TIDMSOM
RNS Number : 0500L
Somero Enterprises Inc.
08 September 2021
Press Announcement
For immediate release
08 September 2021
Somero(R) Enterprises, Inc.
("Somero" or "the Company" or "the Group")
Interim Results for the six months ended June 30, 2021
Record H1 results due to strong US market, raising 2021
guidance
Financial Highlights
-- H1 revenues were US$ 64.4m (H1 2020: US$ 35.3m) led by a very
strong and highly active US market
o H1 2021 trading in the US was highlighted by accelerated
activity from customers working to catch up on projects previously
slowed by COVID-19 restrictions and by healthy demand for new
warehousing
-- Three of the Company's five international regions reported H1
2021 revenue growth over H1 2020 reflecting generally healthy
non-residential construction market conditions and lessened
COVID-19 restrictions compared to the prior year that enabled an
increased level of activity
-- Strong trading volume drove a record level of profits and
operating cash flow for the period
o US$ 24.6m in H1 2021 adjusted EBITDA (H1 2020: US$ 8.7m)
o US$ 16.0m in H1 2021 cash flow from operations (H1 2020: US$
7.0m)
-- Supported by the record-setting H1 2021 results and a
confident outlook for the remainder of the year, the Board has
raised 2021 guidance and now expects revenues will approximate US$
120.0m, adjusted EBITDA will approximate US$ 42.0m, and year-end
net cash will approximate US$ 36.0m
-- The Board has also declared a US$ 0.09 per share interim
dividend representing a 125% increase compared to H1 2020, an
increase commensurate with the growth in profits
H1 2021 H1 2020 % Change
US$ US$
Revenue $ 64.4m $ 35.3m 82%
Adjusted EBITDA(1,2) $ 24.6m $ 8.7m 183%
Adjusted EBITDA margin(1,2) 38% 25% 1,300bps
Profits before tax $ 23.5m $ 7.5m 213%
Adjusted net income(1,3) $ 18.2m $ 5.8m 214%
Diluted adjusted net income
per share(1,3) $ 0.32 $ 0.10 220%
Cash flow from operations $ 16.0m $ 7.0m 129%
Net cash(4) $ 32.8m $ 28.9m 13%
Interim dividend per share $ 0.090 $ 0.0400 125%
Operational Highlights
-- Investing to position the business for sustainable long-term growth
o The Company is accelerating plans to expand the Houghton,
Michigan Operations and Support Offices, to provide approximately
35% more operational capacity with a targeted project start in late
H2 2021
o The Australian direct sales and support team established in
late 2020 drove a H1 2021 sales increase to US$ 2.7m (H1 2020: US$
0.9m)
o The Company added over 30 employees in H1 2021 prioritizing
global sales, global customer support, and domestic operational
roles
-- Executing the product innovation growth strategy to expand
the Company's addressable market
o The SkyScreed(R) 36, the Somero(R) SRS-4, and Somero(R)
Broom+Cure(TM) combined to contribute US$ 4.8m to H1 2021 revenues
(H1 2020: US$ 1.6m)
-- The Company's newest product introduced in June 2021, the
SkyStrip (R) , an innovative solution for stripping plywood from
ceilings for the structural high-rise market segment, expands the
Company's product offering to 18 products
-- In H1 2021, the Company also finished development of a new
product that extends our reach to another slab-on-grade market
segment currently unaddressed by the Company's product offering,
which is anticipated to be released at the end of 2021 or early
2022
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, CEO of Somero, said:
"H1 2021 was an amazingly active six-month period during which
the Company's revenue, profitability and cash flow reached historic
levels. The rapid acceleration of US non-residential construction
activity in H1 2021 drove unprecedented demand for our products and
the Company delivered for our customers by successfully navigating
supply chain challenges and quickly adding and training operations
personnel.
It was a tremendous challenge to deliver these record setting
results and a clear illustration of the talent, versatility, and
dedication of the Somero team. While we expect supply chain
challenges will continue in H2 2021, we have robust plans in place
to mitigate these challenges.
Trading in the US during H1 2021 benefitted from customer
efforts to catch up on projects previously slowed by COVID-19
restrictions as well as from demand for new warehousing required to
keep pace with growth in e-commerce transactions. We are pleased
with H1 2021 contributions from our international regions. Three of
our five international regions reported revenue growth compared to
H1 2020, and all our international regions combined to contribute a
US$ 6.1m increase (80%) in revenue over H1 2020.
The Company also remained on track with executing our growth
strategy. We continued to drive forward product development
initiatives culminating in the June 2021 launch of the SkyStrip (R)
high-rise structural shoring plywood removal solution and in
completing development of a new product that will extend our reach
to another slab-on-grade market segment currently unaddressed by
the Company's product offering. We anticipate this product will be
released at the end of 2021 or in early 2022.
We are entering the second half of 2021 with positive momentum
in our largest market, the US, with opportunities for further
growth in our international markets and from new products, and with
a strong financial position to invest in driving and supporting
long-term growth. This momentum means we have the confidence to
upgrade guidance for 2021, are positioned to deliver a record
setting year of revenues, profits and cash flow for our
shareholders this year, but most importantly, we remain committed
to making sound strategic investments to deliver healthy profits
and cash flows to our shareholders in the years to follow."
For further information, please contact:
Enquiries:
Somero Enterprises, Inc. www.somero.com
Jack Cooney, CEO +1 239 210 6500
John Yuncza, CFO
Howard Hohmann, EVP Sales
finnCap Ltd (NOMAD and Broker)
Matt Goode (Corporate Finance) +44 (0)20 7220 0500
Kate Bannatyne (Corporate Finance)
Tim Redfern/Richard Chambers (ECM)
Alma PR (Financial PR Advisor) somero@almapr.co.uk
David Ison +44 (0)20 3405 0205
Sam Modlin
Molly Gretton
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
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(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
H1 2021 revenue totaled US$ 64.4m, an 82% increase compared to a
H1 2020 period that was significantly impacted by the COVID-19
pandemic. North America drove accelerated H1 2021 trading as the
market gained significant momentum to start the year with our
customers working to catch up on projects previously slowed by
COVID-19 restrictions. Our international regions also contributed
significantly to H1 2021 revenue growth, most notably Europe and
Australia. Our five international regions combined to contribute
US$ 13.5m to H1 2021 revenues, an 80% increase over H1 2020 and
hence in line with growth in North America. Europe on a standalone
basis reported US$ 6.4m in H1 2021 revenues, an increase of US$
2.3m compared to H1 2020, while Australia reported US$ 2.7m in H1
2021 revenues, an increase of US$ 1.8m compared to H1 2020. China
reported H1 2021 revenues of US$ 1.7m, down US$ 0.1m from H1 2020,
as multiple factors continue to hinder near-term growth in this
market, the most significant of which is the lack of demand for
quality concrete floors by Chinese building owners and
end-users.
We continue to make progress executing our product innovation
growth strategy. In June 2021, we launched the SkyStrip (R) , an
innovative solution to remove plywood sheets used in shoring
structural high-rise floors. We also finished development of a new
product that will open up a previously unaddressed slab-on-grade
market segment. We anticipate releasing this product at the end of
2021 or in early 2022. New products introduced prior to 2021,
consisting of the SkyScreed(R) 36, the Somero(R) SRS-4, and the
Somero(R) Broom+Cure(TM) combined for US$ 4.8m to H1 2021 revenues
(H1 2020: US$ 1.6m), also positively contributing to growth in the
period.
The significant revenue growth in H1 2021 translated efficiently
to strong profits and robust cash generation. The strong profits
were underpinned by a considerable expansion of gross margin to
58.6% (H1 2020: 54.7%) driven by the benefits from increased volume
and pricing increases offset modestly by higher material and
logistical costs. The strong gross margin in turn supported a
significant increase in adjusted EBITDA margin to 38.1% (H1 2020:
24.5% margin) an improvement that reflects considerable leveraging
of support costs. These operating results underscore the
scalability of the Company's operations and support functions to
meet increased demand levels. H1 2021 operating cash flow of US$
16.0m (H1 2020: US$ 7.0m) was particularly strong leading to a June
30, 2021 cash balance of US$ 32.8m notwithstanding the payment of a
US$ 17.4m dividend in April 2021.
Region Reviews
North American sales grew to US$ 50.9m, an increase of 83% from
H1 2020. Non-residential construction activity gained significant
momentum in H1 2021 with customers working to catch up on projects
previously slowed by COVID-19 restrictions and the underlying US
non-residential construction market remains healthy with our
customers continuing to report extended project backlogs. Sales of
Boomed screeds, Ride-on screeds, 3D Profiler Systems, the Somero
Line Dragon Line Dragon(R), and Other revenues all increased
compared to H1 2020 reflecting a wide variety of projects in the
market with the most significant growth coming from the Boomed
screed category that grew to represent 47.5% of total H1 2021 North
American revenue, compared to 29.5% in H1 2020. The strong
performance in Boomed screed sales was driven by demand for new
warehousing to keep pace with growth in e-commerce transaction
volumes.
Europe reported sales of US$ 6.4m in H1 2021, a 56% increase
from H1 2020 with improved trading correlated to easing of COVID-19
related restrictions and reflecting generally positive
non-residential construction market fundamentals. A key element of
future growth in Europe will come from new products, and we are
pleased with the US$ 1.3m contribution to H1 2021 sales from the
Somero(R) SRS-4, a product that is well suited to Europe due to its
lightweight, compact, convenient to transport design.
In China, H1 2021 revenues declined to US$ 1.7m compared to US$
1.8m in H1 2020. Disruption from the COVID-19 pandemic and
deteriorated US-China trade relations are two factors that have
hindered near-term growth in this market, but the ultimate obstacle
to meaningful contribution from this market is the lack of demand
for quality concrete floors by Chinese building owners and
end-users. We will continue to evaluate our approach and China
strategy as we progress through the remainder of the year.
Our Rest of World region reported H1 2021 sales of US$ 4.4m, a
US$ 3.2m increase compared to H1 2020. The two primary markets in
this region are Australia and India. In Australia, the transition
to direct selling and support gained traction despite on-going
shelter-in-place restrictions throughout the market. H1 2021 sales
in Australia grew to US$ 2.7m (H1 2020: $0.9m). India reported
sales of US$ 1.1m in H1 2021, a US$ 0.8m increase compared to H1
2020 as our local sales team was able to navigate through severe
COVID-19 restrictions and deliver this year-over-year improvement.
Comparable to China, meaningful growth in India will be dependent
on the demand for quality concrete floors by building owners and
end-users in the market.
Latin America and the Middle East combined to report US$ 1.0m in
H1 2021 sales, up US$ 0.6m compared to H1 2020. Given the small
base of revenues in these markets, activity from period to period
will be subject to a level of volatility that makes for challenging
year-on-year comparisons, a factor further compounded by
uncertainty over control over COVID-19 infection rates in each
respective territory.
Strategic Progress
The two pillars of our growth strategy are product innovation
and increased penetration of our international markets. We
collaborate extensively with customers to identify and develop
solutions that enable our customers to complete their projects
faster, more efficiently, with improved quality and safety. Our
solutions help customers build successful, profitable businesses
and in turn drive Somero's profits. We also invest in targeted
resources across the globe tasked with educating the market on the
benefits of wide-placement theory and quality concrete flooring
standards and with penetrating these markets with new and existing
products. While the rate and pace of adopting quality flooring
standards varies across the world, we see significant, targeted
opportunities to grow revenues from our international markets.
We prioritize new product ideas that address untapped market
segments and expand the global opportunity to provide a runway for
future growth. The most recent addition to our product portfolio,
the SkyStrip(R), launched in June 2021, is another example of
expanding the Company's addressable market. The SkyStrip(R)
provides customers with a solution to replace manual labor, reduce
material waste and improve safety in the process to strip plywood
sheets used in shoring the floors in structural high-rises
projects. The SkyStrip(R) adds to our product offering targeting
the high-rise structural market, a significant growth opportunity
for the Company. In H1 2021, the Company also finished development
of a new product that extends our reach to another slab-on-grade
market segment currently unaddressed by the Company's product
offering. We anticipate release of this new product at the end of
2021 or early 2022. Finally, while we will continue to prioritize
development of entirely new products, we will also routinely
refresh our legacy products by adding new technology and design
enhancements that will improve performance, productivity, ease of
use and ease of maintenance to add value to the offering.
New products introduced prior to 2021, consisting of the
Somero(R) SRS-4, the Somero Broom+Cure(TM) , and the SkyScreed(R)
36, combined to contribute US$ 4.8m to H1 2021 revenues (H1 2020:
US$ 1.6m) a key component of growth for the period. Of these new
products, the biggest impact came from the Somero(R) SRS-4,
introduced mid-year 2020, that contributed US$ 3.4m in H1 2021
revenues (H1 2020: US$ 1.1m) a meaningful portion of which came
from our European market. The Somero Broom+Cure(TM) introduced at
the end of 2020, a mechanical solution to apply curing agents and a
broom finish to exterior concrete slabs, contributed revenue of US$
1.2m in H1 2021 (H1 2020: US$ 0.2m) and we are pleased with the
level of interest in this product. Lastly, penetrating the
structural high-rise market with the SkyScreed(R) represents an
exciting, significant long-term opportunity for Somero. In H1 2021,
the SkyScreed(R) 36 contributed US$ 0.2m to H1 2021 revenues (H1
2020: US$ 0.3m) in part reflecting the prioritization by
prospective buyers of catching up on projects previously slowed by
COVID-19 over evaluating a new, disruptive solution through jobsite
product demonstrations. We remain confident in the strong value
proposition supporting the SkyScreed(R) and anticipate, as with all
disruptive technologies, market acceptance will build at a measured
pace. We continue to view long-term penetration in the high-rise
structural market segment as a key, significant contributor to
revenue growth and a source of new product introductions in the
years to come.
Our international markets contributed H1 2021 revenues of US$
13.5m on a combined basis, an 80% increase over H1 2020. The
positive H1 2021 results reflect generally healthy non-residential
construction market conditions across our global footprint,
lessened COVID-19 restrictions compared to H1 2020, and the
positive impact of our investment in direct sales and support
resources in Australia at the end of 2020. However, efforts to
develop and educate our international markets have been hampered by
fluctuating levels of COVID-19 restrictions that limit sales and
marketing activities in the local markets and prevent our US
personnel from travelling internationally to these markets. We
expect the overhang of COVID-19 restrictions will continue for the
foreseeable future impairing our market development efforts and are
therefore focusing our near-term efforts on international markets
where our value proposition is well understood and resonates
best.
Our People
On behalf of the Board, we would like to thank all our global
employees for their remarkable performance in 2021. Our employees
quickly pivoted from the slowdown in 2020 to adjust to the
challenge of unprecedented demand for our products in H1 2021.
Delivering these exceptional results, while continuing to execute
our long-term strategy is a true testament of the perseverance,
resilience, and adaptability of our employees. The Board and
management team remain as committed as ever to providing our
employees with a rewarding and challenging working environment that
is full of opportunity.
Facility Expansion
With the rapid pace of growth experienced in H1 2021 and
continued expansion of the Company's product portfolio, the Board
has approved plans to expand the operational capacity at our
Houghton, Michigan Operations and Support Offices to prepare the
business for the next phase of growth. The decision to expand the
facility has been accelerated due to the rapid pace of growth in H1
2021. The expansion plan would add 50,000 square feet to the
building, a 50% increase over the current footprint, at an
approximate cost of US$ 9.5m. The expanded facility would be able
to support a business of approximately US$ 175.0m in revenues up
from the current US$ 130.0m capacity. Project plans are being
finalized and the Company intends to begin construction in late
2021 and complete the project mid-year 2022.
Environmental, Social and Governance
The Board closely monitors material environmental, social and
governance topics that impact our stakeholders. These topics are
routinely discussed at the Board level to ensure Somero continues
to strike the right balance between shareholder expectations and
the needs and concerns of our employees and customers, the
communities we live in and the environment as well as to ensure
Somero is actively engaging with our stakeholders on these topics.
We view this effort as a critical, long-term journey necessary for
all sustainable businesses. As part of the ongoing review, the
Board has decided to add a fourth independent non-executive
director. Adding a new Board director will further enhance the
Board's oversight independence, add another valuable strategic
perspective to Board-level discussions, and provide the opportunity
to add diversity to Board membership. The search for the new
director will commence in H2 2021 and we will prioritize selecting
the right candidate for the role over imposing a strict deadline to
complete the search.
Dividend and share buyback program
Based on record results in H1 2021, our strong financial
position and confidence in the outlook for the remainder of 2021,
we are pleased to report that the Board has decided to declare an
interim 2021 dividend of $0.090 per share, which is a 125% increase
from the last year and is commensurate with the growth of the
business. The dividend, representing a total payment of
approximately US$ 5.1m, will be payable on October 22, 2021 to
shareholders on the register as of September 24, 2021.
In H1 2021, the Company repurchased approximately 6,521 common
shares under the Company's share buyback program that was put in
place to offset dilution from on-going equity award programs. The
common shares repurchased in H1 2021 were to complete the 2020 US$
1.0m share buyback authorization approved by the Board in August
2020. As of June 30, 2021, all the 2021 US$ 1.0m share buyback
authorization separately approved by the Board in February 2021
remains unused and the Company targets completing this buyback
authorization by the end of 2021. Under the buyback program, the
maximum price paid per Ordinary Share is to be no more than the
higher of 105 per cent 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.
Current Trading and Outlook
H1 2021 was record setting six-month period for the Company led
by very strong trading in North America, and strong contributions
to growth from international markets and new products, that
translated to record levels of profits and operating cash flow.
This positive momentum is carrying over into H2 2021 with a
positive outlook for the US market that is supported by an active
non-residential construction market, extended customer project
backlogs and continued strong demand for new warehousing. While we
recognize H1 2021 results in the US were positively impacted by
customer efforts to catch up on projects previously delayed by
COVID-19 restrictions that accelerated demand for equipment, the
positive market conditions remain intact. In Europe, we are pleased
by the H1 2021 performance and the general health of
non-residential construction across the region, which is supported
by customers reporting solid project backlogs. We also look forward
to the opportunity for new product growth from this region. In
Australia, although we are early in the transition to direct
selling and support in this market, we are encouraged by the
traction gained in H1 2021 and see opportunity for growth
particularly from new products. In China, a number of factors will
continue to impact trading and limit near-term growth, but the
demand for quality concrete floors by Chinese building owners and
end-users remains the ultimate catalyst for meaningful performance
from this market.
We are also pleased with the performance of the Middle East,
Latin America, and remaining Rest of World territories that
includes India. These regions combined to contribute US$ 2.0m in H1
2021 revenue growth compared to the same period last year and we
expect to see opportunities from growth from these regions but
anticipate the level of activity will be dependent on control over
COVID-19 infection rates in each respective territory going
forward.
We maintain a confident, positive outlook for the remainder of
2021 and anticipate delivering record levels of revenues and
profits to shareholders for the year. Although we recognize a level
of risk associated with a potential resurgence of COVID-19
infections and from supply chain shortages that could slow our
ability to fulfill customer orders for equipment in H2 2021, based
on the remarkable H1 2021 results and an overarching confidence in
the health and momentum of the business, the Board has raised
guidance for 2021. The Board, taking a prudent approach to revising
guidance in consideration of these factors, now expects full year
2021 revenues will approximate US$ 120.0m (previously US$ 110.0m),
adjusted EBITDA will approximate US$ 42.0m (previously US$ 35.0m)
as we anticipate slightly less of the benefits from increased
volume and the leverage of support costs in H2. We also now expect
year-end 2021 net cash will approximate US$ 36.0m (previously US$
33.0m), a view that takes into account anticipated 2021 spending on
the facility expansion project.
Larry Horsch
Non-Executive Chairman
Jack Cooney
President and Chief Executive Officer
September 8, 2021
FINANCIAL REVIEW
For the six months ended
Summary of financial results June 30
* unaudited 2021 2020
US$ 000 US$ 000
Except per Except per
share data share data
------------- -------------
Revenue 64,384 35,266
Cost of sales 26,636 15,961
------------- -------------
Gross profit 37,748 19,305
Operating expenses
Selling, marketing and customer support 6,053 5,175
Engineering and product development 1,066 963
General and administrative 7,426 5,649
Total operating expenses 14,545 11,787
-------------------------------------------------- ------------- -------------
Operating income 23,203 7,518
Other income (expense)
Interest expense (24) (22)
Interest income 97 109
Foreign exchange impact 105 (80)
Other 118 (60)
Income before income taxes 23,499 7,465
-------------------------------------------------- ------------- -------------
Provision for income taxes 5,200 1,712
Net income 18,299 5,753
============================================ ==== ============= =============
Per Share Per Share
US$ US$
Basic earnings per share 0.33 0.10
Diluted earnings per share 0.32 0.10
Basic adjusted net income per share (1),
(2), (4) 0.32 0.10
Diluted adjusted net income per share
(1), (2), (4) 0.32 0.10
-------------------------------------------------- ------------- -------------
Other data
Adjusted EBITDA (1), (2), (4) 24,564 8,651
Adjusted net income (1), (3), (4) 18,239 5,779
Depreciation expense 549 486
Amortization of intangibles 77 77
Capital expenditures 645 1,463
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
2021 2020
US$ 000 US$ 000
------------- -------------
Adjusted EBITDA reconciliation
Net income 18,299 5,753
Tax provision 5,200 1,712
Interest expense 24 22
Interest income (97) (109)
Foreign exchange impact (105) 80
Other (118) 60
Depreciation 549 486
Amortization 77 77
Non-cash lease expense 135 105
Stock-based compensation 600 465
----------------------------------------------- ------------- -------------
Adjusted EBITDA 24,564 8,651
----------------------------------------------- ------------- -------------
Adjusted net income reconciliation
Net income 18,299 5,753
Amortization 77 77
Tax impact of stock option & RSU settlements (137) (51)
----------------------------------------------- ------------- -------------
Adjusted net income reconciliation 18,239 5,779
----------------------------------------------- ------------- -------------
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 increased by 82% to US$
64.4--m (H1 2020: US$ 35.3m). The Company's revenues consist
primarily of sales from Boomed Screed products, which include the
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,
Somero Line Dragon(R), formerly SP-16 Concrete Line Pulling and
Placing System, SkyScreed(R), Broom+Cure(TM) and Other revenues
which consist of revenue from sales of parts and accessories, sales
of other equipment, service, training and shipping charges. The
overall increase for the period was primarily driven by increased
sales of Boomed screeds along with increases in Ride-on screeds and
Other revenues.
Boomed Screed sales increased to US$ 32.1--m (H1 2020: US$
11.6m) as unit volume increased to 105 units (H1 2020: 43 units),
Ride-on screed sales increased to US$ 9.9m (H1 2020: US$ 6.7m)
primarily due to an increase in volume to 87 units (H1 2020: 63),
remanufactured machine sales decreased to US$ 2.0m (H1 2020: US$
2.7m) as unit volume decreased to 12 units (H1 2020: 20), 3-D
Profiler System sales increased to US$ 4.6m (H1 2020: US$ 3.5m) as
unit volume increased to 39 units (H1 2020: 32), Somero Line
Dragon(R), formerly SP-16 Concrete Line Pulling and Placing System,
sales increased to US$ 2.3m (H1 2020: US$ 1.7m) as unit volume
increased to 62 units (H1 2020: 48), SkyScreed(R) sales remained
consistent with H1 2020, and Other revenues increased to US$ 13.3m
(H1 2020: US$ 8.8m) mostly due to higher volume of parts and sales
of the Broom+Cure(TM) . The following table shows the breakdown
during the six months ended June 30, 2021 and 2020:
Revenue breakdown by geography
North America EMEA (1) ROW (2) Total
US$ in millions US$ in millions US$ in millions US$ in millions
2021 2020
2021 2020 2021 2020 2021 2020 Net % of Net % of
sales Net sales Net
sales sales
Boomed screeds
(3) 24.2 8.2 5.0 2.7 2.9 0.7 32.1 50.0% 11.6 32.9%
Ride-on screeds
(4) 7.8 5.4 1.3 0.9 0.8 0.4 9.9 15.4% 6.7 19.0%
Remanufactured
machines 2.0 2.4 - - - 0.3 2.0 3.1% 2.7 7.6%
3D Profiler
System 4.2 3.2 0.1 - 0.3 0.3 4.6 7.1% 3.5 10.0%
Somero Line
Dragon
(R) 2.3 1.7 - - - - 2.3 3.4% 1.7 4.8%
SkyScreed (R) 0.2 0.3 - - - - 0.2 0.3% 0.3 0.8%
Other (5) 10.2 6.6 1.4 0.9 1.7 1.3 13.3 20.7% 8.8 24.9%
Total 50.9 27.8 7.8 4.5 5.7 3.0 64.4 100.0% 35.3 100.0%
------ --------- ----------- ------- -------- -------
Notes:
1. EMEA includes the Europe, Middle East, Scandinavia and
Russia.
2. ROW includes China, Australia, Latin America, Korea, India
and Southeast Asia
3. Boomed Screeds include the S-22E, 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 Somero Broom+Cure (TM) ,
STS-11M Topping Spreader, Copperhead, and Mini Screed C.
Units by product
line H1 2021 H1 2020
--------------------------- --------- ---------
Boomed screeds 105 43
Ride-on screeds 87 63
Remanufactured machines 12 20
3-D Profiler System 39 32
Somero Line
Dragon (R) 62 48
SkyScreed (R) 1 1
Other (1) 25 18
-------------------------------- --------- ---------
Total 331 225
-------------------------------- --------- ---------
Notes:
1. Other includes equipment such as the Somero Broom+Cure (TM) ,
STS-11M Topping Spreader, Copperhead, and Mini Screed C.
Sales to customers located in North America contributed 79% of
total revenue (H1 2020: 79%), sales to customers in EMEA (Europe,
Middle East, Scandinavia, and Russia) contributed 12% (H1 2020:
13%) and sales to customers in ROW (Southeast Asia, Australia,
Latin America, India and China) contributed 9% (H1 2020: 8%).
Sales in North America totaled US$ 50.9m (H1 2020: US$ 27.8m) up
83%, primarily driven by an increase in sales volumes of Boomed
screeds and Ride-on screeds, strong contribution from new products
including the Somero SRS-4 and the Somero Broom+Cure(TM) , the
Somero Line Dragon(R), 3-D Profiler Systems as well as parts and
accessories. Sales to customers in EMEA were US$ 7.8m (H1 2020: US$
4.5m) which increased 73% driven by an increase in sales across all
product categories, particularly Boomed screeds. Sales to customers
in ROW were US$ 5.7m (H1 2020: US$ 3.0m) increasing by 90% driven
by an increase in sales of Boomed screeds.
US$ in millions
--------------------
Regional sales H1 2021 H1 2020
-------------------- --------- ---------
North America 50.9 27.8
Europe 6.4 4.1
China 1.7 1.8
Middle East 0.2 0.2
Latin America 0.8 0.2
Rest of World(1) 4.4 1.2
Total 64.4 35.3
------------------------- --------- ---------
Notes:
(1) Includes Australia, India, Southeast Asia, Korea and
Russia.
Gross profit
Gross profit increased to US$ 37.8m (2020: US$ 19.3m), with
gross margins increasing to 58.6% compared to 54.7% in H1 2020
primarily due to increased volume driven manufacturing overhead
absorption and higher average selling prices.
Operating expenses
Operating expenses excluding depreciation, amortization and
stock-based compensation for H1 2021 were US$ 13.3m (H1 2020: US$
11.0m), which is reflective of increased staffing that includes
investment in sales and support staff in the US and abroad, as well
as higher compensation, employee related expenses and professional
fees.
Debt
As of June 30, 2021, the Company had no outstanding debt and
there were no changes to the Company's US$ 10.0m secured revolving
line of credit which will mature in September 2024.
Other income (expense)
Other income (expense) was US$ 0.1m of other income, compared to
other expense of US$ 0.1m in 2020.
Provision for income taxes
The provision for income taxes increased to US$ 5.2m, at an
overall effective tax rate of 22%, compared to a provision of US$
1.7m in H1 2020, at an overall effective tax rate of 23%.
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
2021 2020
US$ 000 US$ 000
------------- -------------
Income available to stockholders 18,299 5,753
Basic weighted shares outstanding 56,159,229 56,371,231
Net dilutive effect of stock options
and restricted stock units 694,625 607,155
Diluted weighted average shares outstanding 56,853,854 56,978,386
============================================== ============= =============
Per Share Per Share
US$ US$
Basic earnings per share 0.33 0.10
Diluted earnings per share 0.32 0.10
Basic adjusted net income per share 0.32 0.10
Diluted adjusted net income per share 0.32 0.10
Consolidated Balance Sheets
As of June 30, 2021 and December 31, 2020
* unaudited As of As of
June 30, December 31,
2021 2020
US$ 000 US$ 000
------------------ ---------------
Assets
Current assets:
Cash and cash equivalents 32,817 35,388
Accounts receivable - net 9,374 6,411
Inventories - net 14,257 11,127
Prepaid expenses and other assets 2,584 1,676
-------------------------------------------------------- ------------------ ---------------
Total current assets 59,032 54,602
Accounts receivable, non-current - net 431 736
Property, plant, and equipment - net 16,636 16,509
Financing lease right-of-use assets -
net 488 485
Operating lease right-of-use assets -
net 1,834 1,295
Intangible assets - net 1,469 1,545
Goodwill 3,294 3,294
Deferred tax asset 1,141 80
Other assets 335 303
-------------------------------------------------------- ------------------ ---------------
Total assets 84,660 78,849
======================================================== ================== ===============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 7,544 4,380
Accrued expenses 7,976 6,702
Financing lease liability - current 194 162
Operating lease liability - current 371 204
Income tax payable - 888
-------------------------------------------------------- ------------------ ---------------
Total current liabilities 16,085 12,336
-------------------------------------------------------- ------------------ ---------------
Financing lease liability - long-term 193 228
Operating lease liability - long-term 1,504 1,133
Other liabilities 2,307 1,622
Total liabilities 20,089 15,319
-------------------------------------------------------- ------------------ ---------------
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, 56,425,598 shares issued
and 56,175,742 and 56,124,409 shares outstanding
on June 30, 2021 and December 31, 2020,
respectively 26 26
Less: treasury stock, 249,856 shares as
of June 30, 2021 and 301,189 shares as
of December 31, 2020 at cost (925) (1,040)
Additional paid in capital 17,422 17,598
Retained earnings 50,704 49,771
Other comprehensive loss (2,656) (2,825)
Total stockholders' equity 64,571 63,530
-------------------------------------------------------- ------------------ ---------------
Total liabilities and stockholders' equity 84,660 78,849
======================================================== ================== ===============
See Notes to unaudited consolidated financial
statements.
Consolidated Statements of Comprehensive Income
For the six months ended June 30, 2021 and 2020
* unaudited Six months ended
June 30
2020
2021 US$ 000
US$ 000 Except
Except per per share
share data data
------------- ------------
Revenue 64,384 35,266
Cost of sales 26,636 15,961
--------------------------------------------- ------------- ------------
Gross profit 37,748 19,305
--------------------------------------------- ------------- ------------
Operating expenses
Sales, marketing and customer support 6,053 5,175
Engineering and product development 1,066 963
General and administrative 7,426 5,649
Total operating expenses 14,545 11,787
--------------------------------------------- ------------- ------------
Operating income 23,203 7,518
Other income (expense)
Interest expense (24) (22)
Interest income 97 109
Foreign exchange impact 105 (80)
Other 118 (60)
Income before income taxes 23,499 7,465
--------------------------------------------- ------------- ------------
Provision for income taxes 5,200 1,712
Net income 18,299 5,753
--------------------------------------------- ------------- ------------
Other comprehensive income
Cumulative translation adjustment 169 (164)
Comprehensive income 18,468 5,589
--------------------------------------------- ------------- ------------
Earnings per common share
Earnings per share - basic 0.33 0.10
Earnings per share - diluted 0.32 0.10
Weighted average number of common shares
outstanding
Basic 56,159,229 56,371,231
Diluted 56,853,854 56,978,386
See Notes to unaudited consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
For the six months ended June 30, 2021
* unaudited
Common stock Treasury stock
Additional Other
paid-in Comprehensive Total
Amount capital Amount Retained income Stockholders'
US$ US$ US$ earnings (loss) equity
Shares 000 000 Shares 000 US$ 000 US$ 000 US$ 000
-------- ------------ --------- ---------- --------------- ---------------
Balance -
December
31, 2020 56,425,598 26 17,598 301,189 (1,040) 49,771 (2,825) 63,530
--------------- ------------ -------- ------------ ---------- --------- ---------- --------------- ---------------
Cumulative
translation
adjustment - - - - - - 169 169
Net income - - - - - 18,299 - 18,299
Stock-based
compensation - - 600 - - - - 600
Dividend - - - - - (17,366) - (17,366)
Treasury
stock - - (115) (57,854) 115 - - -
RSUs settled
for cash - - (620) - - - - (620)
Share buyback - - (41) 6,521 - - - (41)
Balance -
June
30, 2021 56,425,598 26 17,422 249,856 (925) 50,704 (2,656) 64,571
--------------- ------------ -------- ------------ ---------- --------- ---------- --------------- ---------------
See Notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows
For the six months ended June 30, 2021 and 2020
*unaudited Six months ended June
30
2021 2020
US$ 000 US$ 000
------------ -----------
Cash flows from operating activities:
Net income 18,299 5,753
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred taxes (1,061) (91)
Depreciation and amortization 626 563
Non-cash lease expense 135 105
Bad debt 99 58
Stock-based compensation 600 465
Loss (gain) on disposal of property
and equipment (31) 10
Working capital changes:
Accounts receivable (2,758) 3,045
Inventories (3,130) (1,528)
Prepaid expenses and other assets (480) (171)
Other assets (32) (1)
Accounts payable, accrued expenses
and other liabilities 5,080 (1,423)
Income taxes payable (1,316) 224
Net cash provided by operating activities 16,031 7,009
-------------------------------------------------- ------------ -----------
Cash flows from investing activities:
Property and equipment purchases (645) (1,463)
Net cash used in investing activities (645) (1,463)
-------------------------------------------------- ------------ -----------
Cash flows from financing activities:
Payment of dividend (17,366) -
RSUs settled for cash (620) (223)
Payments under financing capital leases (99) (73)
Investment in subsidiary - 11
Share buy back (41) -
Net cash used in financing activities (18,126) (285)
-------------------------------------------------- ------------ -----------
Effect of exchange rates on cash and
cash equivalents 169 (164)
Net increase (decrease) in cash and
cash equivalents (2,571) 5,097
-------------------------------------------------- ------------ -----------
Cash and cash equivalents:
Beginning of period 35,388 23,757
-------------------------------------------------- ------------ -----------
End of period 32,817 28,854
-------------------------------------------------- ------------ -----------
See Notes to unaudited consolidated
financial statements.
Notes to the Consolidated Financial Statements
As of June 30, 2021 and December 31, 2020
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.
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, 2021 and December 31, 2020, the
allowance for doubtful accounts was approximately US$ 1,294,000 and
US$ 1,187,000, respectively. Bad debt expense for the six months
ended June 30, 2021 and 2020, was US$ 99,000 and US$ 58,000,
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, 2021 and December 31, 2020, the provision
for obsolete and slow-moving inventory was US$ 502,000 and US$
361,000, respectively.
Business combinations and purchase accounting
The Company includes the results of operations of the businesses
that it acquires as of the applicable acquisition date. The
purchase price of the acquisition is allocated to the assets
acquired and liabilities assumed based on their estimated fair
values. The excess of the purchase price over the fair values of
these identifiable assets and liabilities is recorded as goodwill.
Acquisition-related expenses are recognized separately from the
business combination and are expensed as incurred.
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, 2021 nor December
31, 2020.
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.
During the six months ended June 30, 2021 and 2020, there was
US$ 2,435,039 and US$ 525,800, respectively of revenue recognized
during the period from customer deposit liabilities (deferred
contract revenue).
As of June 30, 2021 and December 31, 2020, there are US$
3,132,000 and US$ 3,009,000, 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, 2021 and December 31, 2020, 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, 2020 (931)
Warranty charges 248
Accruals (491)
----------------------------- ---------
Balance, December 31, 2020 (1,174)
Balance, January 1, 2021 (1,174)
Warranty charges 165
Accruals (641)
----------------------------- ---------
Balance, June 30, 2021 (1,650)
============================= =========
Property, plant, and equipment
Property, plant and equipment is stated at estimated market
value based on an independent appraisal at the acquisition date or
at cost for subsequent acquisitions, 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 US$
600,000 and US$ 465,000 for the six months ended June 30, 2021 and
2020, respectively. In addition, the Company settled US$ 620,000
and US$ 223,000 in restricted stock units for cash during the six
months ended June 30, 2021 and 2020, 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
2021 2020
US$ 000 US$ 000
------------- -------------
Net income 18,299 5,753
Basic weighted shares outstanding 56,159,229 56,371,231
Net dilutive effect of stock options
and restricted stock units 694,625 607,155
---------------------------------------------- ------------- -------------
Diluted weighted average shares outstanding 56,853,854 56,978,386
============================================== ============= =============
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.
The FASB has issued accounting guidance on fair value
measurements. This guidance provides a common definition of fair
value and a framework for measuring assets and liabilities at fair
values when a particular standard prescribes it.
This guidance also specifies a fair value hierarchy based upon
the observability of inputs used in valuation techniques. These
valuation techniques may be based upon observable and unobservable
inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the
Company's market assumptions. These two types of inputs create the
following fair value hierarchy.
-- Level 1 - Quoted prices for identical instruments in active markets.
-- Level 2 - Quoted prices for similar assets and liabilities in
active markets; quoted prices for identical or similar assets and
liabilities in markets that are not active; and model-derived other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets and
liabilities.
-- Level 3 - Unobservable inputs for the asset or liability
which are supported by little or no market activity and reflect the
Company's assumptions that a market participant would use in
pricing the asset or liability.
Quoted prices
in active Significant Significant
markets other other
identical observable unobservable
assets inputs inputs
Level 1 Level 2 Level 3
US$ 000 US$ 000 US$ 000 US$ 000
----------------------- --------- --------------- ------------- ---------------
Year ended December 31,
2020
Asset: Non-recurring
Goodwill 3,294 3,294
Period ended June 30, 2021
Asset: Non-recurring
Goodwill 3,294 3,294
3. Inventories
Inventories consisted of the following:
June
30, December 31,
2021 2020
US$
000 US$ 000
-------- --------------
Raw material 7,496 5,543
Finished goods and work in process 4,181 2,933
Remanufactured 2,580 2,651
------------------------------------- -------- --------------
Total 14,257 11,127
===================================== ======== ==============
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 2021 2020
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 18,650 18,626
Intangible Assets 6,562 6,510
25,213 25,136
---------------------- ---------------- ----------------------- -----------------------
Net carrying costs Patents 12 years 597 621
Intangible Assets 872 924
1,469 1,545
====================== ================ ======================= =======================
Amortization expense associated with the intangible assets in
each of the six months ended June 30, 2021 and 2020 was
approximately US$ 77,000 and US$ 77,000, respectively.
5. Property, plant, and equipment
Property, plant, and equipment consist of the following:
December
June 30, 31,
2021 2020
US$ 000 US$ 000
---------- ----------
Land 864 864
Building and improvements 15,652 15,278
Machinery and equipment 7,220 6,906
-------------------------------------------------- ---------- ----------
23,736 23,048
-------------------------------------------------- ---------- ----------
Less: accumulated depreciation and amortization (7,100) (6,539)
16,636 16,509
================================================== ========== ==========
Depreciation expense for the six months ended June 30, 2021 and
2020 was approximately US$ 549,000 and US$ 486,000,
respectively.
6. Line of credit and note payable
In November 2020, the Company renewed its amended credit
facility, which consists of a US$ 10.0m secured revolving line of
credit, extending the maturity to September 2024 . The interest
rate on the revolving credit line is based on the one-month LIBOR
rate plus 1.25%. The Company's credit facility is secured by
substantially all its business assets. No amounts were drawn under
the secured revolving credit line as of June 30, 2021 and December
31, 2020.
Interest expense for the six months ended June 30, 2021 and 2020
was approximately US$ 23,600 and US$ 21,900, 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$ 445,000 to the savings and retirement plan during
the six months ended June 30, 2021 and contributed US$ 370,000
during the six months ended 2020.
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 12 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
Ended
June 30, 2021
US$ 000
----------------------
Operating lease cost 206
Finance lease cost:
Amortization of right-of-use assets 135
Interest on lease liabilities 10
------------------------------------------ ----------------------
Total finance lease cost 145
========================================== ======================
As of June 30, 2021, the weighted average remaining lease term
for finance and operating leases was 2.2 years and 7.4 years,
respectively, and the weighted average discount rate was 4.7% and
3.3%, respectively.
Maturities of lease liabilities represent the remaining six
months for 2021 and the full 12 months of each successive period as
follows:
Operating Finance Leases
Leases
US$ 000 US$ 000
----------------- ------------------------------
2021 215 107
2022 425 189
2023 420 92
2024 245 20
2025 109 -
Thereafter 762 -
----------------- ------------------------------
Total 2,176 408
Less imputed interest (301) (21)
------------------------ ----------------- ------------------------------
Total 1,875 387
9. Supplemental cash flow and non-cash financing disclosures
Six months ended
June 30
2021 2020
US$ 000 US$ 000
--------------- ---------------
Cash paid for interest 24 22
Cash paid for taxes 6,864 1,571
Finance lease liabilities arising from obtaining
right-of-use assets (4) (82)
Operating lease liabilities arising from
obtaining right-of-use assets (538) (170)
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, 2021 and December 31, 2020, the
Company had four customers which represented 26% and five customers
that represented 32% 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, 2021 was 22% compared to the federal statutory rate of 23%. 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 2014 forward is still
open. The Company has no federal, foreign or state income tax
returns currently under examination.
On June 30, 2021, the Company had US$ 1,141,000 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 of 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 August 2020, the Board authorized on market share buyback
program for such number of its listed shares of common stock as are
equal to US$ 1,000,000 (the "August 2020 Share Buyback Program").
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, 2021 and
December 31, 2020, the Company purchased cumulatively 274,534 and
268,013 shares of common stock, respectively, for an aggregate
cumulative value of $992,000 and $950,330, respectively, completing
the August 2020 Share Buyback Program. In February of 2021, the
Board authorized another on market share buyback program for such
number of its listed shares of common stock as are equal to US$
1,000,000 on the same terms as the August 2020 Share Buyback
Program (the "February 2021 Share Buyback Program"), which
commenced in July 2021. The Company estimates the February 2021
Share Buyback Program will be completed by the end of H2 2021.
14. Subsequent events
Dividend
The Board declared an interim dividend for the six months ended
June 30, 2021 of 9.0 US cents per share. This dividend will be on
October 22, 2021 to shareholders on the register as of September
24, 2021.
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 and 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: $0.090 cents per share
Ex-dividend date: 23 September 2021
------------------------
Dividend record date: 24 September 2021
------------------------
Final day for currency election: 8 October 2021
------------------------
Payment date: 22 October 2021
------------------------
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 FFFIVAIIDIIL
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September 08, 2021 02:00 ET (06:00 GMT)
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