REG - Somero Enterprises - Final Results
05/03/2024 07:00
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RNS Number : 5342F Somero Enterprises Inc. 05 March 2024
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.
FY23 FY22 % Change
(US$) (US$)
Revenue 120.7m 133.6m -9.7%
Adjusted EBITDA((1,2)) 36.5m 46.0m -20.7%
Adjusted EBITDA margin((1,2)) 30% 34% -400bps
Profit before tax 33.2m 40.8m -18.6%
Adjusted net income((1,3)) 25.7m 31.0m -17.1%
Diluted adjusted net income per share((1,3)) 0.47 0.55 -14.5%
Cash flow from operations 24.4m 27.8m -12.2%
Net cash((4)) 33.3m 33.7m -1.2%
Ordinary dividend per share 23.19c 27.78c -16.5%
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 (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 (http://www.somero.com)
Jack Cooney, President & CEO
+1 239
210 6500
Enzo LiCausi, CFO
Howard Hohmann, EVP Sales
Cavendish Capital Markets Ltd (NOMAD and Broker) +44 (0)20 7220 0500
Matt Goode/Seamus Fricker/Fergus Sullivan (Corporate Finance)
Tim Redfern/Harriet Ward (ECM)
Alma (Financial Communications Advisor) somero@almastrategic.com (mailto:somero@almastrategic.com)
David Ison +44 (0)20 3405 0205
Rebecca Sanders-Hewett
Will Merison
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 (http://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+Cure(TM). 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+Cure(TM), that target new market segments, together contributed
US$ 2.1m in 2023 revenues (2022: US$ 4.2m), which was mostly from sales of
Broom+Cure(TM). 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.
FINANCIAL REVIEW
Summary of financial results
Year ended December 31,
2023 2022
US$ 000 US$ 000
Except per share Except per share data
data
Revenue 120,699 133,590
Cost of sales 53,343 57,431
Gross profit 67,356 76,159
Operating expenses
Selling, marketing and customer support 14,742 14,289
Engineering and product development 2,679 2,600
General and administrative 16,340 16,170
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)
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
Per Share Per Share
US$ US$
Basic earnings per share 0.50 0.56
Diluted earnings per share 0.50 0.55
Basic adjusted net income per share((1), (3), (4)) 0.46 0.55
Diluted adjusted net income per share((1), (3), (4)) 0.46 0.55
Other data
Adjusted EBITDA ((1), (2), (4)) 36,459 46,026
Adjusted net income ((1), (3), (4)) 25,737 31,000
Depreciation expense 1,425 1,322
Amortization of intangibles 135 135
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.
Net income to adjusted EBITDA reconciliation and
Adjusted net income reconciliation
Year ended December 31,
2023 2022
US$ 000 US$ 000
Adjusted EBITDA reconciliation
Net income 27,978 31,119
Tax provision 5,259 9,682
Interest expense 19 18
Interest income (196) (62)
Foreign exchange impact 731 1,342
Other (196) 1,001
Depreciation 1,425 1,322
Amortization 135 135
Stock-based compensation 985 1,165
Non-cash lease expense 319 304
Adjusted EBITDA 36,459 46,026
Adjusted net income
Net income 27,978 31,119
Amortization 135 135
Tax impact of stock option & RSU settlements (183) (254)
Change in uncertain tax position reserve (2,193) -
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 +
Cure(TM), SkyStrip(TM), 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.
Revenue breakdown by geography
Total
North America EMEA((1)) ROW((2)) US$ in millions
US$ in US$ in millions
millions
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 SkyStrip(TM), Somero Broom + Cure(TM), 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 SkyStrip(TM), Somero Broom +
Cure(TM), 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.
US$ in millions
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:
Year ended December 31,
2023 2022
US$ 000 US$ 000
Income available to stockholders 27,978 31,119
Basic weighted shares outstanding 55,735,120 55,947,900
Net dilutive effect of restricted stock units 617,553 661,193
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
Basic adjusted net income per share 0.46 0.55
Diluted adjusted net income per share 0.46 0.55
Consolidated Balance Sheets
As of December 31, 2023 and 2022
As of December 31,
2023 2022
US$ 000 US$ 000
Assets
Current assets:
Cash and cash equivalents 33,311 33,699
Accounts receivable - net 8,835 10,315
Inventories- net 19,375 18,849
Prepaid expenses and other assets 2,388 2,022
Income tax receivable - 702
Total current assets 63,909 65,587
Accounts receivable, non-current - net 431 414
Property, plant, and equipment - net 25,928 25,650
Financing lease right-of-use assets - net 346 323
Operating lease right-of-use assets - net 1,606 1,066
Intangible assets - net 1,120 1,257
Goodwill 3,294 3,294
Deferred tax asset 1,674 1,165
Other assets 242 235
Total assets 98,550 98,991
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 3,410 9,683
Accrued expenses 7,768 8,495
Financing lease liability - current 199 175
Operating lease liability - current 342 304
Income tax payable 2,099 -
Total current liabilities 13,818 18,657
Financing lease liability - long-term 110 98
Operating lease liability - long-term 1,305 799
Other liabilities 82 2,311
Total liabilities 15,315 21,865
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, 55,550,697 and 26 26
55,818,357 shares issued and 55,499,368 and 55,812,857 shares outstanding at
December 31, 2023 and 2022, respectively
Less: treasury stock, shares 51,329 as of December 31, 2023 and 5,500 shares (213) (39)
as of December 31, 2022 at cost
Additional paid in capital 13,253 14,625
Retained earnings 72,498 64,325
Other comprehensive loss (2,329) (1,811)
Total stockholders' equity 83,235 77,126
Total liabilities and stockholders' equity 98,550 98,991
See Notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2023 and 2022
Year ended December 31,
2023 2022
US$ 000 US$ 000
except share and per share data except share and per share data
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
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)
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
Common stock Treasury stock
Additional paid-in Other Comprehensive Total Stockholders' equity
capital Retained earnings income (loss)
Amount Amount
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.
Consolidated Statements of Cash Flows
For the years ended December 31, 2023 and 2022
Year ended December 31,
2023 2022
US$ 000 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 2022
US$ 000 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 2022
US$ 000 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 2022
US$ 000 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 2022
US$ 000 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:
Grant date fair market value US$
Shares
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
Grant date fair market value US$
Shares
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
(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
(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 (mailto: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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