Final Results
5 March 2024
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.
Somero Enterprises, Inc.
("Somero" or "the Company")
Final Results
A healthy North American market and significant contributions from Europe and Australia drive strong finish to 2023
Somero Enterprises, Inc. reports its annual results for the twelve months ended 31 December 2023.
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FY23 |
FY22 |
% Change |
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(US$) |
(US$) |
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|
Revenue |
120.7m |
133.6m |
-9.7% |
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Adjusted EBITDA(1,2) |
36.5m |
46.0m |
-20.7% |
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Adjusted EBITDA margin(1,2) |
30% |
34% |
-400bps |
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Profit before tax |
33.2m |
40.8m |
-18.6% |
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Adjusted net income(1,3) |
25.7m |
31.0m |
-17.1% |
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Diluted adjusted net income per share(1,3) |
0.47 |
0.55 |
-14.5% |
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Cash flow from operations |
24.4m |
27.8m |
-12.2% |
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Net cash(4) |
33.3m |
33.7m |
-1.2% |
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Ordinary dividend per share |
23.19c |
27.78c |
-16.5% |
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Supplemental dividend per share |
7.4c |
7.7c |
-3.9% |
Financial Highlights
· Strong trading to end 2023 with results in line with market expectations after an exceptional 2022
· Continued revenue growth in key international markets (7%) and overall parts and service revenue (9%)
· Meaningful H2 sales contribution from relaunched S-22EZ
· Cash flow impacted by sales decline in North America, partly offset by strong cash collection compared to prior year
· Substantial return of cash to shareholders
· Paid US$ 19.8m in dividends during 2023 (2022: US$ 29.0m)
· US$ 2.0m share buy-back, authorized in February 2023, largely completed
Operational Highlights
· Strategic investment in international markets yielding positive results
· Revenue in Australia grew 18% driven by new customer acquisition and broader product range
· Parts and service sales in Europe and Australia grew 19% and 43% respectively
· Completed installation of in-house painting and material preparation systems in the US
· Completed relocation of Australia operations to a larger facility to meet growing demand
· Increased European footprint with a new site in Belgium
Post-Period Highlights
· Non-residential construction remains healthy with customers reporting high activity levels and extended project backlogs, and expect market conditions to remain consistent in 2024
· Three new products launching in 2024, including the first step toward electrification with the launch of the S-940e in January
· Declared a 13.2 US cents per share final 2023 ordinary dividend and a 7.4 US cents per share supplemental dividend, totaling a combined US$ 11.4m
· 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 2024
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:
"To have successfully navigated a challenging year and delivered against market expectations set in June is a good result and I am proud of how our employees around the world rose to the challenge.
The success we achieved in our key international markets was particularly satisfying. The product of an increased strategic focus on and allocation of resources to Europe and Australia, we have been working hard to lay the foundations for accelerated growth overseas and so it is gratifying to see our efforts beginning to pay off. While trading in the US was subdued by factors outside of our control, the underlying market remains active and healthy.
2023 was one of our busiest and most productive years in terms of product development, with extensive jobsite visits and innovation council sessions in both the US and overseas. During the year, we completed the development of our first electric machine ahead of launch at the start of 2024. Electrification will be a long journey but we are well-positioned ahead of the demand curve. With another new product launched in January and one scheduled for release later in the year, we are maintaining our steadfast commitment to exploring new ways to meet the evolving needs of our customers.
Looking ahead, the outlook is positive, with customers continuing to report high levels of activity and healthy backlogs. While the timing and extent of a return to more normal trading conditions in the US remains challenging to predict, our confidence in the long-term prospects for our home market remains resolute.
We will continue to build on our success overseas in 2024 while bolstering our product offering, remaining agile, adaptive and optimistic about growth opportunities available to us globally. I am grateful to everyone across the business for their contributions and look forward to another year of progress."
Final Results Investor Presentation
As part of its engagement with investors, management will host a live virtual presentation and Q&A on 13 March 2024 at 17:00 GMT. The presentation is open to all existing and potential shareholders and will be given by President & Chief Executive Officer Jack Cooney and Chief Financial Officer Enzo LiCausi .
To register to attend, please use the following link: https://bit.ly/SOM_FY23_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, President & CEO +1 239 210 6500
Enzo LiCausi, CFO
Howard Hohmann, EVP Sales
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Cavendish Capital Markets Ltd (NOMAD and Broker) |
+44 (0)20 7220 0500 |
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Matt Goode/Seamus Fricker/Fergus Sullivan (Corporate Finance) |
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Tim Redfern/Harriet Ward (ECM) |
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Alma (Financial Communications Advisor) |
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David Ison |
+44 (0)20 3405 0205 |
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Rebecca Sanders-Hewett Will Merison |
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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
Against an exceptional 2022 and taking into consideration the previously reported factors impacting the pace of sale of boomed screeds in North America, the Board is pleased with a solid overall performance in 2023. We have delivered continued growth in our key international markets, in particular sales of parts and service, while maintaining healthy profitability. Group 2023 revenues totaled US$ 120.7m (2022: US$133.6m), with the 10% decline driven by the trading slowdown in North America. The Company's flexible cost structure enabled it to quickly adjust its operational headcount to the changing circumstances. Customer facing and product development headcount were not impacted, enabling us to continue to execute and support the long-term growth strategy. As a result, 2023 gross margin was 55.8% (2022: 57.0%) and adjusted EBITDA margin was 30.2% (2022: 34.5%). Net income of US$ 27.9m (2022: US$ 31.1m) converted efficiently to operating cash flow of US$ 24.4m in 2023 (2022: US$ 27.8m), reflecting healthy profitability and strong cash collection. The 2023 operating cash flow funded US$ 19.8m in dividend payments. December 31, 2023 net cash totaled US$ 33.3m (2022: US$ 33.7m). The Company's final 2023 results were in line with guidance provided on 20 June 2023.
Region and Product Reviews
North America
2023 North American sales declined 13.2% from 2022 to US$ 88.4m. Our US customers continue to report a high level of activity and a diverse range of projects ranging from large footprint manufacturing facilities, data centers and warehousing to smaller footprint retail, schools, and medical centers, and maintain robust project backlogs. While underlying market conditions remain positive, factors noted in the 20 June 2023 Trading Update led to delayed starts and pauses to non-residential construction projects and impacted the translation of construction activity into trading in the US compared to 2022. Although US customers have not reported project cancellations, the project delays have impacted their equipment purchase decision. H2 trading benefitted from the re-launched S-22EZ reaching full production at the end of H1 2023. The long-standing and worsening shortage of skilled labor necessitating the need for automation and work productivity, coupled with strong end-user demand, such as onshoring of manufacturing, electric vehicle battery plants, and chip manufacturing, provides long-term demand for our products.
Europe
Europe, one of our target international markets where we see meaningful opportunity for growth, reported sales of US$ 15.1m in 2023, up 1.3% from US$ 14.9m in 2022. Of particular note, revenue from the sale of parts and service grew 19% on 2022. The Company's investments in customer facing resources and capabilities, including adding three European-based sales positions and customer support employees, led to an increase in new customer acquisitions, deeper penetration of new and existing products, and, with a growing installed base, an elevated demand for machine repair and service. The Company remains focused on attracting new customers by leveraging entry-level equipment such as the SRS-4 in the boomed screed category and the EcoScreed in the ride-on category, and intends to continue to invest in this market in 2024 with the addition of a new facility in Belgium commencing in Q1 2024 and expected to be fully operational later in the year. This enables us to stock machines and parts and offer training and machine repair capabilities closer to our customers across Europe.
Australia
Australia is also a target international market where we see meaningful opportunity for growth through increased market penetration across our product portfolio. The transition to a direct sales and support model at the end of 2020 provided the foundation for the strong performance in 2023 and future growth.
Australia reported 2023 sales of US$ 9.9m, a 17.9% increase from the US$ 8.4m in 2022. Similar to Europe, the higher sales were attributable to our direct sales and customer support teams that were expanded with additional staff, focus on new customer acquisitions and selling a broader range of new and existing products.
Due to the success and continued growth in the region, in late H1 2023 we secured a larger facility to replace the current one. This provides additional space to stock a broader range of our products locally to quickly capitalize on sales opportunities, accommodate recent and future staff additions, and enhance our training and machine repair capabilities in the market. Operations were transitioned to the new facility in August 2023. The expanded capability has enabled us to capture incremental machine repair opportunities resulting in an increase in revenue from sale of parts and service of 43% on 2022.
Rest of World
Our Rest of World region, which includes Latin America, the Middle East, India, Southeast Asia, Korea and China. Excluding China, the Rest of World region reported combined 2023 revenues of US$ 6.6m (2022: US$ 7.5m). The main contributors to 2023 revenues were Latin America, India and the Middle East, which reported respective sales of US$ 2.6m (2022: US$ 3.6m), US$ 1.8m (2022: US$ 2.6m), and US$ 1.5m (2022: US$ 0.8m). As expected, China continued to report declines to US$ 0.7m in 2023 from the US$ 1.1m reported in 2022. At the end of 2023, we completed the divestment of our direct operations in China. Excluding China, market conditions in Rest of World territories were generally positive. Given the relatively small base of business in each region, trading will fluctuate from period to period.
Products
Demand for our product categories is impacted by the type and size of projects, and applications, which are ultimately driven by end users. Large Boomed screeds are suitable for large footprint projects such as warehousing, medical facilities and manufacturing facilities, while Ride-on screeds are suitable for smaller footprint projects and smaller concrete slabs. Different applications drive demand for other equipment, such as exterior applications driving demand for the 3D Profiler Systems and the Somero Broom+CureTM. As these variables shift, our product mix fluctuates accordingly.
2023 Boomed screed sales decreased to US$ 53.9m from the US$ 67.2m reported in 2022, driven by the factors in the US noted in the 20 June 2023 Trading Update and above. Nonetheless, there continues to be healthy demand for large Boomed screeds driven by recent onshoring efforts, an increase in electric vehicle battery plants and US legislation including the CHIPS Act, a statute providing roughly US$ 280 billion in new funding to boost domestic research and manufacturing of semiconductors in the United States. 2023 sales of ride-on screeds totaling US$ 20.4m grew 4.6% (2022: US$ 19.5m), while sales of 3D Profiler Systems, remanufactured machines and total other revenue remained relatively comparable to 2022. Within the other revenue category, revenue from parts and service increased 9% to US$ 20.5m from US$ 18.8m reported in 2022. As detailed above, investments in customer support in our EU and Australia markets and growing installed bases contributed to this growth.
Products released since 2019, the SkyScreed® 36, S-PS50, SkyStrip® and the Somero Broom+CureTM, that target new market segments, together contributed US$ 2.1m in 2023 revenues (2022: US$ 4.2m), which was mostly from sales of Broom+CureTM. These are new inventions that address entirely new market segments and customer bases. 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. We remain confident that the long-term opportunity in these new market segments, including the high-rise structural market, far exceeds reported 2023 revenue for the Company, but understand as with all disruptive technology, gaining broad market acceptance will be a gradual process and trading will be volatile.
We continue to dedicate significant organizational time and resources to engage customers directly to develop a pipeline of ideas for solutions that address pain points. 2023 was an active period in this regard, with extensive jobsite visits and innovation council sessions both in the US and internationally, which will lead to the launch of three new products in 2024.
The first of these is the initial step in the long journey toward electrification, the S-940e, an electric version of the Company's popular S-940 ride-on machine. The second, further demonstrating Somero's commitment to addressing customer needs, is a new product filling a product-line market application gap, the SRS-6s. Both of these machines launched in January with a third scheduled for release later this year.
As part of our R&D process, we continue to explore and implement new technological advancements that will enhance our current and future offerings.
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.
Cashflow and Balance Sheet
Somero reported operating cash flow in 2023 of US$ 24.4m, a strong result nonetheless driven by healthy profitability, albeit down from the exceptional US$ 27.8m reported in 2022. Inventory required to support the Company's European and Australian operations remained elevated. While we drive to work down excess safety stock, which was built up to mitigate supply chain shortages, the addition of the new products will cause a natural uplift to inventory levels. Therefore, we anticipate overall inventory to remain relatively comparable to 2023.
The Company spent US$ 1.7m in 2023 on capital expenditures, relating to on-going product software programs, and other activities in the ordinary course of business. With the goal of continuously enhancing productivity and customer engagement, the Company intends to make incremental investment in technological solutions in 2024 within operations, customer training, and marketing. The Company also paid dividends in 2023 totaling US$ 19.8m (2022: US$ 29.0m), reflecting the Company's ongoing commitment to disciplined return of cash to shareholders, and repurchased US$ 1.4m in common stock under the Company's share buyback program.
The Company ended 2023 with US$ 33.3m in net cash slightly down from the US$ 33.7m reported in 2022 reflecting lower net income, offset by lower capital expenditures and lower dividend payments, but still providing a secure financial position with a December 31, 2023 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 results of 2023, our secure financial position, and outlook for 2024, we are pleased to report that the Board has declared a final 2023 ordinary dividend of US$ 0.1319 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$ 0.0740 per share, calculated as a 50% distribution of December 31, 2023 cash that exceeds the Board approved year-end US$ 25.0m minimum cash reserve. The final 2023 ordinary dividend when combined with the US$ 0.10 per share interim dividend paid in October 2023, results in a total 2023 ordinary dividend of US$ 0.2319, a 16.5% decrease from the US$ 0.2778 per share 2022 ordinary dividend. Both the final 2023 ordinary dividend and the 2023 supplemental dividend will be payable on 10 May, 2024 to shareholders on the register at 12 April, 2024. The common stock ex-dividend date is 11 April 2024.
In 2023, the Company repurchased a total of 373,635 shares of common stock under the Company's share buyback program put in place to offset dilution from on-going equity award programs. Under the buyback program, the maximum price paid per common share is to be no more than the higher of 105% of the average middle market closing price of common share for the five business days preceding the date of any share buyback, the price of the last independent trade and the highest current independent purchase bid. It is intended that any shares repurchased will be immediately cancelled and the Company will make further announcements to the market as and when share purchases are made.
The Board has approved a 2024 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 program by the end of 2024.
Our People
On behalf of the Board, we would like to thank all our global employees for their performance in 2023. A core strength of the Somero team is its ability to quickly adjust to changing conditions while always delivering the highest level of products and service to our customers. This underpins the Company's highly flexible cost model that enables it to deliver healthy profits. The Board and management team remain as committed as ever to providing all our employees with a rewarding and challenging working environment that is full of opportunity.
Environmental, Social and Governance
The Board closely monitors environmental, social and governance topics that materially impact our stakeholders. These topics are 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 2023, we completed a phase two environmental study by Colorado State University, which supplements the phase one study that was completed in 2021 by Middle Tennessee State University, the results of which were outlined in white papers. The phase one study concluded that the use of our laser screed machines in non-residential construction provides a number of environmental benefits, including a reduction in required concrete used in slab-on-grade projects that in turn reduces carbon emissions during construction that would otherwise occur from the use of alternative manual methods, which quantified in the phase two study to be approximately 3%.
Moreover, as noted above, the Company introduced its first electric machine as the first step toward electrification. The Board is committed to continuing down the path of electrifying our machines as customer demand dictates.
Additionally, we continue to invest resources not only in expanding and enhancing customer training, but also employee training. This commitment extends beyond Somero to the broader industry by sponsoring and prominently participating in a number of industry organizations with the goal of advancing the industry in general and on a variety of topics including safety, education, and best practices.
Lastly, the Board continues to prioritize independence and diversity on the Board reflecting a broad variety of disciplines, experiences, backgrounds and gender.
Conclusion and Outlook
Thanks to the talent, dedication and resolve of our employees, 2023 was a successful year under challenging conditions. The Company reported 2023 results in line with revised market expectations, paid US$19.8m in dividends to shareholders, capitalized on strategic investments which led to revenue growth, expanded sales of parts and service in Europe and Australia, and completed product development activities to set forth three new product launches in 2024. There is much to be proud of as we look back.
Looking forward, the Board expects US non-residential construciton to remain strong, supported by customers reporting high levels of activity and healthy backlogs, with market conditions expected to remain consistent to 2023, continued contribution from Europe and Australia, and multiple new product launches. With the Board's vision of long-term growth from new products and deeper international penetration, it has committed to continue making targeted investments to add resources to drive long-term growth. With the planned addition of the new Belgium service and training center and the annualized impact of strategic resources added in 2023, we expect an increase in 2024 operating costs that is within our traditionally targeted US$ 2.0m incremental investment.
The Board expects the Company to deliver strong revenues, profits, and cash flows to shareholders in 2024, supported by a strong balance sheet with no outstanding debt and full availability of it's US$ 25.0m credit facility. The health of the non-residential construction markets in the US, Europe and Australia form the foundation of the Company's 2024 expectations. With all factors considered, 2024 revenues are expected to be comparable with 2023, EBITDA slightly lower from 2023 reflecting modest incremental investment including the new Belgium service and training center and the annualized impact of strategic resources added in 2023, and a commensurate level of year-end 2024 cash.
Larry Horsch Jack Cooney
Non-Executive Chairman President & Chief Executive Officer
5 March 2024
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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2023 |
2022 |
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US$ 000 Except per share data |
US$ 000 Except per share data |
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Revenue |
120,699 |
133,590 |
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Cost of sales |
53,343 |
57,431 |
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Gross profit |
67,356 |
76,159 |
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Operating expenses |
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Selling, marketing and customer support |
14,742 |
14,289 |
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Engineering and product development |
2,679 |
2,600 |
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General and administrative |
16,340 |
16,170 |
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Total operating expenses |
33,761 |
33,059 |
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Operating income |
33,595 |
43,100 |
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Other income (expense) |
|
|
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Interest expense |
(19) |
(18) |
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Interest income |
196 |
62 |
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Foreign exchange impact |
(731) |
(1,342) |
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Other |
196 |
(1,001) |
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Income before income taxes |
33,237 |
40,801 |
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Provision for income taxes |
5,259 |
9,682 |
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Net income |
27,978 |
31,119 |
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Per Share |
Per Share |
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US$ |
US$ |
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Basic earnings per share |
0.50 |
0.56 |
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Diluted earnings per share |
0.50 |
0.55 |
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Basic adjusted net income per share(1), (3), (4) |
0.46 |
0.55 |
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Diluted adjusted net income per share(1), (3), (4) |
0.46 |
0.55 |
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Other data |
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Adjusted EBITDA (1), (2), (4) |
36,459 |
46,026 |
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Adjusted net income (1), (3), (4) |
25,737 |
31,000 |
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Depreciation expense |
1,425 |
1,322 |
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Amortization of intangibles |
135 |
135 |
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Capital expenditures |
1,740 |
5,367 |
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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2023 |
2022 |
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US$ 000 |
US$ 000 |
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Adjusted EBITDA reconciliation |
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Net income |
27,978 |
31,119 |
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Tax provision |
5,259 |
9,682 |
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Interest expense |
19 |
18 |
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Interest income |
(196) |
(62) |
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Foreign exchange impact |
731 |
1,342 |
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Other |
(196) |
1,001 |
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Depreciation |
1,425 |
1,322 |
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Amortization |
135 |
135 |
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Stock-based compensation |
985 |
1,165 |
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Non-cash lease expense |
319 |
304 |
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Adjusted EBITDA |
36,459 |
46,026 |
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Adjusted net income |
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|
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Net income |
27,978 |
31,119 |
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Amortization |
135 |
135 |
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Tax impact of stock option & RSU settlements |
(183) |
(254) |
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Change in uncertain tax position reserve |
(2,193) |
- |
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Adjusted net income |
25,737 |
31,000 |
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 decreased to US$ 120.7m (2022: US$ 133.6m). 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®, 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 decreased to US$ 53.9m (2022: US$ 67.2m) primarily due to reduced volume year over year. Ride-on screed sales increased to US$ 20.4 (2022: US$ 19.5m) mainly due to higher selling prices, while Remanufactured sales decreased slightly to US$ 6.8m (2022: US$ 6.9m). Sales of 3D Profiler System® decreased to US$ 8.5m (2022: US$ 8.7m) due to lower selling prices. Other revenues increased to US$ 31.1m (2022: US$ 30.2m) primarily attributable to an increase in parts sales and service.
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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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US$ in millions |
2023 |
2022 |
|||||||
|
|
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
Net sales |
% of Net sales |
Net sales |
% of Net sales |
|
Boomed screeds (3) |
38.1 |
49.7 |
9.0 |
9.9 |
6.8 |
7.6 |
53.9 |
44.7% |
67.2 |
50.3% |
|
Ride-on screeds (4) |
14.8 |
14.4 |
2.5 |
1.8 |
3.1 |
3.3 |
20.4 |
16.9% |
19.5 |
14.6% |
|
Remanufactured machines |
5.5 |
5.2 |
.9 |
.9 |
.4 |
.8 |
6.8 |
5.6% |
6.9 |
5.2% |
|
3-D Profiler System |
6.5 |
8.2 |
.4 |
.1 |
1.6 |
.4 |
8.5 |
7.0% |
8.7 |
6.5% |
|
SkyScreed |
- |
1.1 |
- |
- |
- |
- |
- |
0% |
1.1 |
.8% |
|
Other (5) |
23.5 |
23.2 |
3.8 |
3.0 |
3.8 |
4.0 |
31.1 |
25.8% |
30.2 |
22.6% |
|
Total |
88.4 |
101.8 |
16.6 |
15.7 |
15.7 |
16.1 |
120.7 |
100.0% |
133.6 |
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, Somero Line Dragon®, Mini Screed C and S-PS50.
|
Units by product line |
2023 |
2022 |
|
Boomed screeds |
174 |
187 |
|
Ride-on screeds |
168 |
166 |
|
Remanufactured machines |
33 |
32 |
|
3D Profiler System |
82 |
71 |
|
SkyScreed® |
- |
3 |
|
Other (1) |
93 |
92 |
|
Total |
550 |
551 |
Notes:
1. Other includes equipment SkyStripTM, Somero Broom + CureTM, STS-11M Topping Spreader, Copperhead, Somero Line Dragon®, Mini Screed C and S-PS50.
Sales to customers located in North America contributed 73% of total revenue (2022: 76%), sales to customers in EMEA (Europe, Middle East, and Scandinavia) contributed 14% (2022: 12%) and sales to customers in ROW (Australia, Latin America, India, China, Korea, and Southeast Asia) contributed 13% (2022: 12%).
Sales in North America were US$ 88.4m (2022: US$ 101.8m) down 13% driven by lower sales volume of large-line Boomed Screeds. Sales in EMEA were US$ 16.6m (2022: US$ 15.7m), which is an increase of 6% primarily due to high volume Ride-on Screeds and other products. Sales in ROW were US$ 15.7m (2022: US$ 16.1), representing a 3% decrease driven primarily by lower sales volume of large Boomed Screeds in Latin America, India and China, partly offset by an increase in volume in Australia across most of the product line, including parts and service, and Boomed Screeds in Middle East.
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|
US$ in millions |
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Regional sales |
2023 |
2022 |
|
North America |
88.4 |
101.8 |
|
Europe |
15.1 |
14.9 |
|
Australia |
9.9 |
8.4 |
|
Rest of World (1) |
7.3 |
8.5 |
|
Total |
120.7 |
133.6 |
Notes:
1. Includes Latin America, India, Southeast Asia, Middle East, and Korea.
Gross profit
Gross profit decreased to US$ 67.4 m (2022: US$ 76.2m), with gross margins decreasing slightly to 56% (2022: 57%) primarily due to higher input costs and lower Boomed screed volume, partly offset by price increases.
Operating expenses
Operating expenses for 2023 were approximately US$ 33.8m (2022: US$ 33.1), which is reflective of increased staffing that includes investment in sales and support staff in the US and abroad, and increased travel, offset by lower incentive compensation and sales commissions.
Debt
As of December 31, 2023, 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$ 0.2m of other income in 2023, compared to US$ 1.0m of other expense in 2022, primarily due to a lower unrealized foreign currency exchange loss.
Provision for income taxes
The provision for income taxes was US$ 5.3m in 2023 compared to US$ 9.7m in 2022. Overall, Somero's effective tax rate changed to 15.8% in 2023 from 23.7% in 2022, due to the removal of an uncertain tax position, previously reflected as a liability, upon IRS acceptance.
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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2023 US$ 000 |
2022 US$ 000 |
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|
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Income available to stockholders |
27,978 |
31,119 |
|
|
|
|
|
Basic weighted shares outstanding |
55,735,120 |
55,947,900 |
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Net dilutive effect of restricted stock units |
617,553 |
661,193 |
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Diluted weighted average shares outstanding |
56,352,673 |
56,609,093 |
|
|
Per Share |
Per Share |
|
|
US$ |
US$ |
|
Basic earnings per share |
0.50 |
0.56 |
|
Diluted earnings per share |
0.50 |
0.55 |
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Basic adjusted net income per share |
0.46 |
0.55 |
|
Diluted adjusted net income per share |
0.46 |
0.55 |
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Consolidated Balance Sheets |
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As of December 31, 2023 and 2022 |
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As of December 31, |
|||
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|
2023 |
2022 |
||
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|
|
US$ 000 |
US$ 000 |
||
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Assets |
|
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Current assets: |
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|
|||
|
|
Cash and cash equivalents |
33,311 |
33,699 |
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Accounts receivable - net |
8,835 |
10,315 |
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Inventories- net |
19,375 |
18,849 |
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Prepaid expenses and other assets |
2,388 |
2,022 |
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Income tax receivable |
- |
702 |
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Total current assets |
63,909 |
65,587 |
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Accounts receivable, non-current - net |
431 |
414 |
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Property, plant, and equipment - net |
25,928 |
25,650 |
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Financing lease right-of-use assets - net |
346 |
323 |
|||
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Operating lease right-of-use assets - net |
1,606 |
1,066 |
|||
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Intangible assets - net |
1,120 |
1,257 |
|||
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Goodwill |
3,294 |
3,294 |
|||
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Deferred tax asset |
1,674 |
1,165 |
|||
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Other assets |
242 |
235 |
|||
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Total assets |
98,550 |
98,991 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
3,410 |
9,683 |
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Accrued expenses |
7,768 |
8,495 |
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Financing lease liability - current |
199 |
175 |
||
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Operating lease liability - current |
342 |
304 |
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Income tax payable |
2,099 |
- |
||
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Total current liabilities |
13,818 |
18,657 |
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Financing lease liability - long-term |
110 |
98 |
|||
|
Operating lease liability - long-term |
1,305 |
799 |
|||
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Other liabilities |
82 |
2,311 |
|||
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Total liabilities |
15,315 |
21,865 |
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Stockholders' equity |
|
|
|||
|
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Preferred stock, US$.001 par value, 50,000,000 shares authorized, no shares issued and outstanding |
- |
- |
||
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|
Common stock, US$.001 par value, 80,000,000 shares authorized, 55,550,697 and 55,818,357 shares issued and 55,499,368 and 55,812,857 shares outstanding at December 31, 2023 and 2022, respectively |
26 |
26 |
||
|
|
Less: treasury stock, shares 51,329 as of December 31, 2023 and 5,500 shares as of December 31, 2022 at cost |
(213) |
(39) |
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Additional paid in capital |
13,253 |
14,625 |
||
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Retained earnings |
72,498 |
64,325 |
||
|
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Other comprehensive loss |
(2,329) |
(1,811) |
||
|
|
Total stockholders' equity |
83,235 |
77,126 |
||
|
Total liabilities and stockholders' equity |
98,550 |
98,991 |
|||
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|
|
|
|
||
|
See Notes to consolidated financial statements. |
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Consolidated Statements of Comprehensive Income |
|
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|
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For the years ended December 31, 2023 and 2022 |
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Year ended December 31, |
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2023 |
2022 |
|
|
|
US$ 000 |
US$ 000 |
|
|
|
except share and per share data |
except share and per share data |
|
|
|
|
|
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Revenue |
120,699 |
133,590 |
|
|
Cost of sales |
53,343 |
57,431 |
|
|
Gross profit |
67,356 |
76,159 |
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
Sales, marketing and customer support |
14,742 |
14,289 |
|
|
Engineering and product development |
2,679 |
2,600 |
|
|
General and administrative |
16,340 |
16,170 |
|
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Total operating expenses |
33,761 |
33,059 |
|
|
|
|
|
|
Operating income |
33,595 |
43,100 |
|
|
Other income (expense) |
|
|
|
|
|
Interest expense |
(19) |
(18) |
|
|
Interest income |
196 |
62 |
|
|
Foreign exchange impact |
(731) |
(1,342) |
|
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Other |
196 |
(1,001) |
|
Income before income taxes |
33,237 |
40,801 |
|
|
|
|
|
|
|
Provision for income taxes |
5,259 |
9,682 |
|
|
|
|
|
|
|
Net income |
27,978 |
31,119 |
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
Cumulative translation adjustment |
(518) |
658 |
|
Comprehensive income |
27,460 |
31,777 |
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
Earnings per share - basic |
0.50 |
0.56 |
|
|
Earnings per share - diluted |
0.50 |
0.55 |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
||
|
|
Basic |
55,735,120 |
55,947,900 |
|
|
Diluted |
56,352,673 |
56,609,093 |
|
|
|
|
|
|
See Notes to consolidated financial statements. |
|
|
|
|
Consolidated Statements of Changes in Stockholders' Equity |
|
|
||||||||||||
|
For the years ended December 31, 2023 and 2022 |
|
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|
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|
|
|
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|
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|
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|
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Common stock |
|
Treasury stock |
|
|
|
|
|||||||
|
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|
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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, 2022 |
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 |
|
|||||
|
Cumulative translation adjustment |
- |
- |
- |
- |
- |
- |
(518) |
(518) |
|
|||||
|
Net income |
- |
- |
- |
- |
- |
27,978 |
- |
27,978 |
|
|||||
|
Stock-based compensation |
- |
- |
985 |
- |
- |
- |
- |
985 |
|
|||||
|
Dividend |
- |
- |
- |
- |
- |
(19,805) |
- |
(19,805) |
|
|||||
|
Treasury stock |
(327,806) |
- |
(1,202) |
(327,806) |
1,202 |
- |
- |
- |
|
|||||
|
RSUs settled for cash |
- |
- |
(1,155) |
- |
- |
- |
- |
(1,155) |
|
|||||
|
Share buy-back |
- |
- |
- |
373,635 |
(1,376) |
- |
- |
(1,376) |
|
|||||
|
New shares issued |
60,146 |
- |
- |
- |
- |
- |
- |
- |
|
|||||
|
Balance - December 31, 2023 |
55,550,697 |
26 |
13,253 |
51,329 |
(213) |
72, 498 |
(2,329) |
83,235 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
See Notes to consolidated financial statements. |
|
|
|
|
|
|
|
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|
Consolidated Statements of Cash Flows |
|
|
|
For the years ended December 31, 2023 and 2022
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2023 US$ 000 |
2022 US$ 000 |
|
|
||
|
Cash flows from operating activities: |
|
|
|
Net income |
27,978 |
31,119 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
Deferred taxes |
(510) |
(993) |
|
Depreciation and amortization |
1,560 |
1,457 |
|
Non-cash lease expense |
319 |
304 |
|
Bad debt expense (recoveries) |
(4) |
247 |
|
Stock-based compensation |
985 |
1,165 |
|
Gain/Loss on disposal of property and equipment |
40 |
(158) |
|
Working capital changes: |
|
|
|
Accounts receivable |
1,468 |
(2,824) |
|
Inventories |
(526) |
(4,556) |
|
Prepaid expenses and other assets |
(366) |
(273) |
|
Other assets |
(7) |
159 |
|
Accounts payable, accrued expenses and other liabilities |
(9,292) |
481 |
|
Income taxes receivable/ payable |
2,801 |
1,674 |
|
Net cash provided by operating activities |
24,446 |
27,802 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
Proceeds from sale of property and equipment |
- |
143 |
|
Property and equipment purchases |
(1,740) |
(5,367) |
|
Net cash used in investing activities |
(1,740) |
(5,224) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
Payment of dividend |
(19,805) |
(28,981) |
|
RSUs settled for cash |
(1,155) |
(1,073) |
|
Stock buy-back |
(1,376) |
(1,427) |
|
Payments under financing leases |
(240) |
(202) |
|
Net cash used in financing activities |
(22,576) |
(31,683) |
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
(518) |
658 |
|
|
|
|
|
Net decrease in cash and cash equivalents |
(388) |
(8,447) |
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
Beginning of year |
33,699 |
42,146 |
|
End of year |
33,311 |
33,699 |
|
|
|
|
|
See Notes to consolidated financial statements. |
|
|
Notes to the Consolidated Financial Statements
As of December 31, 2023 and 2022
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.
Restricted Cash
Restricted cash of approximately US$ 251,000 is included in "Cash and cash equivalents" on the consolidated balance sheet as of December 31, 2023. This represents cash deposited by the Company into a guaranteed deposit account and designated as collateral for the building lease in Australia in accordance with the lease agreement.
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 estimate of future losses. As of December 31, 2023 and 2022, the allowance for doubtful accounts was approximately US$ 1,862,000 and US$ 1,780,000, respectively. Bad debt expense (recovery) was US$ (4,000) and US$ 247,000 in 2023 and 2022, respectively. The opening balance of accounts receivable at January 1, 2022 was $8,152,000, which includes $461,000 of non-current accounts receivable.
Inventories
Inventories are stated using the first in, first out ("FIFO") method at the lower of cost or net realizable value ("NRV"). Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels and future sales forecasts. As of December 31, 2023 and 2022, the provision for obsolete and slow-moving inventory was US$ 707,000 and US$ 643,000, 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 at a point in time once the service or training has occurred.
As of December 31, 2023 and 2022 there are US$ 600,000 and US$ 582,000, respectively, of extended service agreement liabilities. The opening balance of extended service agreement liabilities at January 1, 2022 was US$ 517,000. During the years ended December 31, 2023 and 2022, US$ 451,000 and US$ 425,000, respectively, of revenue was recognized related to the amounts recorded as liabilities on the consolidated balance sheets in the prior year (deferred contract revenue).
As of December 31, 2023 and 2022, there are US$ 1,635,000 and US$ 2,180,000, respectively, in customer deposit liabilities for advance payments received during the period for contracts expected the following period. The opening balance of customer deposit liabilities for advance payments received at January 1, 2022 was US$ 4,009,000. As of the year ended December 31, 2023 and 2022, 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, 2022 |
(1,986) |
|
Warranty charges |
808 |
|
Accruals |
(270) |
|
Balance, December 31, 2022 |
(1,448) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ 000 |
|
Balance, January 1, 2023 |
(1,448) |
|
Warranty charges |
986 |
|
Accruals |
(828) |
|
Balance, December 31, 2023 |
(1,290) |
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, which is the stock price on the grant date multiplied by the number of shares. Compensation expense related to stock-based payments was US$ 985,000 and US$ 1,165,000 for the years ended December 31, 2023 and 2022, respectively. In addition, the Company settled US$ 1,155,000 and US$ 1,073,000 in restricted stock units for cash during the years ended December 31, 2023 and 2022, 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 impact 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, |
|
|
|
2023 US$ 000 |
2022 US$ 000 |
|
Income available to stockholders |
27,978 |
31,119 |
|
Basic weighted shares outstanding |
55,735,120 |
55,947,900 |
|
Net dilutive effect of stock options and restricted stock units |
617,553 |
661,193 |
|
Diluted weighted average shares outstanding |
56,352,673 |
56,609,093 |
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.
Recently Adopted Accounting Guidance
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU" or "standard") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Subsequently, the FASB issued several clarifying standard updates to clarify and improve the ASU. These ASUs significantly change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The most significant change in this standard is a shift from the incurred loss model to the expected loss model that will be based on an estimate of current expected credit loss ("CECL"). Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity's exposure to credit risk and the measurement of credit losses. Financial assets held by the Company that are subject to the guidance in Topic 326 were trade accounts receivable.
The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements and primarily resulted in new and enhanced disclosures only.
3. Inventories
|
Inventories consisted of the following: |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
||
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
US $ 000 |
|
US $ 000 |
|
Raw material |
10,607 |
|
11,393 |
|||
|
Finished goods and work in process |
5,161 |
|
5,768 |
|||
|
Remanufactured |
|
|
3,607 |
|
1,688 |
|
|
Total |
|
|
|
19,375 |
|
18,849 |
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, 2023 and 2022, and that the value of patents and other intangibles were not impaired as of December 31, 2023 and 2022. The following table reflects other intangible assets:
|
|
|
Weighted average |
Year ended December 31, |
|||||
|
|
|
Amortization |
2023 |
2022 |
||||
|
|
|
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 |
18,770 |
18,721 |
||||
|
|
Intangible Assets |
|
6,791 |
6,703 |
||||
|
|
|
|
25,559 |
25,424 |
||||
|
Net carrying costs |
Patents |
12 years |
477 |
526 |
||||
|
|
Intangible Assets |
|
643 |
731 |
||||
|
|
|
|
1,120 |
1,257 |
||||
Amortization expense associated with the intangible assets in each of the years ended December 31, 2023 and 2022 was approximately US$ 135,000 and US$ 135,000, respectively. The amortization expense for each of the next five years will be US$ 135,000 and the remaining amortization thereafter will be US$ 445,000.
5. Property, plant, and equipment
Property, plant, and equipment consist of the following:
|
|
Year ended December 31, |
|
||
|
|
2023 |
2022 |
|
|
|
|
US$ 000 |
US$ 000 |
|
|
|
|
|
|
|
|
|
Land |
864 |
864 |
|
|
|
Building and improvements |
25,465 |
24,812 |
|
|
|
Machinery and equipment |
8,487 |
8,744 |
|
|
|
|
34,816 |
34,420 |
|
|
|
Less: accumulated depreciation and amortization |
(8,888) |
(8,770) |
|
|
|
|
25,928 |
25,650 |
|
|
Depreciation expense for the years ended December 31, 2023 and 2022 was approximately US$ 1,425,000 and US$ 1,322,000, respectively.
6. Line of credit
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, 2023 or 2022.
Interest expense for the years ended December 31, 2023 and 2022 was approximately US$ 19,000 and US$ 18,000, 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$ 1,039,000 to the savings and retirement plan during 2023 and contributed US$ 1,058,000 during 2022.
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 9 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. Some of our building leases have additional fees related to maintenance costs, property taxes, etc. We have elected the practical expedient not to separate lease and nonlease components for all of our building leases. In addition, we have elected the short-term lease practical expedient related to leases of various equipment which the lease term is less than 12 months. The components for lease expense were as follows as of December 31, 2023:
|
|
US$ 000 |
|
Operating lease cost |
407 |
|
Finance lease cost: |
|
|
Amortization of right-of-use assets |
319 |
|
Interest on lease liabilities |
17 |
|
Total finance lease cost |
336 |
As of December 31, 2023, the weighted average discount rate for finance and operating leases was 5.4% and 5.3%, respectively, and the weighted average remaining lease term for finance and operating leases was 1.8 years and 6.1 years, respectively.
Maturities of lease liabilities are as follows for the years ended:
|
|
Operating Leases |
Finance Leases |
|
|
US$ 000 |
US$ 000 |
|
2024 |
421 |
210 |
|
2025 |
311 |
80 |
|
2026 |
311 |
27 |
|
2027 |
311 |
8 |
|
2028 |
186 |
- |
|
Thereafter |
386 |
- |
|
Total |
1,926 |
325 |
|
Less imputed interest |
(279) |
(16) |
Total 1,647 309
9. Supplemental cash flow and non-cash financing disclosures
|
|
Year ended December 31, |
|
|
|
2023 |
2022 |
|
|
US$ 000 |
US$ 000 |
|
Cash paid for interest |
19 |
18 |
|
Cash paid for taxes |
4,858 |
8,806 |
|
Finance lease liabilities arising from obtaining right-of-use assets |
35 |
(37) |
|
Operating lease liabilities arising from obtaining right-of-use assets |
544 |
(513) |
|
|
|
|
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, 2023 and 2022, the Company had three customers which represented 32% and five customers which represented 42% of total accounts receivable, respectively.
11. Allowance for Credit Losses
The allowance for credit losses for accounts receivable and the related activity as of December 31:
|
|
2023 |
2022 |
|
|
US$ 000 |
US$ 000 |
|
Beginning balance |
1,780 |
1,638 |
|
Provision for credit losses |
9 |
185 |
|
Write-offs |
(52) |
(43) |
|
Recoveries |
125 |
- |
|
Ending balance |
1,862 |
1,780 |
|
|
|
|
12. 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.
|
13. Income taxes |
Year ended December 31, |
|
|
|
2023 US$ 000 |
2022 US$ 000 |
|
Current Income Tax |
|
|
|
Federal |
4,133 |
8,703 |
|
State |
1,286 |
1,332 |
|
Foreign |
349 |
640 |
|
Total current income tax expense |
5,768 |
10,675 |
|
Deferred tax benefit |
|
|
|
Federal |
(474) |
(820) |
|
State |
(35) |
(89) |
|
Foreign |
- |
(84) |
|
Total deferred tax benefit |
(509) |
(993) |
|
Total tax provision |
5,259 |
9,682 |
|
|
|
|
As of December 31, 2023 and 2022, the effects of temporary differences that give rise to the deferred tax assets are as follows:
|
|
Year ended December 31, |
|
|
|
2023 US$ 000 |
2022 US$ 000 |
|
Deferred tax assets |
|
|
|
Bad debt allowance |
317 |
349 |
|
Inventory |
283 |
325 |
|
Accrued expenses |
405 |
343 |
|
UK intangibles |
146 |
146 |
|
Stock compensation |
377 |
386 |
|
Italy - NOL |
454 |
385 |
|
Lease liability |
26 |
43 |
|
Capital research expenditures |
1,155 |
683 |
|
Other |
521 |
494 |
|
Total deferred tax assets |
3,684 |
3,154 |
|
Deferred tax liabilities |
|
|
|
Prepaid insurance |
(158) |
(149) |
|
Fixed assets |
(859) |
(783) |
|
Intangible assets |
(502) |
(631) |
|
Right of use asset |
(37) |
(41) |
|
Total deferred tax liabilities |
(1,556) |
(1,604) |
|
Valuation allowance |
(454) |
(385) |
|
Total net deferred tax asset |
1,674 |
1,165 |
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,
|
|
2023 US$ 000 |
2022 US$ 000 |
|
Consolidated income before tax |
33,237 |
40,801 |
|
Statutory rate |
21% |
21% |
|
Statutory tax expense |
6,980 |
8,568 |
|
State taxes |
909 |
1,007 |
|
Foreign taxes |
245 |
723 |
|
Permanent differences due to stock options and RSUs |
(33) |
(55) |
|
Permanent differences due to other items |
152 |
344 |
|
Foreign derived intangible income |
(624) |
(738) |
|
Change in valuation allowance |
69 |
117 |
|
Change in reserve |
(2,193) |
- |
|
Tax credits |
(182) |
(158) |
|
Other |
(64) |
(126) |
|
Tax expense |
5,259 |
9,682 |
|
|
|
|
As of December 31, 2023, the Company has US$ 1.89m 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, 2023 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 and various state jurisdictions. The Company has open years for the tax year 2020 and forward at the end of December 31, 2023. 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 2018 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, 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 |
|
|
|
|
Unrecognized tax benefits - January 1, 2023 |
1,450 |
|
Increases from positions taken during prior periods |
- |
|
Increases from positions taken during current period |
- |
|
Settled positions |
(1,450) |
|
Lapse of statute of limitations |
- |
|
Unrecognized tax benefits - December 31, 2023 |
- |
During the tax year ended December 31, 2023 the Company settled all uncertain tax position that existed as of December 31, 2022 and, as a result, removed the unrecognized tax reserve classed as "Other Long-Term Liabilities" from the Company's Consolidated Balance Sheet.
14. Revenues by geographic region
The Company sells its products to customers throughout the world. The breakdown by location is as follows:
|
|
2023 |
2022 |
|
|
US$ 000 |
US$ 000 |
|
United States and U.S. possessions |
88,374 |
101,773 |
|
Rest of World |
32,325 |
31,817 |
|
Total |
120,699 |
133,590 |
15. 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$ 985,000 and US$ 1,165,000 for the years ended December 31, 2023 and 2022, respectively. The income tax effect recognized for stock-based compensation was US$ 0.2m and US$ 0.3m, respectively, for the years ended December 31, 2023 and 2022.
Restricted stock units
The Company regularly issues restricted stock units to employees subject to Board approval. The Company establishes the fair market value of the restricted stock units at the grant date, based on the stock price and applicable exchange rate.
A summary of restricted stock unit activity in 2023 and 2022 is presented below:
|
|
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 |
|
|
Shares |
Grant date fair market value US$ |
|
Outstanding at January 1, 2023 |
667,990 |
2,935,144 |
|
Granted |
284,437 |
1,217,027 |
|
Vested or settled for cash |
(307,845) |
(869,737) |
|
Forfeited |
(73,832) |
(380,981) |
|
Outstanding at December 31, 2023 |
570,750 |
2,901,453 |
RSUs settled for cash were US$ 1.2m in 2023 and US$ 1.1m in 2022.
As of December 31, 2023, there was US$ 1,201,000 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 1.34 years.
16. Employee compensation
The Board approved management bonuses and profit-sharing payments totaling US$ 1.2m, partly paid in December 2023 and the remainder to be paid in early 2024, based upon the Company meeting certain financial targets. Amounts not paid during 2024, 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 2023, the Company issued 21,114 shares of common stock, valued at US$ 91,000 at the time of grant. In March 2022, the Company issued 40,467 shares of common stock, valued at US$ 261,000 at the time of grant.
17. Share buyback
In February 2022 and 2023, 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 for each program. The maximum price paid per common share was no more than the higher of 105 percent of the average middle market closing price of common 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, 2023, the Company purchased 217,919 shares of common stock for an aggregate value of US$ 765,000 pursuant to the share buyback program authorized in 2023, and 155,716 shares of common stock for an aggregate value of US$ 611,000 , which completed the share buyback program authorized in 2022. The Company estimates the share buyback program authorized in 2023 will be completed by the end of H1 2024. In connection with the Company's share buyback programs authorized in 2023 and 2022, 327,806 shares held in treasury were cancelled in 2023.
18. Subsequent events
In preparing the consolidated financial statements, the Company has evaluated all subsequent events and transactions for potential recognition or disclosure through March 5, 2024, the date the consolidated financial statements were available for issuance.
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 2023 dividend of 13.19 US cents per share that will be payable on May 10, 2024 to shareholders on the register at April 12, 2024. Together with the interim dividend paid in October 2023 of 10.00 US cents per share, this represents a full year regular dividend to shareholders of 23.19 US cents per share. In addition, due to the strength of the Company's cash position at the end of 2023, and upon the review of anticipated future cash requirements for the business, the Board of Directors' has approved a supplemental dividend of 7.4 US cents per share that will be paid together with the final 2023 dividend on May 10, 2024 to shareholders on the register at April 12, 2024. The combined dividend payment will total 20.59 US cents per share, representing a total dividend payment of US$ 11.4m.
|
Distribution amount: |
$0.2059 cents per share |
|
Ex-dividend date: |
11 April 2024 |
|
Dividend record date: |
12 April 2024 |
|
Final day for currency election: |
26 April 2024 |
|
Payment date: |
10 May 2024 |
Further, any participant holding the security on behalf of beneficial owners resident in a treaty country with the United States of America can facilitate claims for tax relief at source for its underlying beneficial owners. In order to ensure that the appropriate rate of US Withholding Tax is applied correctly, completed documentation must be provided to the Depositary, Computershare Investor Services PLC.
Equity bonus plan
In January 2024, the Board approved the 2023 Equity Bonus Plan, under which eligible senior managers can elect to receive up to 100% of their 2023 annual performance bonus in shares of common stock. The Company expects to issue shares for awards under the 2023 Equity Bonus Plan in 2024.
Share buyback
In January 2024, the Board approved a share buyback program, pursuant to which, the Board intends to carry out an on-market buyback of such number of its listed shares of common stock as are equal to US$ 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 2024.
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 via webcorres@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 June 18, 2024 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 May 17, 2024 will be entitled to receive notice of, and vote at, the AGM.
5 March 2024
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.
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