lower volume, while Remanufactured sales increased to US$ 6.9m (2021: US$ 4.8m) due to higher volume. Sales of 3D Profiler System® and the Somero Line Dragon® decreased to US$ 8.7m (2021: US$ 10.0m) and US$ 1.7m (2021: US$ 4.2m), respectively, due to lower volume. Sales of the SkyScreed® remained relatively consistent contributing slightly over US$ 1.0m, and Other revenues increased to US$ 28.5m (2021: US$ 26.7m) primarily due an increase in parts sales and sales of the S-PS50, which was launched at the beginning of 2022.
|
Revenue breakdown by geography |
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North America US$ in millions |
EMEA (1) US$ in millions |
ROW (2) |
Total US$ in millions |
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|
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US$ in millions |
2022 |
2021 |
|||||||
|
|
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
Net sales |
% of Net sales |
Net sales |
% of Net sales |
|
Boomed screeds (3) |
49.7 |
50.4 |
9.9 |
8.9 |
7.6 |
6.1 |
67.2 |
50.3% |
65.4 |
49.1% |
|
Ride-on screeds (4) |
14.4 |
16.8 |
1.8 |
1.3 |
3.3 |
3.2 |
19.5 |
14.6% |
21.3 |
16.0% |
|
Remanufactured machines |
5.2 |
4.4 |
.9 |
- |
.8 |
.4 |
6.9 |
5.2% |
4.8 |
3.6% |
|
3-D Profiler System |
8.2 |
9.6 |
.1 |
.1 |
.4 |
.3 |
8.7 |
6.5% |
10.0 |
7.5% |
|
Somero Line Dragon |
1.6 |
4.1 |
.1 |
.1 |
- |
- |
1.7 |
1.3% |
4.2 |
3.1% |
|
SkyScreed |
1.1 |
.9 |
- |
- |
- |
- |
1.1 |
.8% |
.9 |
.7% |
|
Other (5) |
21.6 |
20.4 |
2.9 |
2.2 |
4.0 |
4.1 |
28.5 |
21.3% |
26.7 |
20.0% |
|
Total |
101.8 |
106.6 |
15.7 |
12.6 |
16.1 |
14.1 |
133.6 |
100.0% |
133.3 |
100.0% |
Notes:
1. EMEA includes Europe, Middle East, and Scandinavia.
2. ROW includes Australia, Latin America, India, China, Korea, and Southeast Asia.
3. Boomed Screeds include the S-28EZ, S-22EZ, S-15R, S-10A and SRS-4.
4. Ride-on Screeds include the S-940, S-485, and S-158C.
5. Other includes parts, accessories, services and freight, as well as other equipment such as the SkyStripTM, Somero Broom + CureTM, STS-11M Topping Spreader, Copperhead, Mini Screed C and S-PS50.
|
Units by product line |
2022 |
2021 |
|
Boomed screeds |
187 |
218 |
|
Ride-on screeds |
166 |
181 |
|
Remanufactured machines |
32 |
26 |
|
3D Profiler System |
71 |
84 |
|
Somero Line Dragon ® |
41 |
110 |
|
SkyScreed ® |
3 |
3 |
|
Other (1) |
51 |
50 |
|
Total |
551 |
672 |
Notes :
1. Other includes equipment SkyStripTM, Somero Broom + CureTM, STS-11M Topping Spreader, Copperhead, Mini Screed C and S-PS50.
Sales to customers located in North America contributed 76% of total revenue (2021: 80%), sales to customers in EMEA (Europe, Middle East, and Scandinavia) contributed 12% (2021: 9%) and sales to customers in ROW (Australia, Latin America, India, China, Korea, and Southeast Asia) contributed 12% (2021: 11%).
Sales in North America were US$ 101.8m (2021: US$ 106.6m) down 5% driven mostly by lower sales volume of legacy Boomed Screeds and Somero Line Dragon®, partially offset by an increase in Remanufactured machines and price increases across most of the product line. Sales in EMEA were US$ 15.7m (2021: US$ 12.6m), which is an increase of 24% primarily due to high volume across most of the product line. Sales in ROW were US$ 16.1m (2021: US$ 14.1), representing a 14% increase driven primarily by higher sales volume of Boomed Screeds, particularly in Australia.
|
|
US$ in millions |
|
|
Regional sales |
2022 |
2021 |
|
North America |
101.8 |
106.6 |
|
Europe |
14.9 |
12.1 |
|
Australia |
8.4 |
6.1 |
|
Rest of World (1) |
8.5 |
8.5 |
|
Total |
133.6 |
133.3 |
Notes:
1. Includes Latin America, India, Southeast Asia, Middle East, and Korea.
Gross profit
Gross profit decreased slightly to US$ 76.2 m (2021: US$ 76.9m), with gross margins decreasing to 57% (2021: 58%) primarily due to higher input costs and the annualized cost of employees hired in the second half of 2021.
Operating expenses
Operating expenses increased by US$ 1.4m to US$ 33.1m (2021: US$ 31.7m). The increase is primarily due the annualized cost of employees hired in the second half of 2021 and during 2022 in selling, marketing, customer support and engineering and product development, coupled with higher than normal inflation, which were partly offset by lower general and administrative expense.
Debt
As of December 31, 2022, the Company had no outstanding debt. In August 2022, the Company updated its credit facility to a US$ 25.0m secured revolving line of credit, with a maturity date of August 2027. The interest rate on the revolving credit line is based on the BSBY Index plus 1.25%. The Company's credit facility is secured by substantially all its business assets.
Other income (expense)
Other income (expense) was US$ 1.0m of other expense in 2022, compared to US$ 0.5m of other expense in 2021, primarily due to a higher realized and unrealized foreign currency exchange loss.
Provision for income taxes
The provision for income taxes was US$ 9.7m in 2022 compared to US$ 9.8m in 2021. Overall, Somero's effective tax rate changed to 23.7% in 2022 from 21.9% in 2021.
Earnings per share
Basic earnings per share represents income available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding restricted stock units.
Earnings per common share has been computed based on the following:
|
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Year ended December 31, |
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|
|
2022 US$ 000 |
2021 US$ 000 |
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|
||
|
|
|
|
|
Income available to stockholders |
31,119 |
34,832 |
|
|
|
|
|
Basic weighted shares outstanding |
55,443,830 |
56,133,366 |
|
Net dilutive effect of stock options and restricted stock units |
661,193 |
692,173 |
|
Diluted weighted average shares outstanding |
56,105,023 |
56,825,539 |
|
|
Per Share |
Per Share |
|
|
US$ |
US$ |
|
Basic earnings per share |
0.56 |
0.62 |
|
Diluted earnings per share |
0.55 |
0.61 |
|
Basic adjusted net income per share |
0.56 |
0.62 |
|
Diluted adjusted net income per share |
0.55 |
0.61 |
|
Consolidated Balance Sheets |
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As of December 31, 2022 and 2021 |
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|
As of December 31, |
|||
|
|
|
2022 |
2021 |
||
|
|
|
US$ 000 |
US$ 000 |
||
|
Assets |
|
|
|||
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Current assets: |
|
|
|||
|
|
Cash and cash equivalents |
33,699 |
42,146 |
||
|
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Accounts receivable - net |
10,315 |
7,691 |
||
|
|
Inventories- net |
18,849 |
14,293 |
||
|
|
Prepaid expenses and other assets |
2,022 |
1,590 |
||
|
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Income tax receivable |
702 |
2,376 |
||
|
Total current assets |
65,587 |
68,096 |
|||
|
Accounts receivable, non-current - net |
414 |
461 |
|||
|
Property, plant, and equipment - net |
25,650 |
21,589 |
|||
|
Financing lease right-of-use assets-net |
323 |
383 |
|||
|
Operating lease right-of-use assets-net |
1,066 |
1,578 |
|||
|
Intangible assets - net |
1,257 |
1,392 |
|||
|
Goodwill |
3,294 |
3,294 |
|||
|
Deferred tax asset |
1,165 |
172 |
|||
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Other assets |
235 |
394 |
|||
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Total assets |
98,991 |
97,359 |
|||
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Liabilities and stockholders' equity |
|
|
|||
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Current liabilities: |
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|
|||
|
|
Accounts payable |
9,683 |
7,111 |
||
|
|
Accrued expenses |
8,495 |
10,291 |
||
|
|
Financing lease liability - current |
175 |
183 |
||
|
|
Operating lease liability - current |
304 |
360 |
||
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|
Total current liabilities |
18,657 |
17,945 |
||
|
Financing lease liability - long-term |
98 |
127 |
|||
|
Operating lease liability - long-term |
799 |
1,255 |
|||
|
Other liabilities |
2,311 |
2,367 |
|||
|
Total liabilities |
21,865 |
21,694 |
|||
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|
|
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Stockholders' equity |
|
|
|||
|
|
Preferred stock, US$.001 par value, 50,000,000 shares authorized, no shares issued and outstanding |
- |
- |
||
|
|
Common stock, US$.001 par value, 80,000,000 shares authorized, 55,818,357 and 56,246,964 shares issued and 55,812,857 and 56,039,924 shares outstanding at December 31, 2022 and 2021, respectively |
26 |
26 |
||
|
|
Less: treasury stock, shares 5,500 as of December 31, 2022 and 207,040 shares as of December 31, 2021 at cost |
(39) |
(848) |
||
|
|
Additional paid in capital |
14,625 |
16,769 |
||
|
|
Retained earnings |
64,325 |
62,187 |
||
|
|
Other comprehensive loss |
(1,811) |
(2,469) |
||
|
|
Total stockholders' equity |
77,126 |
75,665 |
||
|
Total liabilities and stockholders' equity |
98,991 |
97,359 |
|||
|
|
|
|
|
||
|
See Notes to consolidated financial statements. |
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|
Consolidated Statements of Comprehensive Income |
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For the years ended December 31, 2022 and 2021 |
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|
Year ended December 31, |
|
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|
|
2022 |
2021 |
|
|
|
US$ 000 |
US$ 000 |
|
|
|
except per share data |
except per share data |
|
|
|
|
|
|
Revenue |
133,590 |
133,334 |
|
|
Cost of sales |
57,431 |
56,454 |
|
|
Gross profit |
76,159 |
76,880 |
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
Sales, marketing and customer support |
14,289 |
12,644 |
|
|
Engineering and product development |
2,600 |
2,106 |
|
|
General and administrative |
16,170 |
16,989 |
|
|
Total operating expenses |
33,059 |
31,739 |
|
|
|
|
|
|
Operating income |
43,100 |
45,141 |
|
|
Other income (expense) |
|
|
|
|
|
Interest expense |
(18) |
(45) |
|
|
Interest income |
62 |
171 |
|
|
Foreign exchange impact |
(1,342) |
(239) |
|
|
Other |
(1,001) |
(408) |
|
Income before income taxes |
40,801 |
44,620 |
|
|
|
|
|
|
|
Provision for income taxes |
9,682 |
9,788 |
|
|
|
|
|
|
|
Net income |
31,119 |
34,832 |
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
Cumulative translation adjustment |
658 |
356 |
|
Comprehensive income |
31,777 |
35,188 |
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
Earnings per share - basic |
0.56 |
0.62 |
|
|
Earnings per share - diluted |
0.55 |
0.61 |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
||
|
|
Basic |
55,443,830 |
56,133,366 |
|
|
Diluted |
56,105,023 |
56,825,539 |
|
|
|
|
|
|
See Notes to consolidated financial statements. |
|
|
|
|
Consolidated Statements of Changes in Stockholders' Equity |
|
|
||||||||||||
|
For the years ended December 31, 2022 and 2021 |
|
|
|
|||||||||||
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|
|
|
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|
|
|
|||||
|
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Common stock |
|
Treasury stock |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
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|
Amount |
Additional paid-in capital |
|
Amount |
Retained earnings |
Other Comprehensive income (loss) |
Total Stockholders' equity |
|
|||||
|
|
Shares |
US$ 000 |
US$ 000 |
Shares |
US$ 000 |
US$ 000 |
US$ 000 |
US$ 000 |
|
|||||
|
Balance - January 1, 2021 |
56,425,598 |
26 |
17,598 |
301,189 |
(1,040) |
49,771 |
(2,825) |
63,530 |
|
|||||
|
Cumulative translation adjustment |
- |
- |
- |
- |
- |
- |
356 |
356 |
|
|||||
|
Net income |
- |
- |
- |
- |
- |
34,832 |
- |
34,832 |
|
|||||
|
Stock-based compensation |
- |
- |
1,052 |
- |
- |
- |
- |
1,052 |
|
|||||
|
Dividend |
- |
- |
- |
- |
- |
(22,416) |
- |
(22,416) |
|
|||||
|
Treasury stock |
(178,634) |
- |
(192) |
(94,149) |
192 |
- |
- |
- |
|
|||||
|
RSUs settled for cash |
- |
- |
(685) |
- |
- |
- |
- |
(685) |
|
|||||
|
Share buy-back |
- |
- |
(1,004) |
- |
- |
- |
- |
(1,004) |
|
|||||
|
Balance - December 31, 2021 |
56,246,964 |
26 |
16,769 |
207,040 |
(848) |
62,187 |
(2,469) |
75,665 |
|
|||||
|
Cumulative translation adjustment |
- |
- |
- |
- |
- |
- |
658 |
658 |
|
|||||
|
Net income |
- |
- |
- |
- |
- |
31,119 |
- |
31,119 |
|
|||||
|
Stock-based compensation |
- |
- |
1,165 |
- |
- |
- |
- |
1,165 |
|
|||||
|
Dividend |
- |
- |
- |
- |
- |
(28,981) |
- |
(28,981) |
|
|||||
|
Treasury stock |
(483,960) |
- |
(2,236) |
(483,960) |
2,236 |
- |
- |
- |
|
|||||
|
RSUs settled for cash |
- |
- |
(1,073) |
- |
- |
- |
- |
(1,073) |
|
|||||
|
Share buy-back |
- |
- |
- |
282,420 |
(1,427) |
- |
- |
(1,427) |
|
|||||
|
New Shares Issued |
55,353 |
- |
- |
- |
- |
- |
- |
- |
|
|||||
|
Balance - December 31, 2022 |
55,818,357 |
26 |
14,625 |
5,500 |
(39) |
64,325 |
(1,811) |
77,126 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
See Notes to consolidated financial statements. |
|
|
|
|
|
|
|
|||||||
|
Consolidated Statements of Cash Flows |
|
|
|
For the years ended December 31, 2022 and 2021
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2022 US$ 000 |
2021 US$ 000 |
|
|
||
|
Cash flows from operating activities: |
|
|
|
Net income |
31,119 |
34,832 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
Deferred taxes |
(993) |
(91) |
|
Depreciation and amortization |
1,457 |
1,326 |
|
Non-cash lease expense |
304 |
261 |
|
Bad debt |
247 |
468 |
|
Stock-based compensation |
1,165 |
1,052 |
|
Gain/Loss on disposal of property and equipment |
(158) |
(49) |
|
Working capital changes: |
|
|
|
Accounts receivable |
(2,824) |
(1,473) |
|
Inventories |
(4,556) |
(3,166) |
|
Prepaid expenses and other assets |
(273) |
86 |
|
Other assets |
159 |
(91) |
|
Accounts payable, accrued expenses and other liabilities |
481 |
7,025 |
|
Income taxes receivable |
1,674 |
(3,264) |
|
Net cash provided by operating activities |
27,802 |
36,916 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
Proceeds from sale of property and equipment |
143 |
41 |
|
Property and equipment purchases |
(5,367) |
(6,245) |
|
Net cash used in investing activities |
(5,224) |
(6,204) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
Payment of dividend |
(28,981) |
(22,416) |
|
RSUs settled for cash |
(1,073) |
(685) |
|
Stock buy-back |
(1,427) |
(1,004) |
|
Payments under financing leases |
(202) |
(205) |
|
Net cash used in financing activities |
(31,683) |
(24,310) |
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
658 |
356 |
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
(8,447) |
6,758 |
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
Beginning of year |
42,146 |
35,388 |
|
End of year |
33,699 |
42,146 |
|
|
|
|
|
See Notes to consolidated financial statements. |
|
|
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021
1. Organization and description of business
Nature of business
Somero Enterprises, Inc. (the "Company" or "Somero") designs, assembles, remanufactures, sells and distributes concrete levelling, contouring and placing equipment, related parts and accessories, and training services worldwide. Somero's Operations and Support Offices are located in Michigan, USA with Global Headquarters and Training Facilities in Florida, USA. Sales and service offices are located in Chesterfield, England; Shanghai, China; New Delhi, India; and Melbourne, Australia.
2. Summary of significant accounting policies
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America using the accrual basis of accounting.
Principles of consolidation
The consolidated financial statements include the accounts of Somero Enterprises, Inc. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents
Cash includes cash on hand, cash in banks, and temporary investments with a maturity of three months or less when purchased. The Company maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation ("FDIC"). The Company has not experienced any losses related to amounts in excess of FDIC limits.
Accounts receivable and allowances for doubtful accounts
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company's accounts receivable are derived from revenue earned from a diverse group of customers. The Company performs credit evaluations of its commercial customers and maintains an allowance for doubtful accounts receivable based upon the expected ability to collect accounts receivable. Allowances, if necessary, are established for amounts determined to be uncollectible based on specific identification and historical experience. As of December 31, 2022 and 2021, the allowance for doubtful accounts was approximately US$ 1,780,000 and US$ 1,637,000, respectively. Bad debt expense was US$ 247,000 and US$ 468,000 in 2022 and 2021, respectively.
Inventories
Inventories are stated using the first in, first out ("FIFO") method at the lower of cost or net realizable value ("NRV"). Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels and future sales forecasts. As of December 31, 2022 and 2021, the provision for obsolete and slow-moving inventory was US$ 643,000 and US$ 1,212,000, respectively.
Intangible assets and goodwill
Intangible assets consist primarily of customer relationships, trademarks and patents, and are carried at their fair value when acquired, less accumulated amortization. Intangible assets are amortized using the straight-line method over a period of three to seventeen years, which is their estimated period of economic benefit.
Goodwill is not amortized but is subject to impairment tests on an annual basis, and the Company has chosen December 31 as its periodic assessment date. Goodwill represents the excess cost of the business combination over the Company's interest in the fair value of the identifiable assets and liabilities. Goodwill arose from the Company's prior sale from Dover Corporation to The Gores Group in 2005 and the purchase of the Line Dragon, LLC business assets in January 2019.
Revenue recognition
The Company generates revenue by selling equipment, parts, accessories, service agreements and training. The Company recognizes revenue for equipment, parts and accessories when it satisfies the performance obligation of transferring the control to the customer. For product sales where shipping terms are FOB shipping point, revenue is recognized at a point in time upon shipment. For arrangements which include FOB destination shipping terms, revenue is recognized at a point in time upon delivery to the customer. The Company recognizes the revenue for service agreements and training once the service or training has occurred.
As of December 31, 2022 and 2021 there are US$ 582,000 and US$ 507,000, respectively, of extended service agreement liabilities. During the years ended December 31, 2022 and 2021, US$ 425,000 and US$ 321,000, respectively, of revenue was recognized related to the amounts recorded as liabilities on the balance sheets in the prior year (deferred contract revenue).
As of December 31, 2022 and 2021, there are US$ 2,180,000 and US$ 4,009,000, respectively, in customer deposit liabilities for advance payments received during the period for contracts expected the following period. As of the year ended December 31, 2022 and 2021, there are no significant contract costs such as sales commissions or costs deferred. Interest income on financing arrangements is recognized as interest accrues, using the effective interest method.
Warranty liability
The Company provides warranties on all equipment sales ranging from 60 days to three years, depending on the product.
Warranty liabilities are estimated net of the warranty passed through to the Company from vendors, based on specific identification of issues and historical experience and is recorded in accrued expenses in the accompanying consolidated balance sheets.
|
|
US$ 000 |
|
Balance, January 1, 2021 |
(1,174) |
|
Warranty charges |
362 |
|
Accruals |
(1,174) |
|
Balance, December 31, 2021 |
(1,986) |
|
|
|
|
Balance, January 1, 2022 |
(1,986) |
|
Warranty charges |
808 |
|
Accruals |
(270) |
|
Balance, December 31, 2022 |
(1,448) |
Property, plant, and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and amortization. Land is not depreciated. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is 31.5 to 40 years for buildings (depending on the nature of the building), 15 years for improvements, and 3 to 10 years for machinery and equipment.
Income taxes
The Company determines income taxes using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items reflected in the financial statements. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance, if necessary, to the extent that it appears more likely than not that such assets will be unrecoverable. The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns and records a liability for uncertain tax positions. This involves a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement.
Stock-based compensation
The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). The Company measures the cost of employee services in exchange for an award based on the grant-date fair value of the award. Compensation expense related to stock-based payments was US$ 1,165,000 and US$ 1,052,000 for the years ended December 31, 2022 and 2021, respectively. In addition, the Company settled US$ 1,073,000 and US$ 685,000 in restricted stock units for cash during the years ended December 31, 2022 and 2021, respectively.
Transactions in and translation of foreign currency
The functional currency for the Company's subsidiaries outside the United States is the applicable local currency. The preparation of the consolidated financial statements requires the translation of these financial statements to USD. Balance sheet amounts are translated at period-end exchange rates and the statement of comprehensive income accounts are translated at average rates. The resulting gains or losses are charged directly to accumulated other comprehensive income. The Company is also exposed to market risks related to fluctuations in foreign exchange rates because some sales transactions, and some assets and liabilities of its foreign subsidiaries, are denominated in foreign currencies other than the designated functional currency. Gains and losses from transactions are included as foreign exchange gain (loss) in the accompanying consolidated statements of comprehensive income.
Comprehensive income
Comprehensive income is the combination of reported net income and other comprehensive income ("OCI"). OCI is changes in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources not included in net income.
Earnings per share
Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued using the treasury stock method. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units.
Earnings per common share have been computed based on the following:
|
|
Year ended December 31, |
|
|
|
2022 US$ 000 |
2021 US$ 000 |
|
Income available to stockholders |
31,119 |
34,832 |
|
Basic weighted shares outstanding |
55,443,830 |
56,133,366 |
|
Net dilutive effect of stock options and restricted stock units |
661,193 |
692,173 |
|
Diluted weighted average shares outstanding |
56,105,023 |
56,825,539 |
Fair value
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these instruments. The carrying value of our long-term debt approximates fair value due to the variable nature of the interest rates under our Credit Facility.
US GAAP has issued accounting guidance on fair value measurements. This guidance provides a common definition of fair value and a framework for measuring assets and liabilities at fair values when a particular standard prescribes it.
This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy.
· Level 1 - Quoted prices for identical instruments in active markets.
· Level 2 - Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities.
· Level 3 - Unobservable inputs for the asset or liability which are supported by little or no market activity and reflect the Company's assumptions that a market participant would use in pricing the asset or liability.
|
|
|
|
Quoted prices in active markets identical assets Level 1 |
Significant other observable inputs Level 2 |
Significant other unobservable inputs Level 3 |
|
|
|
|
|||
|
|
|
|
|||
|
|
|
US$ 000 |
US$ 000 |
US$ 000 |
US$ 000 |
|
Year ended December 31, 2021 |
|
|
|
||
|
|
Asset: Goodwill |
3,294 |
|
|
3,294 |
|
Year ended December 31, 2022 |
|
|
|
||
|
|
Asset: Goodwill |
3,294 |
|
|
3,294 |
3. Inventories
|
Inventories consisted of the following: |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
||
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
US $ 000 |
|
US $ 000 |
|
Raw material |
11,393 |
|
8,679 |
|||
|
Finished goods and work in process |
5,768 |
|
3,462 |
|||
|
Remanufactured |
|
|
1,688 |
|
2,152 |
|
|
Total |
|
|
|
18,849 |
|
14,293 |
4. Goodwill and intangible assets
Goodwill represents the excess of the cost of a business combination over the fair value of the net assets acquired. The Company is required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a unit may be below its carrying value. The results of the qualitative assessment indicated that goodwill was not impaired as of December 31, 2022 and 2021, and that the value of patents was not impaired as of December 31, 2022. The following table reflects other intangible assets:
|
|
|
Weighted average |
Year ended December 31, |
|||||
|
|
|
Amortization |
2022 |
2021 |
||||
|
|
|
Period |
US$ 000 |
US$ 000 |
||||
|
Capitalized cost |
Patents |
12 years |
19,247 |
19,247 |
||||
|
|
Intangible Assets |
|
7,434 |
7,434 |
||||
|
|
|
|
26,681 |
26,681 |
||||
|
Accumulated amortization |
Patents |
12 years |
18,721 |
18,673 |
||||
|
|
Intangible Assets |
|
6,703 |
6,616 |
||||
|
|
|
|
25,424 |
25,289 |
||||
|
Net carrying costs |
Patents |
12 years |
526 |
574 |
||||
|
|
Intangible Assets |
|
731 |
818 |
||||
|
|
|
|
1,257 |
1,392 |
||||
Amortization expense associated with the intangible assets in each of the years ended December 31, 2022 and 2021 was approximately US$ 135,000 and US$ 153,000, respectively. The amortization expense for each of the next five years will be US$ 135,000 and the remaining amortization thereafter will be US$ 582,000.
5. Property, plant, and equipment
Property, plant, and equipment consist of the following:
|
|
Year ended December 31, |
|
||
|
|
2022 |
2021 |
|
|
|
|
US$ 000 |
US$ 000 |
|
|
|
|
|
|
|
|
|
Land |
864 |
864 |
|
|
|
Building and improvements |
24,812 |
20,191 |
|
|
|
Machinery and equipment |
8,744 |
8,185 |
|
|
|
|
34,420 |
29,240 |
|
|
|
Less: accumulated depreciation and amortization |
(8,770) |
(7,651) |
|
|
|
|
25,650 |
21,589 |
|
|
Depreciation expense for the years ended December 31, 2022 and 2021 was approximately US$ 1,322,000 and US$ 1,173,000, respectively.
6. Line of credit and note payable
In August 2022, the Company updated its credit facility to a US$ 25.0m secured revolving line of credit, with a maturity date of August 2027. The interest rate on the revolving credit line is based on the BSBY Index plus 1.25%. The Company's credit facility is secured by substantially all its business assets. No amounts were drawn under the secured revolving line of credit in the years ended December 31, 2022 or 2021.
Interest expense for the years ended December 31, 2022 and 2021 was approximately US$ 18,000 and US$ 45,000, respectively, and relates primarily to interest costs on leased vehicles.
7. Retirement program
The Company has a savings and retirement plan for its employees, which is intended to qualify under Section 401(k) of the US Internal Revenue Code ("IRC"). This savings and retirement plan provides for voluntary contributions by participating employees, not to exceed maximum limits set forth by the IRC. The Company's matching contributions vest immediately. The Company contributed approximately US$ 1,058,000 to the savings and retirement plan during 2022 and contributed US$ 925,000 during 2021.
8. Leases
The Company leases property, vehicles, and equipment under leases accounted for as operating and finance leases. The leases have remaining lease terms of less than 1 year to 11 years, some of which include options for renewal. The exercise of these renewal options is at the sole discretion of the Company. The right-of-use assets and related liabilities presented on the Consolidated Balance Sheet, reflect management's current expectations regarding the exercise of renewal options. The components for lease expense were as follows as of December 31, 2022:
|
|
US$ 000 |
|
Operating lease cost |
325 |
|
Finance lease cost: |
|
|
Amortization of right-of-use assets |
137 |
|
Interest on lease liabilities |
12 |
|
Total finance lease cost |
149 |
As of December 31, 2022, the weighted average discount rate for finance and operating leases was 4.7% and 3.7%, respectively, and the weighted average remaining lease term for finance and operating leases was 1.6 years and 7.6 years, respectively.
Maturities of lease liabilities are as follows for the years ended:
|
|
Operating Leases |
Finance Leases |
|
|
US$ 000 |
US$ 000 |
|
2023 |
341 |
186 |
|
2024 |
203 |
86 |
|
2025 |
93 |
13 |
|
2026 |
93 |
- |
|
2027 |
93 |
- |
|
Thereafter |
465 |
- |
|
Total |
1,288 |
285 |
|
Less imputed interest |
(185) |
(12) |
Total 1,103 273
9. Supplemental cash flow and non-cash financing disclosures
|
|
Year ended December 31, |
|
|
|
2022 |
2021 |
|
|
US$ 000 |
US$ 000 |
|
Cash paid for interest |
18 |
45 |
|
Cash paid for taxes |
8,806 |
12,547 |
|
Finance lease liabilities arising from obtaining right-of-use assets |
(37) |
(80) |
|
Operating lease liabilities arising from obtaining right-of-use assets |
(513) |
278 |
|
|
|
|
10. Business and credit concentration
The Company's line of business could be significantly impacted by, among other things, the state of the general economy, the Company's ability to continue to protect its intellectual property rights, and the potential future growth of competitors. Any of the foregoing may significantly affect management's estimates and the Company's performance. At December 31, 2022 and 2021, the Company had five customers which represented 42% and two customers which represented 21% of total accounts receivable, respectively.
11. Commitments and contingencies
The Company has entered into employment agreements with certain members of senior management. The terms of these are for renewable one-year periods and include non-compete and non-disclosure provisions as well as provide for defined severance payments in the event of termination or change in control. The Company is also subject to various unresolved legal actions which arise in the normal course of its business. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible losses, the Company believes these unresolved legal actions will not have a material effect on its consolidated financial statements.
|
12. Income taxes |
Year ended December 31, |
|
|
|
2022 US$ 000 |
2021 US$ 000 |
|
Current Income Tax |
|
|
|
Federal |
8,703 |
8,344 |
|
State |
1,332 |
1,195 |
|
Foreign |
640 |
341 |
|
Total current income tax expense |
10,675 |
9,880 |
|
Deferred tax expense (benefit) |
|
|
|
Federal |
(820) |
(91) |
|
State |
(89) |
(1) |
|
Foreign |
(84) |
- |
|
Total deferred tax expense |
(993) |
(92) |
|
Total tax provision |
9, 682 |
9,788 |
|
|
|
|
As of December 31, 2022 and 2021, the effects of temporary differences that give rise to the deferred tax assets are as follows:
|
|
Year ended December 31, |
|
|
|
2022 US$ 000 |
2021 US$ 000 |
|
Deferred tax assets |
|
|
|
Bad debt allowance |
349 |
378 |
|
Inventory |
325 |
284 |
|
Accrued expenses |
343 |
458 |
|
UK intangibles |
146 |
105 |
|
Stock compensation |
386 |
394 |
|
Italy - NOL |
385 |
268 |
|
Lease liability |
43 |
47 |
|
Capital research expenditures |
683 |
- |
|
Other |
494 |
250 |
|
Total deferred tax assets |
3,154 |
2,184 |
|
Deferred tax liabilities |
|
|
|
Prepaid insurance |
(149) |
(264) |
|
Fixed assets |
(783) |
(838) |
|
Intangible assets |
(631) |
(597) |
|
Right of use asset |
(41) |
(45) |
|
Total deferred tax liabilities |
(1,604) |
(1,744) |
|
Valuation allowance |
(385) |
(268) |
|
Total net deferred tax asset |
1,165 |
172 |
A reconciliation of the income tax provision with the amount of tax computed by applying the U.S. federal statutory rate to pretax income follows:
Year ended December 31,
|
|
2022 US$ 000 |
2021 US$ 000 |
|
Consolidated income before tax |
40,801 |
44,620 |
|
Statutory rate |
21% |
21% |
|
Statutory tax expense |
8,568 |
9,370 |
|
State taxes |
1,007 |
943 |
|
Foreign taxes |
723 |
342 |
|
Permanent differences due to stock options and RSUs |
(55) |
6 |
|
Permanent differences due to other items |
344 |
21 |
|
Foreign derived intangible income |
(738) |
(1,207) |
|
Change in valuation allowance |
117 |
36 |
|
Change in reserve |
- |
67 |
|
Tax credits |
(158) |
- |
|
Other |
(126) |
210 |
|
Tax expense |
9,682 |
9,788 |
|
|
|
|
As of December 31, 2022, the Company has US$ 1.64m of foreign loss carryforwards with an indefinite carryforward life. Management assesses the recoverability of our deferred tax assets as of the end of each quarter, weighing all positive and negative evidence, and is required to establish and maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed. As of December 31, 2022 management has determined that a valuation allowance is currently needed against the Company's net operating loss carryforward deferred tax assets.
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and foreign jurisdictions. The Company has open years for the tax year 2019 and forward. The Company has open years related to United Kingdom filings for the tax year 2019, and open years related to Italian filings for tax years 2015 forward.
The Company adopted the accounting standard for uncertain tax positions, ASC 740-10, in accordance with US GAAP, and as required by the standard, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Increases or decreases to the unrecognized tax benefits could result from management's belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions.
|
Unrecognized tax benefits - January 1, 2021 |
958 |
|
Increases from positions taken during prior periods |
492 |
|
Increases from positions taken during current period |
- |
|
Settled positions |
- |
|
Lapse of statute of limitations |
- |
|
Unrecognized tax benefits - December 31, 2021 |
1,450 |
|
|
|
|
Unrecognized tax benefits - January 1, 2022 |
1,450 |
|
Increases from positions taken during prior periods |
- |
|
Increases from positions taken during current period |
- |
|
Settled positions |
- |
|
Lapse of statute of limitations |
- |
|
Unrecognized tax benefits - December 31, 2022 |
1,450 |
The amount of unrecognized tax benefits as of December 31, 2022, if recognized, would favorably affect the Company's effective tax rate. These unrecognized tax benefits are classified as "Other Long-Term Liabilities" in the Company's Consolidated Balance Sheet as the Company does not intend to make significant payments in the next twelve months. Interest and penalties related to unrecognized tax benefits are included in provision for income tax expense.
13. Revenues by geographic region
The Company sells its products to customers throughout the world. The breakdown by location is as follows:
|
|
2022 |
2021 |
|
|
US$ 000 |
US$ 000 |
|
United States and U.S. possessions |
101,773 |
106,627 |
|
Rest of World |
31,817 |
26,707 |
|
Total |
133,590 |
133,334 |
14. Stock-based compensation
The Company has stock-based compensation plans which are described below. The compensation cost that has been charged against income for the plans was approximately US$ 1,165,000 and US$ 1,052,000 for the years ended December 31, 2022 and 2021, respectively. The income tax effect recognized for stock-based compensation was US$ 0.3m and US$ 0.02m, respectively, for the years ended December 31, 2022 and 2021.
Restricted stock units
The Company also regularly issues restricted stock units to employees and Non-Executive Directors, subject to Board approval.
A summary of restricted stock unit activity in 2022 and 2021 is presented below:
|
|
Shares |
Grant date fair market value US$ |
|
Outstanding at January 1, 2021 |
666,070 |
2,687,027 |
|
Granted |
184,890 |
941,711 |
|
Vested or settled for cash |
(156,644) |
(826,618) |
|
Forfeited |
(12,960) |
(50,000) |
|
Outstanding at December 31, 2021 |
681,356 |
2,752,120 |
|
|
Shares |
Grant date fair market value US$ |
|
Outstanding at January 1, 2022 |
681,356 |
2,752,120 |
|
Granted |
176,808 |
1,133,698 |
|
Vested or settled for cash |
(183,666) |
(925,674) |
|
Forfeited |
(6,508) |
(25,000) |
|
Outstanding at December 31, 2022 |
667,990 |
2, 935,144 |
RSUs settled for cash were US$ 1.1m in 2022 and US$ 0.7m in 2021.
As of December 31, 2022, there was US$ 1,256,000 total unrecognized compensation cost related to non-vested restricted stock units. Restricted stock unit expense is being recognized over the three-year vesting period. The weighted average remaining vesting period is 1.02 years.
15. Employee compensation
The Board approved management bonuses and profit-sharing payments totaling US$ 2.0m, partly paid in December 2022 and the remainder to be paid in early 2023, based upon the Company meeting certain financial targets. Amounts not paid during 2022, are included in accrued expenses in the accompanying consolidated balance sheets.
Equity bonus plan
The Company has an Equity Bonus Plan, under which eligible senior managers may choose to receive a percentage of their annual performance bonus in shares of common stock. In March 2022, the Company issued 40,467 shares of common stock, valued at US$ 261,000 at the time of grant. In March 2021, the Company issued 37,014 shares of common stock, valued at US$ 189,000 at the time of grant.
16. Share buyback
In February 2022 and 2021, the Board authorized on-market share buyback programs for such number of its listed shares of common stock as are equal to US$ 2,000,000 and US$ 1,000,000, respectively. The maximum price paid per Ordinary Share was no more than the higher of 105 percent of the average middle market closing price of an Ordinary Share for the five business days preceding the date of the share buyback, the price of the last independent trade and the highest current independent purchase bid. As of December 31, 2022, the Company purchased 276,473 shares of common stock for an aggregate value of US$ 1,389,000 pursuant to the share buyback program authorized in 2022, and 5,947 shares of common stock for an aggregate value of US$ 38,000, which completed the share buyback program authorized in 2021. The Company estimates the share buyback program authorized in 2022 will be completed by the end of H1 2023. In connection with the Company's share buyback programs authorized in 2022 and 2021, 483,960 shares held in treasury were cancelled in 2022.
17. Subsequent events
Dividend
In recognition of Somero's strong performance and the Board of Directors' confidence in the continued growth of the Company, the Board approved a dividend payout ratio of 50% of adjusted net income and is pleased to announce a final 2022 dividend of 17.8 US cents per share that will be payable on May 5, 2023 to shareholders on the register at April 11, 2023. Together with the interim dividend paid in October 2022 of 10.00 US cents per share, this represents a full year regular dividend to shareholders of 27.78 US cents per share. In addition, due to the strength of the Company's cash position at the end of 2022, and upon the review of anticipated future cash requirements for the business, the Board of Directors' has approved a supplemental dividend of 7.7 US cents per share that will be paid together with the final 2022 dividend on May 5, 2023 to shareholders on the register at April 11, 2023. The combined dividend payment will total 25.48 US cents per share, representing a total dividend payment of US$ 14.2m.
|
Distribution amount: |
$0.2548 cents per share |
|
Ex-dividend date: |
6 April 2023 |
|
Dividend record date: |
11 April 2023 |
|
Final day for currency election: |
25 April 2023 |
|
Payment date: |
5 May 2023 |
Further, any participant holding the Security on behalf of beneficial owners resident in a treaty country with the United States of America can facilitate claims for tax relief at source for its underlying beneficial owners. In order to ensure that the appropriate rate of US Withholding Tax is applied correctly, completed documentation must be provided to the Depositary, Computershare Investor Services PLC.
Equity bonus plan
In February 2023, the Board approved the 2022 Equity Bonus Plan, under which eligible senior managers can elect to receive up to 100% of their 2022 annual performance bonus in shares of common stock. The Company expects to issue shares for awards under the 2022 Equity Bonus Plan in 2023.
Share buyback
In February 2023, the Board approved a share buyback program, pursuant to which, the Board intends to carry out an on-market buyback of such number of its listed shares of common stock as are equal to US$ 2,000,000. The purpose of the program is to mitigate future dilution resulting from share issuances under the Company's equity award programs. The Company estimates that the program will be fulfilled by the end of 2023.
Other Unaudited Information
Dividend
All dividends, including both ordinary and supplemental, have the option of being paid in either GBP or USD subject to the underlying agreements between shareholders and their brokers which Somero cannot override. Payments in USD can be paid by Check or through Crest. Payments in GBP can be paid via Check, Crest and BACS. The default option if no election is made will be for a USD payment via check. Should shareholders wish to change their current currency or payment methods, forms are available through Computhershare Investor Services PLC at
https://www-uk.computershare.com/Investor/Content/c057a8a7-f4f8-4fcb-a497-836ce2f708d5 .
If shares are held as Depositary Interests through a broker or nominee, the holding company must be contacted and advised of the payment preferences. Such requests are subject to the terms and conditions of the broker or nominee.
Additional information on currency election and tax withholding can be found at: https://investors.somero.com/aim-rule-26. Shareholders can also contact Computershare Investor Services PLC by telephone at +44 (0370) 702 0000 or email viawebcorres@computershare.co.uk.
Annual General Meeting
The Annual General Meeting of Stockholders (the "AGM") of the Company will be held at 14530 Global Parkway, Fort Myers, FL 33913 USA on May 18, 2023 at 9:00 am local time. The notice of the AGM shall be released with the Annual Report and shall include instructions for remote participation. Stockholders of record at the close of business on April 18, 2023 will be entitled to receive notice of, and vote at, the AGM.
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