TIDMSOM
RNS Number : 3974Y
Somero Enterprises Inc.
09 September 2020
Press Announcement
For immediate release
09 September 2020
Somero(R) Enterprises, Inc.
("Somero" or "the Company" or "the Group")
Interim Results for the six months ended June 30, 2020
Secure financial position, healthy H1 2020 profits and cash
flow, investments for future growth
Financial Highlights
-- Generated US$ 35.3m in H1 2020 revenues (H1 2019: US$ 39.0m)
despite disruption from COVID-19 pandemic
-- Cost reductions and cash management drove healthy profits and
a strong financial position to end H1
o US$ 8.7m in H1 2020 adjusted EBITDA (H1 2019: US$ 11.2m)
o June 30, 2020 net cash of US$ 28.9m (June 30, 2019: US$
15.1m)
-- Investments for long-term growth continue to be made possible
by healthy cash flow and a strong balance sheet
o US$ 3.5m 35,000 square foot expansion of Houghton, MI facility
expected to be completed in early Q3
o US$ 0.5m Fort Myers, FL training facility expansion with
expected completion in Q3
-- Resumption of dividend payments, reflecting the strong
financial position and the Board's confidence in the business
o Payment of the deferred FY 2019 dividend of US$ 0.207 per
share
o Interim dividend of US$ 0.040 per share
o Combined dividend total of US$ 14.0m
-- Recommencement of the US$ 1.0m share buyback program
-- Reinstatement of financial guidance for the full year with
revenue expected to be approximately US$ 75.0m, adjusted EBITDA
approximately US$ 19.0m, and ending net cash approximately US$
20.0m
H1 2020 H1 2019 % Change
US$ US$
Revenue $ 35.3m $ 39.0m -9%
Adjusted EBITDA(1,2) $ 8.7m $ 11.2m -22%
Adjusted EBITDA margin(1,2) 25% 29% -400bps
Profits before tax $ 7.5m $ 10.5m -29%
Adjusted net income(1,3) $ 5.8m $ 8.0m -29%
Diluted adjusted net income
per share(1,3) $ 0.10 $ 0.14 -29%
Cash flow from operations $ 7.0m $ 4.4m 59%
Net cash(4) $ 28.9m $ 15.1m 91%
Interim dividend per share $ 0.0400 $ 0.0575 -30%
Operational Highlights
-- Continued strong focus on strategic investments to position
the business for sustained long-term growth
-- Three new products released in H1 2020 contributed a combined
US$ 1.6m in revenue during the period:
o SkyScreed(R) 36, offering extended reach on high-rise
structural applications
o Somero(R) SRS-4, a lightweight, easily transported compact
boomed screed
o Somero(R) Broom + Cure(TM) machine that efficiently applies
curing agents and texture to exterior concrete slabs
-- SkyScreed demos paused throughout H1 2020 due to COVID-19
restrictions but began to resume in June resulting in the first
sale of the SkyScreed(R) 36
-- Somero Line Dragon(R), launched in H2 2019, gained traction
and contributed US$ 1.7m in H1 2020 revenues (H1 2019: US$
1.1m)
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:
"Our teams have risen to the challenges of the past few months
brilliantly. We adjusted rapidly to changing market conditions, and
the talent, flexibility and resilience we have in the business has
never been more evident. In response to the crisis, our team
developed a plan with four main objectives; to protect the health
of our employees, to preserve cash, to protect profits, and to
uphold our commitment to product development. Following this half,
I am pleased to report we met all four objectives while delivering
a solid sales performance.
The pandemic has served as an excellent stress test for the
business, and while difficult decisions have been made along the
way, I am confident we will emerge a better business. I want to
thank all our employees globally for working tirelessly to serve
our customers during an unprecedented period.
We begin the second half of the year with confidence in the
strength of our financial position, in the flexibility of our
operating model, and in the demand seen for our recently launched
products. At the same time, we remain cautious with the full
understanding the uncertainty associated with the global pandemic
will likely remain in place through the remainder of the year.
Moving forwards, our focus is sharp and our management team is
committed to continuing to deliver healthy profits and cash flows
to our shareholders while continuing to make sound strategic
investments for long-term growth."
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
Carl Holmes (Corporate Finance)
Kate Bannatyne (Corporate Finance)
Tim Redfern / Richard Chambers ( ECM )
Alma PR (Financial PR Advisor) somero@almapr.co.uk
Rebecca Sanders-Hewett +44 (0)20 3405 0205
Susie Hudson
David Ison
Sam Modlin
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
Revenue for the first six months of 2020 totaled US$ 35.3m, a 9%
decline compared to trading in H1 2019. While H1 2019 was adversely
impacted by historic levels of rainfall, the main impact on trading
performance in H1 2020 was the global COVID-19 pandemic. It created
significant uncertainty and led to shelter-in-place restrictions,
slowing the pace of construction projects and in turn slowing the
pace of our trading. Despite the pandemic, we have not seen a
fundamental long-term change in our markets and are in fact
encouraged by the health of the underlying US non-residential
construction market, a view supported by the extended project
backlogs our customers report albeit alongside reported delays on
their projects. In our second largest market, Europe, we continue
to see positive underlying non-residential construction market
conditions and have seen encouraging signs of improved activity
reflected by modest improvement in trading to end H1 2020. The
remaining international regions continue to reflect a greater
degree of uncertainty with market activity correlated to control
over COVID-19 infection rates.
On a longer-term basis, COVID-19 restrictions have significantly
accelerated a shift toward e-commerce and online fulfillment that
we anticipate will drive demand in the coming years for new
warehousing and benefit our core laser screed machine product
categories. While estimates of demand for new warehousing vary, it
is a positive factor in our longer-term outlook.
Despite the challenges associated with COVID-19 we were still
able to make good traction with our new products. Combined sales of
the three new products we launched in H1 2020, the SkyScreed(R) 36,
the Somero(R) SRS-4, and the Somero(R) Broom + Cure(TM) machine,
were US$ 1.6m. In addition, the Somero Line Dragon(R), the next
generation SP-16 Line Pulling and Placing System launched in H2
2019, gained traction and contributed US$ 1.7m in H1 2020 revenues
(H1 2019: US$ 1.1m).
Immediately following the outbreak of COVID-19, the Company made
quick adjustments to staffing levels and enacted cost cutting
measures to partially offset operational inefficiencies from
reduced volume. The result of these actions was a stable, though
modestly decreased, gross margin of 54.7% in H1 2020 compared to
56.0% in H1 2019. Further actions were also taken to reduce
operating expenses. These measures included cancellation of 2020
profit sharing and bonuses, resulting in operating costs remaining
essentially flat with the prior year period, reflecting an increase
of less than US$ 0.1m. These measures translated to H1 2020
adjusted EBITDA of US$ 8.7m, a healthy 25% margin, compared to US$
11.2m, a 29% margin, in H1 2019.
Region Reviews
North American sales increased to US$ 27.8m, a 2% increase from
H1 2019. Growth from the prior year period was due in part to
historic levels of rainfall in H1 2019 that had a significant,
adverse impact on trading in that period. In North America, project
delays and slowdowns were seen in H1 2020, along with heightened
uncertainty by our customers, due to the broad impact of the
pandemic. We were encouraged to see signs of improvement to end H1
2020 as activity picked up with the easing of restrictions, a trend
that appears to be carrying over into the second half of the year.
Our confidence in the health of the underlying non-residential
construction market remains intact and we anticipate some
longer-term benefit from new warehousing demand associated with an
accelerated shift to e-commence and online fulfilment.
Europe reported sales of US$ 4.1m in H1 2020, a US$ 1.4m decline
from H1 2019, after experiencing COVID-19 impacts similar to North
America. We have not observed a fundamental change in the
underlying non-residential construction market in Europe and are
encouraged by early, although modest, signs of improvement in
trading activity to end H1 2020. We anticipate future benefit from
recently launched new products, as well as from longer-term
anticipated demand for new warehousing.
The impact of the pandemic was seen earlier and more acutely in
China, with multiple highly populated regions subject to severe
restrictions as the government took dramatic steps to contain the
virus spread. China revenues in H1 2020 were US$ 1.8m, down from
US$ 2.5m in H1 2019, reflecting this disruption. On a positive
note, as we progressed to the end of H1 2020, the government eased
restrictions and activity began to normalize at a faster pace than
seen in North America and Europe.
All our other regions also faced challenges from the pandemic
during the first half of the year, and in some cases the impact was
more severe than that experienced in the US and Europe. For
example, severe shelter-in place restrictions in Australia during
H1 2020 had a clear negative impact on trading during the period.
Revenues from Australia, included in our Rest of World
classification, were US$ 0.9m in H1 2020 compared to US$ 1.9m in H1
2019. Similar pressures on trading associated with the pandemic
were seen in India, Latin America and the Middle East, markets that
contributed sales of US$ 0.3m, US$ 0.2m, and US$ 0.2m,
respectively, all equal to or down from the prior year period. As
with all our non-core markets, the level of non-residential
construction activity is subject to a certain amount of volatility
which, coupled with having relatively small revenue bases, makes
for challenging year-on-year comparisons, particularly during such
a volatile period. We anticipate activity in each of these markets
in H2 2020 but understand it will be dependent on control over
COVID-19 infection rates in each respective territory. In the
meantime, we remain poised to capture opportunities in these
markets when activity begins to normalize and uncertainty
diminishes.
Strategic Progress
A key pillar of our growth strategy is innovation and our
innovation process begins with our customers. Through extensive
customer interactions, at times in the formal setting of customer
innovation councils, Somero identifies solutions to challenges that
will enable our customers to complete their projects faster, more
efficiently, and with improved quality and safety. These solutions
ultimately help our customers build successful, profitable
businesses.
H1 2020 was an intense period of product development, and
despite disruption from the pandemic, we did not lessen these
efforts. We launched three new products and added to our pipeline
of future product ideas. These new products made an immediate
contribution to our H1 2020 performance, combining for US$ 1.6m in
sales in the period. Most importantly, our product development
efforts continue to open new markets segments for Somero, such as
with the SkyScreed and the targeted structural high-rise segment.
Our pipeline of new product ideas continues to target new, untapped
market segments, in addition to the structural high-rise market,
that expand the global opportunity for Somero and provide
significant runway for future growth.
Of the recent new products, the biggest impact came from the
Somero(R) SRS-4 that contributed US$1.1m in H1 2020 revenues during
only four months of commercial availability. The Somero(R) SRS-4 is
a lightweight, high-performance, remote controlled boomed screed
that is easily transported and can access applications not
particularly well-suited to our larger equipment. We expect the
SRS-4 contribution to revenue in H2 2020 will increase.
We also introduced the SkyScreed(R) 36 to expand our product
offering targeting the structural high-rise market segment. The
SkyScreed(R) 36 provides extended reach to efficiently place large
concrete slabs on high-rise structural jobs. Sales opportunities
for SkyScreed products were limited in H1 2020 due to
shelter-in-place restrictions and associated project delays that
reduced opportunities for jobsite product demonstrations, a key
element to the selling process. As restrictions began to ease, we
successfully completed the sale of the first SkyScreed(R) 36
resulting in a US$ 0.3m contribution to revenue in H1 2020.
At the end of H1 2020, we introduced the Somero(R) Broom +
Cure(TM) machine. The Somero(R) Broom + Cure(TM) machine provides
an efficient mechanical process to apply curing agents and texture
to exterior concrete slabs in accordance with American Concrete
Institute standards. Despite launching at the end of H1 2020, we
sold our first Broom + Cure(TM) machine in the period, contributing
US$ 0.2m in H1 2020 revenue, and are encouraged by early interest
in this unique product.
The integration of Line Dragon(R) has been fully completed. The
launch of the Somero Line Dragon(R) in H2 2019, a next generation
product combining the best features of the Somero SP-16 and the
legacy Line Dragon(R) design, gained traction in H1 2020. Sales of
this product contributed US$ 1.7m in revenues during H1 2020, up
US$ 0.6m compared to H1 2019. We are pleased with the long-term
growth opportunity we see for this product.
Expansion Update
The expansion of the Houghton, Michigan Operations and Support
Offices is strategically important to support our longer-term
plans, and we are nearing completion of this project. The 35,000
square feet we are adding to the facility provides the space needed
for more efficient operations and the capacity needed to
accommodate new products and increased volume up to an estimated
US$ 125m in annual revenues. The project is expected to be
completed in Q3 2020 with a final project cost of approximately US$
3.5m, the vast majority of which has been expended as of June 30,
2020.
The US$ 0.5m expansion to the Global Headquarters and Training
Facilities in Fort Myers, Florida is also anticipated to be
completed in Q3 2020. This project increases classroom capacity to
accommodate broader attendance at training and product
demonstration events. We believe this is an important strategic
investment that distinguishes Somero as leading the industry
through training and education.
Our People
On behalf of the Board, we would like to thank all our global
employees for their continued dedication and passion for our
customers' success during these testing times. Our employees worked
tirelessly to ensure great outcomes for our customers and, in turn,
delivered positive results and returns to our shareholders. 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.
Dividend and share buyback program
With the positive H1 2020 result and based on our strong
financial position and confidence in the business, we are pleased
to report that the Board has decided to accelerate payment of the
deferred 2019 dividends, totaling $0.207 per share, and to declare
an interim 2020 dividend of $0.040 per share. The Board determined
that the current level of excess cash, in large part attributable
to the deferral of the 2019 dividend payments, is no longer
required and therefore the Company can resume dividend payments and
distribute this cash to shareholders. The combined dividend of
$0.247 per share, representing a total payment of US$ 14.0m, will
be payable on October 15, 2020 to shareholders on the register as
of September 25, 2020.
In addition, the Board has re-approved the US$ 1.0m share
buyback program expected to be completed by the end of 2020. The
buyback program was initially intended to be completed in H1 2020
but cancelled alongside the decision on March 30, 2020 to defer
payment of the 2019 dividends. The purpose of the share buyback is
to mitigate dilution from future share issuances under the
Company's equity award programs. It is intended that any shares
repurchased will be immediately cancelled. 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.
During the course of the buyback program, the Company will make
further announcements to the market as and when share purchases are
made.
Current Trading and Outlook
H1 2020 was challenging on many levels, but we met these
challenges head-on and enter H2 2020 with confidence in the health
and performance of the business and in the security afforded by our
strong financial position. This confidence is exemplified by the
Board's decision to pay the 2019 dividends as well as an interim
2020 dividend totaling, and to re-authorize the US$ 1.0m share
buyback program.
While our outlook for the remainder of 2020 remains cloudy due
to the continued uncertainty caused by the pandemic, we do see
encouraging signs in our two largest markets, the US and Europe,
that provides a degree of confidence. Accordingly, our expectation
is for H2 2020 trading volumes to improve compared to H1 2020. As
such, the outlook for the full year 2020 includes expectations for
revenues of approximately US$ 75.0m, adjusted EBITDA of
approximately US$ 19.0m, and ending net cash of approximately US$
20.0m. This confidence is based on a healthy US non-residential
construction market, supported by extended project backlogs
reported by our customers, and based on the expectation for no
meaningful increase to COVID-19 shelter-in-place restrictions in
the US or Europe. The outlook also incorporates encouraging market
demand seen for our new products, which we anticipate will be a
positive contributor to H2 2020 trading.
In Europe, as noted, we are encouraged by early signs of
improvement and remain hopeful market activity continues to
normalize as the COVID-19 virus is contained. COVID-19
considerations aside, the drivers for performance in Europe will
include demand for new products, replacement equipment and
technology upgrades.
In China, we are pleased market activity has begun to normalize
from virus impacts at a faster pace than in the US and Europe and
are also pleased with the stabilizing impact of local leadership in
the China business. Our view that the long-term opportunity in
China hinges on the acceptance of and demand for quality by the
market remains unchanged.
In the Middle East, Latin America, India and Australia, while we
anticipate H2 2020 activity in each of these markets, we understand
the level of activity will be dependent on control over COVID-19
infection rates in each respective territory. Our focus in H2 2020
is to capture opportunities in these markets when activity begins
to normalize and uncertainty diminishes.
We look forward to the period ahead and to the positive impact
on our business from all the new products we have been bringing to
market. Never before has Somero experienced so much activity in
product development efforts that are laying the foundation for
long-term growth. We are encouraged by the early signs of
improvement observed to end H1 2020 in our two largest markets, and
we enter H2 2020 with confidence in the strength and performance of
our business and our ability to execute and deliver healthy profits
and cash flows to our shareholders.
Larry Horsch
Non-Executive Chairman
Jack Cooney
President and Chief Executive Officer
September 9, 2020
FINANCIAL REVIEW
For the six months ended
Summary of financial results June 30
* unaudited 2020 2019
US$ 000 US$ 000
Except per Except per
share data share data
------------- ------------
Revenue 35,266 39,012
Cost of sales 15,961 17,160
------------- ------------
Gross profit 19,305 21,852
Operating expenses
Selling, marketing and customer support 5,175 5,533
Engineering and product development 963 1,046
General and administrative 5,649 5,126
Total operating expenses 11,787 11,705
------------------------------------------------ ------------- ------------
Operating income 7,518 10,147
Other income (expense)
Interest expense (22) (21)
Interest income 109 116
Foreign exchange impact (80) (54)
Other (60) 266
Income before income taxes 7,465 10,454
------------------------------------------------ ------------- ------------
Provision for income taxes 1,712 2,401
Net income 5,753 8,053
=========================================== === ============= ============
Per Share Per Share
US$ US$
Basic earnings per share 0.10 0.14
Diluted earnings per share 0.10 0.14
Basic adjusted net income per share (1),
(2), (4) 0.10 0.14
Diluted adjusted net income per share
(1), (2), (4) 0.10 0.14
------------------------------------------------ ------------- ------------
Other data
Adjusted EBITDA (1), (2), (4) 8,651 11,180
Adjusted net income (1), (3), (4) 5,779 7,986
Depreciation expense 486 480
Amortization of intangibles 77 69
Capital expenditures 1,463 587
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
2020 2019
US$ 000 US$ 000
------------- ------------
Adjusted EBITDA reconciliation
Net income 5,753 8,053
Tax provision 1,712 2,401
Interest expense 22 21
Interest income (109) (116)
Foreign exchange impact 80 54
Other 60 (266)
Depreciation 486 480
Amortization 77 69
Non-cash lease expense 105 123
Stock-based compensation 465 361
---------------------------------------------- ------------- ------------
Adjusted EBITDA 8,651 11,180
---------------------------------------------- ------------- ------------
Adjusted net income reconciliation
Net income 5,753 8,053
Amortization 77 69
Tax impact of stock option & RSU settlements (51) (136)
---------------------------------------------- ------------- ------------
Adjusted net income reconciliation 5,779 7,986
---------------------------------------------- ------------- ------------
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 9% to US$
35.3--m (H1 2019: US$ 39.0m). 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, formerly SP-16 Concrete Line Pulling and
Placing System, SkyScreed, 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 decrease for the period was driven by sales of Boomed
screeds, Ride-on screeds and Other revenues.
Boomed Screed sales decreased to US$ 11.6--m (H1 2019: US$
16.2m) as unit volume decreased to 43 units (H1 2019: 56 units),
Ride-on screed sales decreased to US$ 6.7m (H1 2019: US$ 7.8m)
primarily due to an decrease in volume to 63 units (H1 2019: 75),
remanufactured machine sales increased to US$ 2.7m (H1 2019: US$
1.9m) as unit volume increased to 20 units (H1 2019: 12), 3-D
Profiler System sales increased to US$ 3.5m (H1 2019: US$ 2.4m) as
unit volume increased to 32 units (H1 2019: 22), Somero Line
Dragon(R), formerly SP-16 Concrete Line Pulling and Placing System,
sales increased to US$ 1.7m (H1 2019: US$ 1.1m) as unit volume
increased to 48 units (H1 2019: 36), SkyScreed(R) sales remained
consistent with H1 2019, and Other revenues decreased to US$ 8.8m
(H1 2019: US$ 9.4m). The following table shows the breakdown during
the six months ended June 30, 2020 and 2019:
Revenue breakdown by
geography
North America EMEA (1) ROW (2) Total
US$ in millions US$ in millions US$ in millions US$ in millions
2020 2019
2020 2019 2020 2019 2020 2019 Net % of Net % of
sales Net sales Net
sales sales
Boomed screeds
(3) 8.2 11.0 2.7 2.8 0.7 2.4 11.6 32.9% 16.2 41.5%
Ride-on screeds
(4) 5.4 5.8 0.9 1.5 0.4 0.5 6.7 19.0% 7.8 20.0%
Remanufactured
machines 2.4 1.1 - 0.6 0.3 0.2 2.7 7.6% 1.9 4.9%
3D Profiler
System 3.2 2.1 - 0.2 0.3 0.1 3.5 10.0% 2.4 6.2%
Somero Line
Dragon (R)
(5) 1.7 0.9 - 0.1 - 0.1 1.7 4.8% 1.1 2.8%
SkyScreed
(R) 0.3 0.2 - - - - 0.3 0.8% 0.2 0.5%
Other (6) 6.6 6.1 0.9 1.5 1.3 1.8 8.8 24.9% 9.4 24.1%
Total 27.8 27.2 4.5 6.7 3.0 5.1 35.3 100.0% 39.0 100.0%
--------- -------- --------- -------- -------- -------
Notes:
1. EMEA includes the Europe, Middle East, Scandinavia and
Russia.
2. ROW includes the 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-840, S-940, S-485, and
S-158C.
5. Includes sales of the Somero Line Dragon and its predecessor
the SP-16 Concrete Hose Line-Pulling and Placing Systems.
6. 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 2020 H1 2019
-------------------------- -------- --------
Boomed screeds 43 56
Ride-on screeds 63 75
Remanufactured machines 20 12
3-D Profiler System 32 22
Somero Line
Dragon (R) 48 36
SkyScreed (R) 1 1
Other (1) 18 15
------------------------------- -------- --------
Total 225 217
------------------------------- -------- --------
Notes:
1. Other includes equipment such as the Somero Broom + Cure,
STS-11M Topping Spreader, Copperhead, and Mini Screed C.
Sales to customers located in North America contributed 79% of
total revenue (H1 2019: 70%), sales to customers in EMEA (Europe,
Middle East, Scandinavia, and Russia) contributed 13% (H1 2019:
17%) and sales to customers in ROW (Southeast Asia, Australia,
Latin America, India and China) contributed 8% (H1 2019: 13%).
Sales in North America totaled US$ 27.8m (H1 2019: US$ 27.2m) up
2%, driven by strong contribution from new products led by the
SRS-4 and Somero Line Dragon, as well as 3-D Profiler Systems and
remanufactured machines. Sales to customers in EMEA were US$ 4.5m
(H1 2019: US$ 6.7m) which declined 33% driven by declines in sales
across all product categories, particularly Ride-on screeds and
Other. Sales to customers in ROW were US$ 3.0m (H1 2019: US$ 5.1m)
decreasing by 41% driven by declines in sales across most of the
product categories.
US$ in millions
------------------
Regional sales H1 2020 H1 2019
------------------- -------- --------
North America 27.8 27.2
Europe 4.1 5.5
China 1.8 2.5
Middle East 0.2 0.2
Latin America 0.2 0.7
Rest of World(1) 1.2 2.9
Total 35.3 39.0
------------------------ -------- --------
Notes:
(1) Includes Australia, India, Southeast Asia, Korea and
Russia.
Gross profit
Gross profit declined to US$ 19.3m (2019: US$ 21.9m), with gross
margins slipping slightly to 54.7% compared to 56.0% in H1 2019
primarily due to decreased manufacturing overhead absorption.
Operating expenses
Operating expenses excluding depreciation, amortization and
stock-based compensation for H1 2020 were US$ 11.0m (H1 2019: US$
11.1m).
Debt
As of June 30, 2020, 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 February 2021.
Other income (expense)
Other income (expense) was US$ 0.1m of other expense, compared
to other income of US$ 0.3m in 2019, due to a gain on an exchange
of assets in H1 2019.
Provision for income taxes
The provision for income taxes decreased to US$ 1.7m, at an
overall effective tax rate of 23%, compared to a provision of US$
2.4m in H1 2019, 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
2020 2019
US$ 000 US$ 000
------------ ------------
Income available to stockholders 5,753 8,053
Basic weighted shares outstanding 56,371,231 56,317,130
Net dilutive effect of stock options
and restricted stock units 607,155 487,306
Diluted weighted average shares outstanding 56,978,386 56,804,436
============================================= ============ ============
Per Share Per Share
US$ US$
Basic earnings per share 0.10 0.14
Diluted earnings per share 0.10 0.14
Basic adjusted net income per share 0.10 0.14
Diluted adjusted net income per share 0.10 0.14
Consolidated Balance Sheets
As of June 30, 2020 and December 31, 2019
* unaudited As of As of
December
June 30, 31,
2020 2019
US$ 000 US$ 000
-------------- ----------
Assets
Current assets:
Cash and cash equivalents 28,854 23,757
Accounts receivable - net 8,819 11,979
Inventories - net 13,817 12,289
Prepaid expenses and other assets 1,462 1,291
-------------------------------------------------------------- -------------- ----------
Total current assets 52,952 49,316
Accounts receivable, non-current - net 961 904
Property, plant, and equipment - net 14,689 13,714
Financing lease right-of-use assets-net 431 557
Operating lease right-of-use assets-net 1,045 1,213
Intangible assets - net 1,621 1,698
Goodwill 3,294 3,303
Deferred tax asset 655 564
Other assets 262 261
-------------------------------------------------------------- -------------- ----------
Total assets 75,910 71,530
============================================================== ============== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 1,778 2,227
Accrued expenses 5,064 5,960
Dividends payable 11,664 -
Financing lease liability - current 141 148
Operating lease liability - current 197 247
Income tax payable 1,302 1,078
-------------------------------------------------------------- -------------- ----------
Total current liabilities 20,146 9,660
-------------------------------------------------------------- -------------- ----------
Financing lease liability - long-term 187 262
Operating lease liability - long-term 863 982
Other liabilities 1,497 1,587
Total liabilities 22,693 12,491
-------------------------------------------------------------- -------------- ----------
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 and 56,425,598 shares issued
and 56,386,874 and 56,348,068 shares outstanding
at June 30, 2020 and December 31, 2019, respectively 26 26
Less: treasury stock, 38,724 shares as of June
30, 2020 and 77,530 shares as of December 31, 2019
at cost (102) (191)
Additional paid in capital 17,165 17,001
Retained earnings 39,012 44,923
Other comprehensive loss (2,884) (2,720)
Total stockholders' equity 53,217 59,039
-------------------------------------------------------------- -------------- ----------
Total liabilities and stockholders' equity 75,910 71,530
============================================================== ============== ==========
See Notes to unaudited consolidated financial statements.
Consolidated Statements of Comprehensive Income
For the six months ended June 30, 2020 and 2019
* unaudited Six months ended
June 30
2019
2020 US$ 000
US$ 000 Except
Except per per share
share data data
------------ -----------
Revenue 35,266 39,012
Cost of sales 15,961 17,160
-------------------------------------------- ------------ -----------
Gross profit 19,305 21,852
-------------------------------------------- ------------ -----------
Operating expenses
Sales, marketing and customer support 5,175 5,533
Engineering and product development 963 1,046
General and administrative 5,649 5,126
Total operating expenses 11,787 11,705
-------------------------------------------- ------------ -----------
Operating income 7,518 10,147
Other income (expense)
Interest expense (22) (21)
Interest income 109 116
Foreign exchange impact (80) (54)
Other (60) 266
Income before income taxes 7,465 10,454
-------------------------------------------- ------------ -----------
Provision for income taxes 1,712 2,401
Net income 5,753 8,053
-------------------------------------------- ------------ -----------
Other comprehensive income
Cumulative translation adjustment (164) 108
Comprehensive income 5,589 8,161
-------------------------------------------- ------------ -----------
Earnings per common share
Earnings per share - basic 0.10 0.14
Earnings per share - diluted 0.10 0.14
Weighted average number of common shares
outstanding
Basic 56,371,231 56,317,130
Diluted 56,978,386 56,804,436
See Notes to unaudited consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
For the six months ended June 30, 2020
* unaudited
Common stock Treasury stock
Additional Retained Other Total
Amount paid-in Amount earnings Comprehensive Stockholders'
US$ capital US$ US$ income (loss) equity
Shares 000 US$ 000 Shares 000 000 US$ 000 US$ 000
------- ----------- ------- ---------- -------------- --------------
Balance -
December
31, 2019 56,425,598 26 17,001 77,530 (191) 44,923 (2,720) 59,039
--------------- ----------- ------- ----------- --------- ------- ---------- -------------- --------------
Cumulative
translation
adjustment - - - - - - (164) (164)
Net income - - - - - 5,753 - 5,753
Stock-based
compensation - - 465 - - - - 465
Dividend - - - - - (11,664) - (11,664)
Treasury stock - - (89) (38,806) 89 - - -
RSUs settled
for cash - - (223) - - - - (223)
Investment in
subsidiary - - 11 - - - - 11
Balance - June
30, 2020 56,425,598 26 17,165 38,724 (102) 39,012 (2,884) 53,217
--------------- ----------- ------- ----------- --------- ------- ---------- -------------- --------------
See Notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows
For the six months ended June 30, 2020 and 2019
*unaudited Six months ended June
30
2020 2019
US$ 000 US$ 000
----------- -----------
Cash flows from operating activities:
Net income 5,753 8,053
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred taxes (91) (216)
Depreciation and amortization 563 549
Non-cash lease expense 105 123
Bad debt 58 60
Stock-based compensation 465 361
Gain on non-cash payment for intangible
asset - (171)
Loss on disposal of property and equipment 10 16
Working capital changes:
Accounts receivable 3,045 (2,435)
Inventories (1,528) (1,971)
Prepaid expenses and other assets (171) (12)
Other assets (1) (22)
Accounts payable, accrued expenses
and other liabilities (1,423) (697)
Income taxes payable 224 762
Net cash provided by operating activities 7,009 4,400
-------------------------------------------------- ----------- -----------
Cash flows from investing activities:
Property and equipment purchases (1,463) (587)
Payments for intangible assets - (138)
Business acquisition, net of cash acquired - (2,000)
Net cash used in investing activities (1,463) (2,725)
-------------------------------------------------- ----------- -----------
Cash flows from financing activities:
Payment of dividend - (14,198)
RSUs settled for cash (223) (593)
Payments under financing capital leases (73) (82)
Investment in subsidiary 11 -
Net cash used in financing activities (285) (14,873)
-------------------------------------------------- ----------- -----------
Effect of exchange rates on cash and
cash equivalents (164) 108
Net increase (decrease) in cash and
cash equivalents 5,097 (13,090)
-------------------------------------------------- ----------- -----------
Cash and cash equivalents:
Beginning of period 23,757 28,233
-------------------------------------------------- ----------- -----------
End of period 28,854 15,143
-------------------------------------------------- ----------- -----------
See Notes to unaudited consolidated
financial statements.
Notes to the Consolidated Financial Statements
As of June 30, 2020 and December 31, 2019
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; and New Delhi, India.
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, 2020 and December 31, 2019, the
allowance for doubtful accounts was approximately US$ 1,015,000 and
US$ 961,000, respectively. Bad debt expense for the six months
ended June 30, 2020 and 2019, was US$ 58,000 and US$ 60,000,
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, 2020 and December 31, 2019, the provision
for obsolete and slow moving inventory was US$ 207,000 and US$
346,000, 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, 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, 2020 nor December
31, 2019.
Revenue recognition
The Company adopted ASC 606 "Revenue from contracts with
customers" on January 1, 2018. The new revenue recognition standard
requires revenue recognition based on a five-step model that
includes: identifying the contract, identifying the performance
obligations, determining the transaction price, allocating the
transaction price and recognizing the revenue. The standard results
in the recognition of revenue depicting the transfer of promised
goods or services to customers in an amount reflecting the expected
consideration to be received from the customer for such goods and
services, based on the satisfaction of performance obligations,
occurring when the control of the goods or services transfer to the
customer. The Company's contracts and customer orders originate
with fixed determinable unit prices for each deliverable quantity
of goods defined by the customer order line item (performance
obligation) and include the specific due date for the transfer of
control and title of each of those deliverables to the customer at
pre-established payment terms. We have elected to account for
shipping and handling costs as fulfillment costs after the customer
obtains control of the goods.
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.
ASC 606 was adopted using the full retrospective approach and
the change in accounting principle from ASC 605 to ASC 606 did not
materially impact the amount of revenue recognized in the Company's
financial statements. Prior to the adoption of this standard the
Company recognized revenue in accordance with ASC 605-10, "Revenue
Recognition in Financial Statements". Revenue was recognized when
persuasive evidence of an arrangement existed, delivery or service
had occurred, the sale price was fixed or determinable and receipt
of payment was probable.
The Company believes its previous recognition policy as related
to the sale of equipment and training is consistent with the new
revenue recognition standard defined within FASB ASC 606 which
requires unique performance obligations be recognized upon
satisfaction of the performance obligation at the point in time
when the control of goods is transferred to the customer (sale of
equipment) or services are performed (training).
During the six months ended June 30, 2020, there was US$ 525,800
of revenue recognized during the period from customer deposit
liabilities (deferred contract revenue). As of June 30, 2020 there
are US$ 438,000 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, 2020 and December
31, 2019, 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.
Leases
The Company adopted ASU 2016-02-Leases (Topic 842), as of
January 1, 2019 and elected to use ASU 2018-11-Leases (Topic 842),
Targeted Improvements, issued by the FASB in July 2018. ASU 2018-11
provides that adopters may take a prospective approach when
transitioning to ASU 2016-02. Effectively, an entity would be
permitted to change its date of initial application to the
beginning of the period of adoption. As such, an entity is not
required to adjust comparative period financial information or
disclosures for the impacts of ASC 842. ASC 840 presentation and
disclosures would be carried forward for comparative periods
presented in which ASC 840 was utilized. Additionally, the entity
would recognize the effects of applying ASC 842 as a
cumulative-effect adjustment to retained earnings as of the
effective date. Applying ASU 2018-11, the Company elected to
present results for the period beginning January 1, 2019 using ASC
842 and comparative periods presented will use presentation and
disclosures in accordance with ASC 840.
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, 2019 (613)
Warranty charges 416
Accruals (734)
---------------------------- --------
Balance, December 31, 2019 (931)
Balance, January 1, 2020 (931)
Warranty charges 115
Accruals (125)
---------------------------- --------
Balance, June 30, 2020 (941)
============================ ========
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 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$
465,000 and US$ 361,000 for the six months ended June 30, 2020 and
2019, respectively. In addition, the Company settled US$ 223,000
and US$ 593,000 in restricted stock units for cash and conversion
to common shares during the six months ended June 30, 2020 and
2019, 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
2020 2019
US$ 000 US$ 000
----------- -----------
Net income 5,753 8,053
Basic weighted shares outstanding 56,371,231 56,317,130
Net dilutive effect of stock options and restricted
stock units 607,155 487,306
----------------------------------------------------- ----------- -----------
Diluted weighted average shares outstanding 56,978,386 56,804,436
===================================================== =========== ===========
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,
2019
Asset: Non-recurring
Goodwill 3,303 3,303
Period ended June 30, 2020
Asset: Non-recurring
Goodwill 3,294 3,294
3. Inventories
Inventories consisted of the following:
June
30, December 31,
2020 2019
US$
000 US$ 000
------- -------------
Raw material 5,326 4,267
Finished goods and work in process 4,591 3,154
Remanufactured 3,900 4,868
------------------------------------ ------- -------------
Total 13,817 12,289
==================================== ======= =============
4. Acquisition
On January 15, 2019, the Company concurrently executed a
settlement agreement and mutual release with Daniel R. Stolzfus and
Line Dragon, LLC (collectively "Line Dragon"), including an asset
purchase agreement whereby the Company acquired substantially all
of the business assets of Line Dragon (collectively the
"Agreements"). The purchase price consists of US$ 2,000,000 in cash
and additional consideration (the "Performance Payments") during
the period beginning on the day immediately following the close
date and ending on May 29, 2031 (the "Performance Period"). The
Performance Payments are calculated as 3% of gross revenues from
the sale of SP-16 or Line Dragon concrete puller or placer
equipment. The Performance Payments for any full calendar year
during the Performance Period shall not be less than US$ 30,000 and
the Purchase Price, including the Performance Payments, is subject
to a cap.
The purchase was treated as a business combination as it met
certain criteria stipulated in ASC 805 - Business Combinations. The
Company expects the acquisition of the Line Dragon assets will
complement its SP-16 Line Pulling & Placing System product
offering. The acquisition of Line Dragon is strategically
significant in revenue for the Company, however at the time of the
acquisition and June 30, 2020, the Company concluded that
historical results of the acquisition were not material to the
Company's consolidated financial results and therefore additional
pro-forma disclosures are not presented.
The Company completed the Line Dragon purchase price allocation.
At close, of the total purchase price, approximately US$ 187,000
was attributed to inventory, US$ 25,000 was attributed to property
and equipment, US$ 1,048,000 was attributed to specifically
identified intangible assets, including patents, trademarks, and
customer relations, US$ 400,000 in other intangible assets and US$
351,000 was attributed to goodwill. The Company also assumed US$
11,000 of warranty liability. Subsequently, pursuant to the terms
of the Agreement, the Company exchanged two sets of pulling and
placing systems retained by Line Dragon with new models that the
Company introduced commercially. As a result of this exchange, an
additional US$ 77,000 was attributed to goodwill.
5. 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 2020 2019
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 18,602 18,578
Intangible Assets 6,458 6,405
25,060 24,983
---------------------- --------------- ---------------------- ----------------------
Net carrying costs Patents 12 years 645 669
Intangible Assets 976 1,029
1,621 1,698
====================== =============== ====================== ======================
Amortization expense associated with the intangible assets in
each of the six months ended June 30, 2020 and 2019 was
approximately US$ 77,000 and US$ 69,000, respectively.
6. Property, plant, and equipment
Property, plant, and equipment consist of the following:
December
June 30, 31,
2020 2019
US$ 000 US$ 000
--------- ---------
Land 864 864
Building and improvements 14,410 13,149
Machinery and equipment 5,450 5,414
------------------------------------------------- --------- ---------
20,724 19,427
------------------------------------------------- --------- ---------
Less: accumulated depreciation and amortization (6,035) (5,713)
14,689 13,714
================================================= ========= =========
Depreciation expense for the six months ended June 30, 2020 and
2019 was approximately US$ 486,000 and US$ 480,000,
respectively.
7. Line of credit and note payable
In February 2016, the Company entered into an amended credit
facility which consists of a US$ 10.0m secured revolving line of
credit that will mature in February 2021. 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, 2020 and December 31,
2019.
Interest expense for the six months ended June 30, 2020 and 2019
was approximately US$ 21,900 and US$ 20,600, respectively, and
relates primarily to interest costs on leased vehicles.
8. 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$ 370,000 to the savings and retirement plan during
the six months ended June 30, 2020 and contributed US$ 348,000
during the six months ended 2019.
9. 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 13 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, 2020
US$ 000
----------------------
Operating lease cost 137
Finance lease cost:
Amortization of right-of-use assets 105
Interest on lease liabilities 9
----------------------------------------- ----------------------
Total finance lease cost 114
========================================= ======================
As of June 30, 2020, the weighted average remaining lease term
for finance and operating leases was 2.5 years and 11 years,
respectively, and the weighted average discount rate was 4.7% and
4.4%, respectively.
Maturities of lease liabilities represent the remaining six
months for 2020 and the full 12 months of each successive period as
follows:
Operating Finance Leases
Leases
US$ 000 US$ 000
---------- ------------------------------
2020 152 78
2021 148 141
2022 96 90
2023 96 40
2024 96 -
Thereafter 763 -
---------- ------------------------------
Total 1,351 349
Less imputed interest (291) (21)
----------------------- ---------- ------------------------------
Total 1,060 328
10. Supplemental cash flow and non-cash financing
disclosures
Six months ended
June 30
2020 2019
US$ 000 US$ 000
-------------- ---------
Cash paid for interest 22 20
Cash paid for taxes 1,571 1,890
Finance lease liabilities arising from obtaining
right-of-use assets (82) 209
Operating lease liabilities arising from
obtaining right-of-use assets (170) 1,337
Non-cash payment for intangible assets - 257
11. Business and credit concentration
The Company's line of business could be significantly impacted
by, among other things, the state of the general economy, the
Company's ability to continue to protect its intellectual property
rights, and the potential future growth of competitors. Any of the
foregoing may significantly affect management's estimates and the
Company's performance. At June 30, 2020 and December 31, 2019, the
Company had four customers which represented 17% and three
customers that represented 22% of total accounts receivable,
respectively.
12. Commitments and contingencies
The Company has entered into employment agreements with certain
members of senior management. The terms of these are for renewable
one-year periods and include non-compete and non-disclosure
provisions as well as provide for defined severance payments in the
event of termination or change in control.
The Company is also subject to various unresolved legal actions
which arise in the normal course of its business. Although it is
not possible to predict with certainty the outcome of these
unresolved legal actions or the range of possible losses, the
Company believes these unresolved legal actions will not have a
material effect on its consolidated financial statements.
13. Income taxes
The Company's effective tax rate for the six months ended June
30, 2020 was 23% compared to the 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 2014 forward is still
open. The Company has no federal, foreign or state income tax
returns currently under examination.
At June 30, 2020, the Company had US$ 655,000 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.
14. Subsequent events
Dividend
The Board of Directors has decided to accelerate the payment of
the final 2019 ordinary dividend of 13.0 US cents per share and the
supplemental dividend of 7.7 US cents per share that were declared
with the Company's 2019 full year results from on or about February
5, 2021 to October 15, 2020, to shareholders of record close of
business on September 25, 2020.
The Board also declared an interim dividend for the six months
ended June 30, 2020 of 4.00 US cents per share. This dividend will
be paid together with the final 2019 ordinary dividend and the
supplemental dividend on October 15, 2020 to shareholders on the
register as of September 25, 2020.
The combined dividend payment on October 15, 2020 will total
24.7 US cents per share, representing a total dividend payment of
US$ 14.0m.
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/formscatalogue.asp
Distribution amount: $0.247 cents per share
Ex-dividend date: 24 September 2020
-----------------------
Dividend record date: 25 September 2020
-----------------------
Final day for currency election: 28 September 2020
-----------------------
Payment date: 15 October 2020
-----------------------
Further, any participant holding the Security on behalf of
beneficial owners resident in a treaty country with the United
States of America can facilitate claims for tax relief at source
for its underlying beneficial owners. In order to ensure that the
appropriate rate of US Withholding Tax is applied correctly,
completed documentation must be provided to the Depositary,
Computershare Investor Services PLC.
Additional information on currency election and tax withholding
can be found at: https://investors.somero.com/aim-rule-26 .
Shareholders can also contact Computershare Investor Services PLC
by telephone at +44 (0370) 702 0000 or email via
webcorres@computershare.co.uk .
Share buyback
In August 2020, the Board authorized a share buyback program,
pursuant to which, the Board intends to carry out an on market
buyback of such number of its listed shares of common stock as are
equal to US$ 1,000,000. The purpose of the program is to mitigate
future dilution resulting from share issuances under the Company's
equity award programs. It is intended that any shares repurchased
will be immediately cancelled. 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. The Company previously announced a
buyback program alongside the Company's full year 2019 results but
cancelled the program on March 30, 2020 as a precautionary measure
to preserve cash. Now, with the decision to move ahead with the
share buyback, the Company estimates the program will be fulfilled
by the end of 2020.
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END
IR SSLFAAESSESU
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September 09, 2020 02:00 ET (06:00 GMT)
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