TIDMSOM
RNS Number : 8548K
Somero Enterprises Inc.
31 August 2023
For immediate release
31 August 2023
Somero(R) Enterprises, Inc.
("Somero" or "the Company" or "the Group")
Interim Results for the six months ended June 30, 2023
Financial Highlights
-- H1 2023 revenues were US$ 58.9m (H1 2022: US$68.5m)
o Non-residential construction markets remain healthy across a
wide range of sectors and customers report high activity levels and
extended project backlogs
o Three of the Company's four regions reported revenues up over
H1 2022 with Europe, Australia and ROW demonstrating the continued
success of the international strategy in growing a combined 29%
o North America revenues declined 24% as the conversion of
continued favorable non-residential construction activity into
trading was impacted by delayed project starts and pauses,
primarily due to elevated interest rates, and tightened bank
lending standards
o Limited availability of the relaunched S-22EZ further tempered
trading in H1 2023, now in full production
-- H1 revenue translated efficiently to profits and operating cash flow
o H1 2023 adjusted EBITDA margin of 29.5% (H1 2022: 35.3%)
o US$ 8.8m cash flow from operations (H1 2022: US$ 12.8m)
-- Expected improvement in H2 2023, trading in line with
expectations for 2023 revenues of approximately US$ 120.0m, EBITDA
of approximately US$ 36.0m, and year-end cash of approximately US$
32.0m
H1 2023 H1 2022 % Change
US$ US$
Revenue $58.9m $68.5m -14%
Adjusted EBITDA(1,2) $17.3m $24.1m -28%
Adjusted EBITDA margin(1,2) 29.5% 35.3% -580bps
Profits before tax $15.6m $22.4m -30%
Adjusted net income(1,3) $12.2m $17.3m -29%
Diluted adjusted net income
per share(1,3) $0.22 $0.31 -29%
Cash flow from operations $8.8m $12.8m -31%
Net cash(4) $25.2m $27.2m -7%
Interim dividend per share $ 0.10 $ 0.10 -
Operational Highlights
-- Strategically targeted investments for sustainable long-term growth
o Key personnel prioritizing international sales and customer
support roles
o Larger facility in Australia that provides expanded capacity
and additional capabilities
o Europe and Australia reported heightened revenues, growing 46%
and 33% from H1 2022, respectively
-- High level of new product development activity with a high
volume of job site visits and innovation council events, that
includes exploring new technologies to incorporate into future
products
-- Continued penetration of our broader product offerings in international markets
-- S-22EZ entered full production at the end of H1 2023
-- Completed installation of in-house painting and material
preparation systems in the Houghton, Michigan facility as part of
the planned expansion completed in H1 2023
Post-Period Highlights
-- Declaration of a US$ 0.10 per share interim dividend,
consistent with 2022 interim dividend
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 loss, other 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, President & CEO of Somero, said:
"While the state of the overall US non-residential construction
market remains fundamentally sound and allows us and our customers
to maintain a positive outlook for the remainder of 2023, with
customers continuing to report a high level of activity and healthy
backlogs, trading was slowed in the US due to delays in project
starts, as previously announced. Our main international markets
reported exceptional revenue growth, particularly Europe and
Australia with Rest of World regions also contributing
favorably.
In response to the slower H1 trading in the US, we reduced our
operational workforce commensurate with revenue decline and imposed
cost controls for the remainder of 2023 to partly offset the
profitability impact. The Company has also taken additional
measures to preserve cash through inventory reductions.
We remained diligent and focused on product development through
a high level of customer interactions. And we continue to build
market acceptance for our new products targeting entirely new
market segments and are exploring opportunities to incorporate new
technologies to address customer needs today and in the future.
The expected improvement in H2 2023 trading in the US compared
to H1 2023, supported by the entry of the S-22EZ into full
production, contributions from key international markets and
positive feedback from customers, reinforces the Board's belief
that 2023 results will fall in line with market expectations. With
a healthy financial position, we remain committed to making sound
strategic investments to deliver strong results and cash flows to
our shareholders."
For further information, please contact:
Enquiries:
Somero Enterprises, Inc. www.somero.com
Jack Cooney, President & CEO +1 239 210 6500
Vincenzo LiCausi, CFO
Howard Hohmann, EVP Sales
finnCap Ltd (NOMAD and Broker)
Matt Goode /Seamus Fricker/Fergus Sullivan (Corporate Finance)
+44 (0)20 7220 0500
Tim Redfern/Harriet Ward (ECM)
Alma PR (Financial PR Advisor) somero@almapr.co.uk
David Ison +44 (0)20 3405 0205
Rebecca Sanders-Hewett
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(R) 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(R) 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 H1 2022 and taking into consideration the
previously reported factors outside of Somero's control impacting
the pace of trading in North America, the Board believes overall
performance in H1 2023 to have been solid with commercial delivery
in our international markets a particular highlight. Led by Europe
and Australia, our overseas revenues grew significantly compared to
H1 2022. Group H1 2023 revenues totaled US$ 58.9m (H1 2022:
US$68.5m), with the 14% decline driven by the trading slowdown in
North America.
Leveraging the Company's flexible cost structure, which enabled
it to quickly adjust to the changing circumstances, H1 2023
adjusted EBITDA margin remained healthy at 29.5% (H1 2022: 35.3%).
H1 2023 adjusted EBITDA was US$ 17.3m (H1 2022: US$ 24.1m), with
the decline primarily due to lower volume and to a lesser degree to
strategically added headcount to execute the long-term growth
strategy. The Company was able to offset cost inflation affecting
wages and material costs with 2023 price increases and operational
efficiency gains. As a result of all these factors, H1 2023 profits
benefitted from a strong gross margin of 57.0% (H1 2022: 58.3%).
Operating cash flow in H1 2023 was US$ 8.8m (H1 2022: US$ 12.8m),
translating to a June 30, 2023 cash balance of US$ 25.2m,
notwithstanding the dividend payment of US$ 14.2m in May 2023. The
Company has taken additional steps to minimize inventory levels and
maintain accounts receivable at moderate levels which is
anticipated to have a positive impact on year-end cash.
Regional Review
North America
H1 2023 North American sales declined 24% from H1 2022 to US$
42.2m. 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
extended project backlogs. As noted in the 20 June 2023 Trading
Update, while underlying market conditions remain positive, new
factors emerged to impact the translation of construction activity
into trading in the US. Elevated interest rates, tightened bank
lending standards and, to a lesser degree, construction permitting
delays due to large complex projects creating bottlenecks in the
approval process in certain portions of the US, led to delayed
starts and pauses to non-residential construction projects. While
US customers have not reported project cancellations, certain
customers have indicated these project delays have impacted the
timing of their equipment purchase decisions. In addition, the
S-22EZ, which was re-launched in early 2023, did not reach full
production until the end of H1 2023, and its limited availability
delayed sales to customers
with a preference for it. Other market factors as noted in the
08 March 2023 Final Results statement, such as the limited supply
of concrete across the US, have remained unchanged. The
long-standing and worsening shortage of skilled labor necessitating
the need for automation and work productivity continues to drive
demand for our products in the territory.
Europe
Europe continues to be one of our target international markets
where we see meaningful opportunity for growth from sales of new
and existing products. Europe reported sales of US$ 7.0m in H1
2023, up 46% from US$ 4.8m in H1 2022. The Company's investments in
customer facing resources and capabilities, including adding three
European-based sales positions and customer support employees, has
led to an increase in new customer acquisitions and deeper
penetration of new and existing products, such as the S-28EZ and
the SRS-4, contributed to the growth. 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 H2 2023 and 2024.
Australia
Australia reported H1 2023 sales of US$ 5.3m, a 33% increase
from the US$ 4.0m in H1 2022. Similar to Europe, the higher sales
were attributable to our direct sales and customer support teams
that were expanded with additional staff in late 2021 and
throughout 2022, focused on new customer acquisitions and selling a
broader range of new and existing products, coupled with favorable
exchange rates.
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 has provided the
foundation for the strong performance in H1 2023 and future
growth.
Due to the success and continued growth in 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.
As in Europe, the Company intends to continue to invest in this
market in H2 2023 and 2024.
Rest of World
Our Rest of World region, which includes Latin America, the
Middle East, India, Southeast Asia, Korea and China, reported H1
2023 sales of US$ 4.4m, representing a 7% increase compared to H1
2022. The main contributors to H1 2023 revenues were Latin America
and the Middle East, which reported respective sales of US$ 1.6m
and US$ 1.1m, compared to US$ 1.4m and US$ 0.5m in H1 2022,
respectively. India reported sales of US$ 1.1m in H1 2023, a US$
0.4m decrease compared to H1 2022, and China reported sales of US$
0.4m, comparable to prior year. Given the relatively small base of
business in each region, trading will fluctuate from period to
period. Albeit, the Company intends to maintain the resources
allocated to the regions and add personnel as appropriate.
Product Review
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 drive demand for the 3D Profiler Systems and the
Somero Broom+Cure(TM) . As these variables shift, our product mix
fluctuates accordingly.
Revenue from sales of Boomed screeds and 3D Profiler Systems
both decreased compared to H1 2022, driven by the factors in the US
noted in the 20 June 2023 Trading Update and in the section 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. There also continues to be healthy demand for our Ride-on
screeds, including smaller concrete slab pours necessitated by an
inconsistent supply of concrete. Ride-on screeds grew 7% from H1
2022 contributing US$ 11.2m to H1 2023 revenues. Sales of 3D
Profiler System contributed US$ 4.3m to H1 2023 revenue, a decrease
of 19% compared to H1 2022, driven by adverse weather conditions as
this product is typically used for concrete parking and loading
areas around the exterior perimeter of buildings. Other revenues
increased slightly driven by strong parts trading reflective of the
high level of equipment utilization by our customers.
Products released since 2019, the SkyScreed(R) 36, S-PS50,
SkyStrip(R) and the Somero Broom+Cure(TM) , combined to contribute
US$ 0.8m in H1 2023 revenues, down from H1 2022 of US$ 3.2m. The
modest contribution from the new product category reflects a slower
than anticipated pace in achieving sustainable traction due to
their disruptive nature. These are new inventions that address
entirely new market segments and customer bases, and therefore
market acceptance will be gradual, and trading will be somewhat
volatile. Nevertheless, we are confident in the value proposition
of the offerings and will continue to work through its strategy to
increase the market penetration of these new products.
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. H1 2023 was an active
period in this regard, with extensive jobsite visits and innovation
council sessions both in the US and internationally. Additionally,
as part of this process, we are exploring new technological
advancements and the impact advanced technology will have on the
future product offering.
Cashflow and Balance Sheet
Somero reported operating cash flow in H1 2023 of US$ 8.8m, down
from US$ 12.8m reported in H1 2022, primarily due to lower profits,
partly offset by a decrease in working capital. The decreased
working capital requirement in H1 2023 came from a lower level of
inventory receipts as a result of improved raw material lead times
and availability, allowing the Company to start returning safety
stock back to more normal levels.
The Company spent US$ 1.0m in H1 2023 on capital expenditures,
relating to on-going product software programs, and other
activities in the ordinary course of business. The Company also
paid dividends in H1 2023 totaling US$ 14.2m (2022: US$ 23.4m),
reflecting the Company's ongoing commitment to disciplined return
of cash to shareholders, as well as repurchasing US$ 0.4m in common
stock under the 2022 US$ 2.0m share buyback program that carried
over into 2023.
The Company ended H1 2023 with US$ 25.2m in net cash down from
the US$ 33.7m reported at the end of 2022, reflecting the sizable
dividend payment, but still providing ample liquidity to support
the business and allow it to continue making strategic investments.
The Company's net working capital remains moderate relative to
level of trading. The balance sheet remains debt-free with access
to an untapped US$ 25.0m secured revolving line of credit. All of
which provide a secure financial position to fund future
growth.
Dividend and share buyback program
Based on the results in H1 2023, our strong financial position
and confidence in the outlook for the remainder of 2023, we are
pleased to report that the Board has decided to declare an interim
2023 dividend of US$ 0.10 per share, consistent with the interim
2022 dividend. The dividend, representing a total payment of
approximately US$ 5.6m, will be payable on October 20, 2023 to
shareholders on the register as of September 22, 2023. The common
stock ex-dividend date is 21 September 2023.
In H1 2023, the Company repurchased a total of 107,978 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 Ordinary Share is to be
no more than the higher of 105% of the average middle market
closing price of an ordinary 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.
Our People
On behalf of the Board, we would like to thank all our global
employees for their great performance in H1 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 core strength underpins the
Company's highly flexible cost model that enables it to deliver
healthy profits. John Yuncza, former President and Director of
Somero, left the Company post-period on 28 August 2023. John made a
significant contribution to Somero and we wish him all the best in
his future endeavors. The search for John's successor is underway
with Jack Cooney reassuming the dual role of CEO and President
until an appointment is made. 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.
Facility Expansion
The 50,000 square foot expansion of the Houghton, Michigan,
Operations and Support Offices became fully operational in H1 2023.
This expansion provides a 35% increase in operational capacity that
increases operational efficiency, supports future growth of our
product portfolio, and provides our engineering team with an
expanded development and testing area.
Environmental, Social and Governance
The Board closely monitors environmental, social and governance
topics that materially impact our stakeholders. These topics are
routinely discussed to ensure Somero strikes the appropriate
balance of meeting shareholder expectations and addressing the
concerns of key stakeholders necessary to ensure sustainability of
the business. A primary material topic is the environmental impact
of our business including the use of our equipment in the
construction process. In 2022, we commissioned a phase two
environmental study by Colorado State University that is nearing
completion. The phase two study supplements the phase one study
that was completed in 2021 by Middle Tennessee State University,
the results of which are outlined in a white paper available on our
website. The phase one study concluded the use of our laser screed
machines in non-residential construction provides a number of
environmental benefits, including a reduction in required manpower
and concrete used in building projects that in turn reduces carbon
emissions during construction that would otherwise occur from the
use of alternative manual methods.
Outlook
Non-residential construction across our main markets remains
healthy, underscored by customers reporting high levels of activity
and extended project backlogs across a wide range of sectors and
project types.
In the US, we do not see any indications of fundamental changes
in the non-residential construction market, and the factors that
have impacted the pace of work have not caused project
cancellations and have not changed the direct feedback we receive
from customers regarding their project backlogs.
The Company anticipates improvement in H2 2023 trading in our
home region compared to H1 2023, driven in large part by the
increased availability of the S-22EZ. This confidence is supported
by our primary means of gauging market health, which is direct
feedback from customers. Our US customers continue to indicate
non-residential construction is active, encompasses a wide range of
project types, and that project backlogs remain healthy and
extended.
The Company also anticipates healthy contributions to H2 2023
trading from Europe and Australia, and H2 2023 trading comparable
to H1 2023 in the Rest of World territories.
As such, the Board remains confident that 2023 results will fall
in line with market expectations with revenues of approximately US$
120.0m, EBITDA of approximately US$ 36.0m, and year-end cash of
approximately US$ 32.0m.
Larry Horsch
Non-Executive Chairman
Jack Cooney
President & Chief Executive Officer
August 31, 2023
FINANCIAL REVIEW
For the six months ended
Summary of financial results June 30
* unaudited 2023 2022
US$ 000 US$ 000
Except per Except per
share data share data
------------- -------------
Revenue 58,850 68,473
Cost of sales 25,281 28,535
------------- -------------
Gross profit 33,569 39,938
Operating expenses
Selling, marketing and customer support 7,634 7,391
Engineering and product development 1,386 1,203
General and administrative 8,641 8,747
Total operating expenses 17,661 17,341
------------------------------------------------- ------------- -------------
Operating income 15,908 22,597
Other income (expense)
Interest expense (11) (9)
Interest income 37 38
Foreign exchange impact (472) (242)
Other 173 (3)
Income before income taxes 15,635 22,381
------------------------------------------------- ------------- -------------
Provision for income taxes 3,234 4,891
Net income 12,401 17,490
=================== ============================ ============= =============
Per Share Per Share
US$ US$
Basic earnings per share 0.23 0.31
Diluted earnings per share 0.22 0.31
Basic adjusted net income per share (1),
(2), (4) 0.22 0.31
Diluted adjusted net income per share
(1), (2), (4) 0.22 0.31
------------------------------------------------- ------------- -------------
Other
data
Adjusted EBITDA (1), (2), (4) 17,337 24,141
Adjusted net income (1), (3), (4) 12,230 17,323
Depreciation expense 640 656
Amortization of intangibles 68 67
Capital expenditures 1,005 2,251
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 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
* unaudited Six months ended June
30
2023 2022
US$ 000 US$ 000
------------ -----------
Adjusted EBITDA reconciliation
Net income 12,401 17,490
Tax provision 3,234 4,891
Interest expense 11 9
Interest income (37) (38)
Foreign exchange impact 472 242
Other (173) 3
Depreciation 640 656
Amortization 68 67
Non-cash lease expense 173 148
Stock-based compensation 548 673
----------------------------------------------- ------------ -----------
Adjusted EBITDA 17,337 24,141
----------------------------------------------- ------------ -----------
Adjusted net income reconciliation
Net income 12,401 17,490
Amortization 68 67
Tax impact of stock option & RSU settlements (239) (234)
----------------------------------------------- ------------ -----------
Adjusted net income reconciliation 12,230 17,323
----------------------------------------------- ------------ -----------
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 the
Company's net income plus tax provision, interest expense, interest
income, foreign exchange gain (loss), other 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 by 14% to
approximately US$ 58.9 (H1 2022: US$ 68.5m). The Company's revenues
consist primarily of sales from Boomed Screed products, which
include the S-28EZ, S22-EZ, 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 machines sales, 3-D
Profiler Systems, SkyScreed(R), and Other revenues which consist of
revenue from sales of parts and accessories, sales of other
equipment, service, training and shipping charges. The overall
decrease for the period was primarily driven by lower volume of the
Boomed Screeds, particularly the S-28EZ, and 3-D Profiler System,
partly offset by elevated volume in Ride-on Screed products Other
revenue.
Boomed Screed sales decreased to approximately US$ 24.4m (H1
2022: US$ 32.9m) as unit volume decrease to 84 units (H1 2022: 93
units), Ride-on screed sales increased to approximately US$ 11.2m
(H1 2022: US$ 10.5m) partly due to price increases and an increase
in volume to 94 units (H1 2022: 90), remanufactured machine sales
increased slightly to approximately US$ 3.4m (H1 2022: US$ 3.2m)
due to higher prices as unit volume remained unchanged at 14 units
(H1 2022: 14), 3-D Profiler System sales decreased to approximately
US$ 4.3m (H1 2022: US$ 5.3m) as unit volume decreased to 41 units
(H1 2022: 43), there were no sales of the SkyScreed(R) in H1 2023,
compared to 3 units in H1 2022. Other revenues increased slightly
to approximately US$ 15.6m (H1 2022: US$ 15.5m) due to an increase
in parts sales. The following table shows the breakdown during the
six months ended June 30, 2023 and 2022:
Revenue breakdown by
geography
North America EMEA (1) ROW (2) Total
US$ in US$ in millions US$ in US$ in millions
millions millions
2023 2022
%
% of of
Net Net Net Net
2023 2022 2023 2022 2023 2022 sales sales sales sales
Boomed screeds
(3) 16.8 26.9 4.2 2.8 3.4 3.2 24.4 41.4% 32.9 48.0%
Ride-on screeds
(4) 8.4 7.5 1.0 0.8 1.8 2.2 11.2 19.0% 10.5 15.3%
Remanufactured
machines 2.2 2.9 0.9 0.3 0.3 - 3.4 5.8% 3.2 4.7%
3D Profiler
System 3.1 5.0 0.1 - 1.1 0.3 4.3 7.3% 5.3 7.7%
SkyScreed
(R) - 1.1 - - - - - - 1.1 1.6%
Other (5) 11.7 12.2 1.9 1.5 2.0 1.8 15.6 26.5% 15.5 22.7%
Total 42.2 55.6 8.1 5.4 8.6 7.5 58.9 100% 68.5 100%
------ -------- ------ ------ ------------ -------
Notes:
1. EMEA includes the Europe, Middle East, and Scandinavia.
2. ROW includes Australia, Latin America, India, China, Korea,
and Southeast Asia
3. Boomed Screeds include the S-22EZ, S-28EZ, 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 Somero Line Dragon(R), Somero
Broom+Cure (TM) , STS-11M Topping Spreader, Copperhead, Mini Screed
C and S-PS50.
Units by product
line H1 2023 H1 2022
--------------------------- --------- ---------
Boomed screeds 84 93
Ride-on screeds 94 90
Remanufactured machines 14 14
3-D Profiler System 41 43
SkyScreed (R) 0 3
Other (1) 47 57
-------------------------------- --------- ---------
Total 280 300
-------------------------------- --------- ---------
Notes:
1. Other includes equipment such as the Somero Line Dragon(R),
Somero Broom+Cure (TM) , STS-11M Topping Spreader, Copperhead, Mini
Screed C and S-PS50.
Sales to customers located in North America contributed 72% of
total revenue (H1 2022: 81%), sales to customers in EMEA (Europe,
Middle East, and Scandinavia) contributed 14% (H1 2022: 8%) and
sales to customers in ROW (Southeast Asia, Australia, Latin
America, India and China) contributed 14% (H1 2022: 11%).
Sales in North America totaled approximately US$ 42.2m (H1 2022:
US$ 55.6m) down 24%, primarily driven by a decrease in Boomed
Screeds. Sales to customers in EMEA were approximately US$ 8.1m (H1
2022: US$ 5.4m), which increased 50% driven by a higher volume sold
in Europe across most product categories and higher prices,
accompanied by a higher volume of boom screeds sold in the Middle
East. Sales to customers in ROW were approximately US$ 8.6m (H1
2022: US$ 7.5m) increasing by 15% driven primarily by an increase
in sales of Boomed Screeds and 3-D Profiler System in Australia and
Latin America.
US$ in millions
--------------------
Regional sales H1 2023 H1 2022
-------------------- --------- ---------
North America 42.2 55.6
Europe 7.0 4.8
Australia 5.3 4.0
Rest of World(1) 4.4 4.1
Total 58.9 68.5
------------------------- --------- ---------
Notes:
(1) Includes India, Middle East, China, Southeast Asia, Korea
and Latin America.
Gross profit
Gross profit decreased to approximately US$ 33.6m (2022: US$
39.9m), with gross margins decreased slightly to 57.0% compared to
58.3% in H1 2022, reflecting higher input and logistical costs, and
training expense, partly offset by a price increase.
Operating expenses
Operating expenses excluding depreciation, amortization and
stock-based compensation for H1 2023 were approximately US$ 16.6m
(H1 2022: US$ 16.2m), 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 June 30, 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 of its business assets.
Provision for income taxes
The provision for income taxes decreased to approximately US$
3.2m, at an overall effective tax rate of 21%, compared to a
provision of approximately US$ 4.9m in H1 2022, at an overall
effective tax rate of 22%.
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 stock options and restricted stock units.
Earnings per common share has been computed based on the
following:
Six months ended June
30
2023 2022
US$ 000 US$ 000
------------- -------------
Income available to stockholders 12,401 17,490
Basic weighted shares outstanding 54,825,552 56,038,690
Net dilutive effect of stock options
and restricted stock units 626,219 661,282
Diluted weighted average shares outstanding 55,451,771 56,699,972
============================================== ============= =============
Per Share Per Share
US$ US$
Basic earnings per share 0.23 0.31
Diluted earnings per share 0.22 0.31
Basic adjusted net income per share 0.22 0.31
Diluted adjusted net income per share 0.22 0.31
Consolidated Balance Sheets
As of June 30, 2023 and December 31, 2022
As of June
30, 2023 As of December
* unaudited 31, 2022
US$ 000 US$ 000
------------------- -------------------
Assets
Current assets:
Cash and cash equivalents 25,243 33 ,699
Accounts receivable - net 7,257 10,315
Inventories - net 21,406 18,849
Prepaid expenses and other assets 1,661 2,724
Total current assets 55,567 65,587
------------------------------------------------------- ------------------- -------------------
Accounts receivable, non-current -
net 669 414
Property, plant, and equipment - net 26,012 25,650
Financing lease right-of-use assets
- net 350 323
Operating lease right-of-use assets
- net 1,808 1,066
Intangible assets - net 1,189 1,257
Goodwill 3,294 3,294
Deferred tax asset 1,949 1,165
Other assets 245 235
------------------------------------------------------- ------------------- -------------------
Total assets 91,083 98,991
======================================================= =================== ===================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 5,088 9,683
Accrued expenses 7,623 8,495
Financing lease liability - current 214 175
Operating lease liability - current 437 304
Total current liabilities 13,362 18,657
------------------------------------------------------- ------------------- -------------------
Financing lease liability - long-term 90 98
Operating lease liability - long-term 1,409 799
Other liabilities 2,309 2,311
Total liabilities 17,170 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, 55,784,380 and
55,818,357 shares issued on June 30,
2023 and December 31, 2022, respectively,
and 55,765,025 and 55,812,857 shares
outstanding on June 30, 2023 and December
31, 2022, respectively 26 26
Less: treasury stock, 19,355 shares
as of June 30, 2023 and 5,500 shares
as of December 31, 2022 at cost (91) (39)
Additional paid in capital 13,634 14,625
Retained earnings 62,488 64,325
Other comprehensive loss (2,144) (1,811)
Total stockholders' equity 73,913 77,126
------------------------------------------------------- ------------------- -------------------
Total liabilities and stockholders'
equity 91,083 98,991
======================================================= =================== ===================
See Notes to unaudited consolidated
financial statements.
Consolidated Statements of Comprehensive Income
For the six months ended June 30, 2023 and 2022
* unaudited Six months ended June
30
2023 2022
US$ 000 US$ 000
Except per Except per
share data share data
--------------- ----------------
Revenue 58,850 68,473
Cost of sales 25,281 28,535
------------------------------------------------------------------- --------------- ----------------
Gross profit 33,569 39,938
------------------------------------------------------------------- --------------- ----------------
Operating expenses
Sales, marketing, and customer support 7,634 7,391
Engineering and product development 1,386 1,203
General and administrative 8,641 8,747
Total operating expenses 17,661 17,341
------------------------------------------------------------------- --------------- ----------------
Operating income 15,908 22,597
Other income (expense)
Interest expense (11) (9)
Interest income 37 38
Foreign exchange impact (472) (242)
Other 173 (3)
Income before income taxes 15,635 22,381
------------------------------------------------------------------- --------------- ----------------
Provision for income taxes 3,234 4,891
Net income 12,401 17,490
------------------------------------------------------------------- --------------- ----------------
Other comprehensive income
Cumulative translation adjustment (333) (300)
Comprehensive income 12,068 17,190
------------------------------------------------------------------- --------------- ----------------
Earnings per common share
Earnings per share - basic 0.23 0.31
Earnings per share - diluted 0.22 0.31
Weighted average number of common
shares outstanding
Basic 54,825,552 56,038,690
Diluted 55,451,771 56,699,972
See Notes to unaudited consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
For the six months ended June 30, 2023
* unaudited
Common stock Treasury stock
Additional
paid-in Retained Other Total
Amount capital Amount earnings Comprehensive Stockholders'
US$ US$ US$ US$ loss equity
Shares 000 000 Shares 000 000 US$ 000 US$ 000
-------- ------------ -------- ---------- --------------- ---------------
Balance -
December
31, 2022 55,818,357 26 14,625 5,500 (39) 64,325 (1,811) 77,126
--------------- ------------ -------- ------------ ---------- -------- ---------- --------------- ---------------
Cumulative
translation
adjustment - - - - - - (333) (333)
Net income - - - - - 12,401 - 12,401
Stock-based
compensation - - 548 - - - - 548
Dividend - - - - - (14,238) - (14,238)
Treasury
stock (94,123) - (384) (94,123) 384 - - -
RSUs settled
for cash - - (1,155) - - - - (1,155)
Share buyback - - 107,978 (436) - - (436)
New shares 60,146 - - - - - - -
issued
Balance -
June
30, 2023 55,784,380 26 13,634 19,355 (91) 62,488 (2,144) 73,913
--------------- ------------ -------- ------------ ---------- -------- ---------- --------------- ---------------
See Notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows
For the six months ended June 30, 2023 and 2022
*unaudited Six months ended June
30
2023 2022
US$ 000 US$ 000
------------ -----------
Cash flows from operating activities:
Net income 12,401 17,490
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred taxes (784) (976)
Depreciation and amortization 708 723
Non-cash lease expense 173 148
Bad debt 96 113
Stock-based compensation 548 673
Gain on disposal of property and equipment 3 (46)
Working capital changes:
Accounts receivable 2,707 1,159
Inventories (2,557) (5,691)
Prepaid expenses and other assets 361 (1,212)
Other assets (12) 156
Accounts payable, accrued expenses
and other liabilities (4,809) 297
Net cash provided by operating activities 8,835 12,834
-------------------------------------------------- ------------ -----------
Cash flows from investing activities:
Property and equipment purchases (1,005) (2,251)
Proceeds from sale of equipment - 40
Net cash used in investing activities (1,005) (2,211)
-------------------------------------------------- ------------ -----------
Cash flows from financing activities:
Payment of dividend (14,238) (23,397)
RSUs settled for cash (1,156) (1,072)
Payments under financing capital leases (124) (103)
Share buy back (435) (721)
Net cash used in financing activities (15,953) (25,293)
-------------------------------------------------- ------------ -----------
Effect of exchange rates on cash and
cash equivalents (333) (300)
Net decrease in cash and cash equivalents (8,456) (14,970)
-------------------------------------------------- ------------ -----------
Cash and cash equivalents:
Beginning of period 33,699 42,146
-------------------------------------------------- ------------ -----------
End of period 25,243 27,176
-------------------------------------------------- ------------ -----------
See Notes to unaudited consolidated
financial statements.
Notes to the Consolidated Financial Statements
As of June 30, 2023 and December 31, 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 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.
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.
Cash and cash equivalents
Cash includes cash on hand, cash in banks, and temporary
investments with a maturity of three months or less when purchased.
The Company maintains deposits primarily in one financial
institution, which may at times exceed amounts covered by insurance
provided by the U.S. Federal Deposit Insurance Corporation
("FDIC"). The Company has not experienced any losses related to
amounts in excess of FDIC limits.
Accounts receivable and allowances for doubtful accounts
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company's accounts receivable are derived from
revenue earned from a diverse group of customers. The Company
performs credit evaluations of its commercial customers and
maintains an allowance for doubtful accounts receivable based upon
the expected ability to collect accounts receivable. Allowances, if
necessary, are established for amounts determined to be
uncollectible based on specific identification and historical
experience. As of June 30, 2023 and December 31, 2022, the
allowance for doubtful accounts was approximately US$ 1,919,000 and
US$ 1,780,000, respectively. Bad debt expense for the six months
ended June 30, 2023 and 2022, was approximately US$ 96,000 and US$
113,000, respectively.
Inventories
Inventories are stated using the first in, first out ("FIFO")
method, at the lower of cost or net realizable value ("NRV").
Provision for potentially obsolete or slow-moving inventory is made
based on management's analysis of inventory levels and future sales
forecasts. As of June 30, 2023 and December 31, 2022, the provision
for obsolete and slow-moving inventory was approximately US$
851,000 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. The Company did not incur a goodwill
impairment loss for the periods ended June 30, 2023 nor December
31, 2022.
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 upon shipment. For
arrangements which include FOB destination shipping terms, revenue
is recognized upon delivery to the customer. The Company recognizes
the revenue for service agreements and training once the service or
training has occurred.
As of June 30, 2023 and December 31, 2022, there were
approximately US$ 732,000 and US$ 582,000, respectively, of
extended service agreement liabilities. During the six months ended
June 30, 2023 and 2022, approximately US$ 304,000 and US$ 308,000,
respectively, of revenue was recognized related to the amounts
recorded as liabilities on the balance sheets in the prior year
(deferred contract revenue).
As of June 30, 2023 and December 31, 2022, there were
approximately US$ 1,995,000 and US$ 2,180,000, respectively, in
customer deposit liabilities for advance payments received during
the period for contracts expected to ship following the end of the
period. As of June 30, 2023 and December 31, 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.
US$ 000
---------
Balance, January 1, 2022 (1,986)
Warranty charges 808
Accruals (270)
----------------------------- ---------
Balance, December 31, 2022 (1,448)
Balance, January 1, 2023 (1,448)
Warranty charges 541
Accruals (319)
----------------------------- ---------
Balance, June 30, 2023 (1,226)
============================= =========
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 are 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.
Use of estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.
Stock-based compensation
The Company recognizes the cost of employee services received in
exchange for an award of equity instruments in the financial
statements over the period the employee is required to perform the
services in exchange for the award (presumptively the vesting
period). The Company measures the cost of employee services in
exchange for an award based on the grant-date fair value of the
award. Compensation expense related to stock-based payments was
approximately US$ 548,000 and US$ 673,000 for the six months ended
June 30, 2023 and 2022, respectively. In addition, the Company
settled approximately US$ 1,155,000 and US$ 1,072,000 in restricted
stock units for cash during the six months ended June 30, 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 gain (loss) in the accompanying
consolidated statements of comprehensive income.
Comprehensive income
Comprehensive income is the combination of reported net income
and other comprehensive income ("OCI"). OCI is changes in equity of
a business enterprise during a period from transactions and other
events and circumstances from non-owner sources not included in net
income.
Earnings per share
Basic earnings per share represents income available to common
stockholders divided by the weighted average number of common
shares outstanding during the year. Diluted earnings per share
reflect additional common shares that would have been outstanding
if dilutive potential common shares had been issued using the
treasury stock method. Potential common shares that may be issued
by the Company relate to outstanding stock options and restricted
stock units.
Earnings per common share have been computed based on the
following:
Six months ended June 30
2023 2022
US$ 000 US$ 000
------------- -------------
Net income 12,401 17,490
Basic weighted shares outstanding 54,825,552 56,038,690
Net dilutive effect of stock options
and restricted stock units 626,219 661,282
---------------------------------------------- ------------- -------------
Diluted weighted average shares outstanding 55,451,771 56,699,972
============================================== ============= =============
Fair value
The carrying values of cash and cash equivalents, accounts
receivable, accounts payable, and other current assets and
liabilities approximate fair value because of the short-term nature
of these instruments. The carrying value of our long-term debt
approximates fair value due to the variable nature of the interest
rates under our Credit Facility.
Restricted Cash
Restricted cash of approximately US$ 255,000 is included in
"Cash and cash equivalents" on the consolidated balance sheet as of
June 30, 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.
3. Inventories
Inventories consisted of the following:
June December
30, 31,
2023 2022
US$
000 US$ 000
-------- -----------
Raw material 11,653 11,393
Finished goods and work in process 7,410 5,768
Remanufactured 2,343 1,688
------------------------------------- -------- -----------
Total 21,406 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 following table reflects other intangible assets:
Weighted December
average June 30, 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 18,745 18,721
Intangible Assets 6,747 6,703
25,492 25,424
------------------- ---------------- ----------------------- -----------------------
Net carrying
costs Patents 12 years 502 526
Intangible Assets 687 731
1,189 1,257
=================== ================ ======================= =======================
Amortization expense associated with the intangible assets in
each of the six months ended June 30, 2023 and 2022 was
approximately US$ 68,000 and US$ 67,000, respectively. The
amortization expense for each of the next 5 years will be
approximately US$ 135,000 and the remaining amortization thereafter
will be approximately US$ 514,000.
5. Property, plant, and equipment
Property, plant, and equipment consist of the following:
June December
30, 31,
2023 2022
US$ 000 US$ 000
----------- -----------
Land 864 864
Building and improvements 25,521 24,812
Machinery and equipment 7,768 8,744
-------------------------------------------------- ----------- -----------
34,153 34,420
-------------------------------------------------- ----------- -----------
Less: accumulated depreciation and amortization (8,141) (8,770)
26,012 25,650
================================================== =========== ===========
Depreciation expense for the six months ended June 30, 2023 and
2022 was approximately US$ 640,000 and US$ 656,000,
respectively.
6. Line of credit and note payable
In August 2022, the Company updated its credit facility to a US$
25.0m secured revolving line of credit, with a maturity date of
August 2027. The interest rate on the revolving credit line is
based on the BSBY Index plus 1.25%. The Company's credit facility
is secured by substantially all its business assets. No amounts
were drawn under the secured revolving line of credit as of June
30, 2023 and December 31, 2022.
Interest expense for the six months ended June 30, 2023 and 2022
was approximately US$ 10,800 and US$ 9,300, 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 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$ 579,000 and US$ 579,000 to the savings and
retirement plan during the six months ended June 30, 2023 and 2022,
respectively.
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 10 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 Sheets, reflect management's current expectations regarding
the exercise of renewal options.
The components for lease expense were as follows:
Six Months Six Months
Ended Ended
June 30, 2023 June 30,
2022
US$ 000 US$ 000
----------------------- -----------
Operating lease cost 205 182
Finance lease cost:
Amortization of right-of-use assets 137 148
Interest on lease liabilities 8 6
------------------------------------------ ----------------------- -----------
Total finance lease cost 145 154
========================================== ======================= ===========
As of June 30, 2023, the weighted average remaining lease term
for finance and operating leases was 1.5 years and 6.3 years,
respectively, and the weighted average discount rate was 4.7% and
5.1%, respectively. As of June 30, 2022, the weighted average
remaining lease term for finance and operating leases was 1.8 years
and 7.2 years, respectively, and the weighted average discount rate
was 4.8% and 3.5%, respectively.
Maturities of lease liabilities represent the remaining six
months for 2023 and the full 12 months of each successive period as
follows:
Operating Finance
Leases Leases
US$ 000 US$ 000
----------------- ------------------------------
2023 275 122
2024 413 158
2025 304 31
2026 304 5
2027 304 -
Thereafter 565 -
----------------- ------------------------------
Total 2,165 316
Less imputed interest (319) (12)
------------------------ ----------------- ------------------------------
Total 1,846 304
9. Supplemental cash flow and non-cash financing disclosures
Six months ended
June 30
2023 2022
US$ 000 US$ 000
---------- ----------
Cash paid for interest 11 9
Cash paid for taxes 2,594 6,274
Finance lease liabilities arising from obtaining
right-of-use assets 31 (102)
Operating lease liabilities arising from
obtaining right-of-use assets 744 (250)
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. On June 30, 2023 and December 31, 2022, the
Company had four customers which represented 31% and five customers
that represented 42% of total accounts receivable,
respectively.
11. Commitments and contingencies
The Company has entered into employment agreements with certain
members of senior management. The terms of these are for renewable
one-year periods and include non-compete and non-disclosure
provisions as well as provide for defined severance payments in the
event of termination or change in control.
The Company is also subject to various unresolved legal actions
which arise in the normal course of its business. Although it is
not possible to predict with certainty the outcome of these
unresolved legal actions or the range of possible losses, the
Company believes these unresolved legal actions will not have a
material effect on its consolidated financial statements.
12. Income taxes
The Company's effective tax rate for the six months ended June
30, 2023 was 21%, which is in line with the U.S. federal statutory
rate of 21%. The Company is subject to US federal income tax as
well as income tax of multiple state and foreign jurisdictions. The
Company was formed in 2005. The statute of limitations for all
federal, foreign, and state income tax matters for tax years from
2019 forward is still open. The Company has no federal, foreign, or
state income tax returns currently under examination.
As of June 30, 2023, and December 31, 2022 the Company had
income tax payable of approximately US$ 495,000 and income tax
receivable of US$ 702,000, respectively.
On June 30, 2023, the Company had approximately US$ 1,949,000 in
non-current net deferred tax assets recorded on its balance sheet.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible.
13. Share buyback
In February 2022, the Board authorized an on-market share
buyback programs for such number of listed shares of common stock
as are equal to US$ 2,000,000, respectively. The maximum price paid
per Ordinary Share was no more than the higher of 105 percent of
the average middle market closing price of an Ordinary Share for
the five business days preceding the date of the share buyback, the
price of the last independent trade and the highest current
independent purchase bid. As of June 30, 2023, the Company
purchased 107,978 shares of common stock for an aggregate value of
approximately US$ 436,000 pursuant to the share buyback program
authorized in 2022. The company estimates the share buyback program
authorized in 2022 will be completed by the end of H2 2023. In
connection with the Company's share buyback program authorized in
2022, 94,123 shares held in treasury were cancelled in H1 2023.
14. Subsequent events
Dividend
The Board declared an interim dividend for the six months ended
June 30, 2023 of 10.0 US cents per share. This dividend will be
paid on October 20, 2023 to shareholders on the register as of
September 22, 2023.
All dividends, including both ordinary and supplemental, have
the option of being paid in two currencies, GBP, and USD. In
addition, there is also the option of being paid by Check or
through Crest for either currency or additionally via BACS for GBP
payments. If no election is made, dividends will be paid in USD and
via Check. If shareholders wish to change their current currency or
payment methods, forms are available through Computershare Investor
Services PLC at
https://www-uk.computershare.com/Investor/#Help/PrintableForms
Distribution amount: $0.10 cents per share
Ex-dividend date: 21 September 2023
-----------------------
Dividend record date: 22 September 2023
-----------------------
Final day for currency election: 6 October 2023
-----------------------
Payment date: 20 October 2023
-----------------------
All dividends have the option of being paid in either GBP or
USD. 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 Computershare Investor
Services PLC at
https://www
uk.computershare.com/Investor/#Help/PrintableForms
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 .
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END
IR SDDFMSEDSESA
(END) Dow Jones Newswires
August 31, 2023 02:00 ET (06:00 GMT)
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