TIDMSOM
RNS Number : 7118R
Somero Enterprises Inc.
10 March 2021
March 10, 2021
Somero Enterprises, Inc.
("Somero" or "the Company")
Final Results
Healthy North American market drives strong finish to 2020
Somero Enterprises, Inc. reports its annual results for the
twelve months ended 31 December 2020.
Financial Highlights
-- Leveraged flexible cost structure when combined with strong
H2 trading delivered healthy profits and stable margins
-- Global H2 2020 sales were US$ 53.3m (H1 2020: US$ 35.3m), with record US H2 sales
-- Adjusted EBITDA margin of 29% (2019: 32%)
-- Adjusted net income in the year of US$ 18.9m (2019: US$ 21.1m)
-- Operating cash flows grew to US$ 30.6m in 2020 (2019:
US$18.9m) driven by effective working capital management
-- Reductions to accounts receivable and inventory provided a
significant one-time benefit of US$ 6.7m to 2020 operating cash
flow
-- Year-end cash of US$ 35.4m (2019: US$ 23.8m) reflects the highlest level in Somero's history
-- Disciplined return of cash to shareholders
-- Paid US$ 13.9m in dividends to shareholders in 2020 (2019: US$ 17.4m)
-- Completed US$ 1.0m share buy-back program authorized in August 2020
FY20 FY19 % Change
(US$) (US$)
Revenue 88.6m 89.3m -1%
Adjusted EBITDA(1,2) 26.1m 28.7m -9%
Adjusted EBITDA margin(1,2) 29% 32%
Profits before tax 24.6m 27.0m -9%
Adjusted net income(1,3) 18.9m 21.1m -10%
Diluted adjusted net income
per share(1,3) 0.33 0.37 -11%
Cash flow from operations 30.6m 18.9m 62%
Net cash(4) 35.4m 23.8m 49%
Ordinary dividend per share 0.1681 0.1875 -10%
Supplemental dividend per share 0.181 0.077 135%
Operational Highlights
-- Flexible operating model allowed rapid adjustments in
response to changing maket conditions in 2020
-- Trading in each of the six regions grew in H2 2020 compared to H1 2020, led by North America
-- New products contributed meaningfully to 2020 results
-- SkyScreed(c) 36, the SRS-4 boomed-screed, and the Somero
Broom + Cure(TM) combined to contribute US$ 7.4m to 2020
revenues
-- Completed the US$ 3.5m expansion to the Houghton, Michigan
Operations and Support Center and the US$ 0.5m expansion to the
Fort Myers, Florida Global Headquarters and Training Facility
Post-Period Highlights
-- Declared a 12.81 US cents per share final 2020 ordinary
dividend and a 18.1 US cents per share supplemental dividend,
totaling a combined US$ 17.3m, payable on April 30, 2021 to
shareholders on the register at April 9, 2021
-- Authorized a new share buyback program of an aggregate value
of up to US$ 1.0m to offset dilution from on-going equity award
programs, expected to be completed by the end of 2021
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:
"As we navigated through the pandemic, the health and well-being
of our employees and customers always remained our number one
priority. Our management team worked diligently to implement strict
health and safety protocols that redefined how we work and
communicate, and our employees exhibited tremendous flexibility to
adapt to these changes and deliver for our customers with minimal
interruption. I am so proud of the extraordinary effort of our
team, that in turn delivered healthy revenues, profits and strong
cash generation to our shareholders significantly exceeding the
expectations established on 9 September 2020 alongside our interim
results.
We were able to strike the right balance of managing short-term
requirements brought on by the crisis while advancing our long-term
strategy. In 2020, we introduced three new products that
contributed immediately and meaningfully to current year results
and completed expansions of our operational and training facilities
in Michigan and Florida, laying the foundation to support future
growth. I believe Somero is emerging as a stronger company having
made lasting improvements in the efficiency and effectiveness of
our operations and communications during this time. With all the
unexpected changes and challenges it presented, 2020 provided a
great example of the the strength and resilience of our Company
that comes from our talented and dedicated employees.
We closed the period with the strongest cash position in company
history and are well positioned to make investments that will drive
long-term growth in new and existing markets by expanding our
product offering. We are excited by the opportunities that lie
ahead and confident in our strategy and ability to deliver strong
results and dividends for our shareholders."
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
For further information, please contact:
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
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 Statement
Introduction
In response to the COVID-19 pandemic, our primary goal was to
protect the health and welfare of our employees, customers and
suppliers. Management took swift action in Q1 2020 to implement
broad health and safety protocols in pursuit of this goal. The
Board also prioritized protecting the financial resources of the
Company by supporting a series of measures proposed by management
to reduce costs and conserve cash that included the furlough of
approximately 20% of the Company workforce, as announced on 5 June
2020, which did not involve the Company receiving government
support or subsidy as is normal in the US furlough system. Then, as
trading began to increase in H2 2020, and the outlook for the year
improved, the cost control and cash conservation measures enacted
in June 2020 were reversed and the Company's operational team
quickly adjusted staffing levels to meet the increased demand. The
year was clearly filled with rapidly changing circumstances
necessitating quick, decisive actions that had widespread impact on
how our employees work and communicate.
Its hard to distill such a dynamic year with all its twists and
turns down to a few sentences, but one point that can be concisely
stated is to express, on behalf of our board of directors, how
proud we are of the entire Somero team and their extraordinary
performance this year. Our employees embraced and adjusted to all
the changes brought on by the pandemic, worked tirelessly day-in
and day-out to protect each other, our customers and suppliers
while continuing to deliver for our customers. It was a truly
remarkable effort by each and every Somero employee in 2020.
Performance and Dividend
Driven by strong trading in H2 2020, the end result was a
healthy year of revenues, profits and cash generation. Full year
2020 revenues were US$ 88.6m, adjusted EBITDA was US$ 26.1m, and
year-end net cash was US$ 35.4m, the highest level in Company
history. On top of delivering these strong results, the Company
continued to execute its long-term growth strategy by launching
three new products in 2020 and completing the expansion of its
operational and training facilities in Michigan and Florida,
respectively.
Our strong balance sheet provides us with the flexibility to
make investments to develop new products and add resources to sell
and support these products in new and existing markets. These
investments underpin the long term success of our business, and we
are pleased to be in a position to make them while maintaining a
disciplined return of cash to shareholders.
In 2020, we paid US$ 13.9m in dividends and completed the US$
1.0m share repurchase program that began on 9 September 2020. I am
pleased to report that based on the confidence in the business
outlook, the Board has approved a final 2020 ordinary dividend of
12.81 US cents per share and a supplemental dividend of 18.1 US
cents per share, which on a combined basis represents a US$ 17.3m
payment to shareholders. Both amounts are payable on April 30, 2021
to shareholders of record on April 9, 2021. Together with the
interim dividend paid in October 2020 of 4.00 US cents per share,
the 2020 full-year ordinary dividend is 16.81 US cents per
share.
The supplemental dividend declared is in accordance with the
Company's supplementary dividend policy adopted on March 14, 2019,
that stated the Company intends to distribute 50% of the excess of
net cash over the year-end target of US$ 15.0m. The Board has
reviewed the supplemental dividend policy with Management and
concluded that the year-end targeted net cash figure to be used for
the policy for the year-ended December 31, 2021 will be raised to
US$ 20.0m. This change will increase the Company's flexibility to
invest in long-term growth initiatives and reflects the increased
size and complexity of business operations. This prospective change
does not affect the 2020 supplemental dividend that will be paid in
April 2021.
The Board has also approved a new US$ 1.0m share buyback program
for the purpose of mitigating future dilution resulting from share
issuances under the Company's equity award programs. The Company
expects to complete this program by the end of 2021. Further
details on which are below.
Strategic Progress
Somero's strategy is to lead through innovation by delivering
solutions that help our customers build better, safer, and more
profitable business. In 2020, we introduced three new products
aligned to this strategic vision; the SkyScreed(c) 36, the SRS-4
boomed-screed, and the Somero Broom+Cure(TM) . These products
contributed to results immediately, combining for over US$ 7.4m in
2020 sales. We are pleased that job-site demonstrations resumed for
the SkyScreed product line in H2 2020, translating to US$ 1.0m in
SkyScreed sales in H2 2020, and are confident in the meaningful
long-term growth opportunity this product and the broader market
segment represents. Our product development team continues to
develop a pipeline of future products, both next generation
enhancements to existing products and new products that target new,
unpenetrated market segments.
Somero has a significant long-term growth opportunity in regions
outside our main North American market. We maintain a solid
presence outside the US, with resources positioned across the globe
that continue to work to penetrate international markets with new
and existing products. While 2020 revenues outside North America
declined to 20% of total sales compared to 27% in 2019, due in part
to more severe COVID-19 restrictions in these regions than were put
in place in the US, we continue to see generally positive
non-residential construction market conditions outside the US and
anticipate meaningful future contributions from new products in our
non-US markets. We continue to promote wide-placement theory and
quality concrete flooring standards globally which, along with
introductions of new products, we anticipate will drive deeper
penetration of our international markets.
Outlook
The Board is confident in the outlook for 2021 supported by
solid momentum in the US carrying forward from the strong finish to
2020 and reinforced by customers reporting project backlogs that
span well into 2021. Outside of the US, market conditions and
activity levels remain generally positive, and while our
international markets have been subject to more strict COVID-19
restrictions that those put in place in the US, we expect to see
solid opportunities for growth in these regions in 2021.
The Board is also confident in the significant long-term growth
opportunity from new products, including the SkyScreed. As
announced in January 2020, and reflective of this confidence, the
Board has made the decision to increase investment in sales and
support staff involved in sales of new products in the US and
abroad. This investment is expected to result in an incremental
increase in operating costs in excess of the traditional targeted
increase of US$ 2m per year on an annual basis, as previously
indicated, however thanks to our strong financial position and
positive momentum, the business is in a good position to be able to
make this investment now for benefit in future years.
With this comprehensive view, the Board expects 2021 will be a
profitable year with healthy cash generation, with revenues growing
in the mid-single digit percentage range and with EBITDA growing
modestly compared to 2020 due to the decision to invest to add
sales and support staff to benefit future growth.
Larry Horsch
Non-Executive Chairman
March 10, 2021
President and Chief Executive Officer's Review
Overview
2020 was filled with unexpected challenges and changes. The
uncertainty caused by the COVID-19 pandemic in the first half of
the year led to actions taken to protect the health and welfare of
our employees, customers and suppliers, actions taken to protect
the financial resources of the Company, and efforts to work with
our employees and customers to adapt to all these changes. In the
second half of the year, as trading rebounded and business momentum
accelerated, the cost control and cash conservation measures
announced on 5 June 2020 were reversed, and staffing levels started
to normalize in order to meet the elevated demand. The year
ultimately solidified with strong profitable trading to finish the
year, resulting in a record US$ 53.3m H2 2020 revenue performance,
a 6% increase over the US$ 50.3m reported in H2 2019 when the US
fully recovered from historic levels of rainfall experienced during
H1 2019. On a full year basis, 2020 sales were US$ 88.6m, 2020
EBITDA was US$ 26.1m and year-end net cash was US$ 35.4m, all well
ahead of guidance provided on 9 September 2020.(1)
The cash generation of the business in 2020 was particularly
strong. The Company generated US$ 30.6m in operating cash flows, a
62% increase from US$ 18.9m in 2019, as reductions to year-end 2020
accounts receivable and inventory provided a significant one-time
working capital benefit of US$ 6.7m. The strong operating cash flow
enabled the Company to pay dividends of US$ 13.9m in 2020, complete
the US$ 1.0m share repurchase program that began on 9 September
2020, and still end the year with a record level of net cash. In
addition to the healthy 2020 financial results, the Company
continued to execute its long-term growth strategy by launching
three new products and expanding the operational and training
facilities in Michigan and Florida, respectively.
Region Reviews
While full-year revenues in only one of the Company's six
regions grew compared to 2019, H2 2020 revenues from each of the
six regions grew compared to H1 2020, highlighting heightened
momentum across all our markets to finish the year.
North America reported particularly strong H2 2020 trading
reflecting an healthy US non-residential construction market that
remained intact throughout the year. On a full-year basis, North
American revenues grew to US$ 70.7m in 2020, an 8% increase from
the US$ 65.5m in 2019. The outlook for our largest market remains
optimistic given the health of the US non-residential construction
market reinforced by consistent reporting from customers of project
backlogs that extend well into 2021.
In Europe, while H2 2020 sales improved to US$ 4.5m compared to
US$ 4.1m in H1 2020, full-year 2020 sales declined to US$ 8.6m
compared to US$ 10.0m in 2019. Europe, as with all our non-US
regions, was subject to stricter COVID-19 lockdown restrictions
than those put in place in the US. The resulting interruptions and
uncertainty adversely impacted customer equipment purchasing
decisions. On a positive note, our European customers have
continued to report solid project workloads and supported by this
customer level view, our outlook for Europe is positive entering
2021 though tempered somewhat in comparison to our view of the US
market. We are pleased with the broad based contribution to sales
across the region, having sold equipment to thirteen countries in
2020, with the most significant contributors being the Italy, the
UK, Portugal, Poland, Hungary, and Spain.
In China, 2020 revenues declined to US$ 3.9m compared to US$
5.6m in 2019, even though H2 2020 revenues improved compared to H1
2020. A number of factors led to this decline, including US-China
trade tensions and disruption from the COVID-19 pandemic, but the
slow pace of demand for quality concrete floors by Chinese building
owners and end-users remains the ultimate obstacle to breakthrough
performance in this market. We will continue to evaluate our
approach and China strategy as we progress through the year.
In Latin America, H2 2020 sales improved to US$ 0.9m, up from a
modest US$ 0.2m in H1 2020, though full year 2020 revenues declined
to US$ 1.1m, down from US$ 2.0m in 2019, as performance in the
region was hampered by the broad impact of COVID-19 restrictions.
The most significant contributions to 2020 sales in the region were
Brazil, Mexico and Argentina, the majority of which came in H2 2020
as activity picked up from the start of the year. We were
encouraged by H2 2020 activity and look forward to 2021 in this
region with optimism.
The Middle East and Rest of World regions followed a similar
pattern of H2 2020 improvement compared to H1 2020 but with a
decline in full-year sales compared to 2019. The Middle East and
Rest of World regions reported 2020 sales of US$ 0.4m and US$ 3.9m,
compared to 2019 sales of US$ 0.7m and US$ 5.5m, respectively.
While a multitude of country specific factors impacted performance
in these two regions, we have been encouraged by generally positive
market conditions and activity levels in H2 2020. The two major
countries included in the Rest of World region are India, which
reported 2020 revenues of US$ 1.2m compared to US$ 1.4m in 2019,
and Australia, which reported 2020 revenues of US$ 1.1m compared to
US$ 3.6m in 2019. Both countries were negatively impacted by
COVID-19 restrictions, with Australia experiencing more severe
lockdown restrictions in 2020 that stalled activity. Furthermore,
in late 2020, the Company changed its Australian go-to-market
strategy by adding direct resources to sell to and support
customers in Australia and New Zealand in place of a long-standing
dealer relationship. We believe this change creates the opportunity
to further penetrate the Australian and New Zealand markets with
new products in the years to come.
Cashflow and Balance Sheet
Somero delivered healthy profits that translated to particularly
strong cash flow in 2020. Management leveraged the Company's
flexible operational structure to closely match costs with changing
activity levels throughout the year. In addition, management
effectively and aggressively managed working capital, driving down
accounts receivable and inventory levels at year-end 2020 to
provide a significant one-time benefit of US$ 6.7m to 2020
operating cash flow. The end-result was US$ 30.6m in 2020 operating
cash flow, a 62% increase from US$ 18.9m in 2019, and a year-end
net cash position of US$ 35.4m, an all-time high for the Company. A
secure financial position, along with the Board's confidence in the
business outlook, allows the Company to comfortably maintain its
ordinary dividend pay-out ratio of 50% and its supplemental
dividend policy. Consequently, the Board has approved a final 2020
ordinary dividend of 12.81 US cents per share and a supplemental
dividend of 18.1 US cents per share, both payable on April 30, 2021
that combined will result in a US$ 17.3m dividend payment to
shareholders.
Share Buyback
The Board has approved a share buyback program, pursuant to
which, the Board intends to carry out an on market buyback of such
number of its listed shares of common stock as are equal to US$
1.0m. The purpose of mitigating future dilution resulting from
share issuances under the Company's equity award programs. The
Company expects to complete this program by the end of 2021.
Product Development
New products are at the heart of the Company's long-term growth
strategy and contributed immediately and meaningfully to 2020
results. The SkyScreed(c) 36, the SRS-4 boomed-screed, and the
Somero Broom+Cure(TM) , all launched at different points in 2020,
combined to contribute over US$ 7.4m to 2020 revenues. We are
pleased that job-site demonstrations, a critical element to the
selling process for the SkyScreed, resumed in North America in H2
2020 and translated to 2020 SkyScreed sales of US$ 1.0m, matching
the 2019 SkyScreed sales total. We are excited by the significant
long-term growth opportunity the SkyScreed product line represents.
We are particularly pleased with the immediate impact of the SRS-4,
that contributed the majority of the US$ 7.4m in 2020 new product
revenues. The SRS-4 is a compact, lightweight, boomed screed that
opens up applications not well suited to our larger boomed
equipment, complementing our boomed screed product line-up.
Finally, at mid-year we launched our latest innovation, the Somero
Broom+Cure(TM) , a product that provides a mechanical approach to
apply curing agents and a broom finish to exterior concrete slabs
in accordance with American Concrete Institute standards. We have
been encouraged by early sales and interest in this product.
Beyond these 2020 new products, our product development team
continues develop the pipeline of future products, comprised of
opportuntunities for next generation enhancements to existing
products as well as products that open new, unpenetrated market
segments. In addition to continued investment in product
development, the Board has made the decision to add resources to
sell and support our expanding line-up of new products, such as the
SkyScreed. This investment is expected to increase our operating
expenses at a faster pace than seen in previous years, but will
provide the necessary resources to capture growth from new products
in the US and International markets in the years to come.
Expansion Update
The Company completed the US$ 3.5m expansion to our Global
Operations and Support Offices in Houghton, Michigan , a project
that added 35,000 square feet to the facility, providing needed
assembly space to accommodate new, larger products such as the
SkyScreed, and needed office space for our growing customer support
and engineering teams.
In addition, the Company completed the US$ 0.5m expansion to the
Global Headquarters and Training Facility in Fort Myers, Florida in
2020. While the Company has yet to resume in-person customer
training at the Fort Myers facility due to COVID-19 safety
protocols, the expansion is key element to our long-term strategy
of providing a platform to support increasing the pool of skilled
labor in concrete contractor industry.
Conclusion
We feel fortunate to have successfully navigated through the
COVID-19 pandemic in 2020. We are confident in the talent,
dedication and resolve of our management team and employees all of
whom rose to the unprecedented challenges we were faced with. We
delivered strong financial results, paid US$ 13.9m in dividends to
shareholders, significantly advanced our new product initiatives,
and ended the year with the highest level of cash in our Company's
history. We now enter 2021 with a healthy North American market,
opportunities for growth in our international markets, and an
exciting range of growth prospects from new products in front of
us. With all of this in place, we are extremely well positioned for
our next phase of growth and look forward to delivering another
year of substantial progress for our shareholders.
Jack Cooney
President and Chief Executive Officer
March 10, 2021
Notes:
(1) Net Cash is defined as total cash and cash equivalents less
borrowings under bank obligations exclusive of deferred financing
costs.
FINANCIAL REVIEW
Summary of financial results
Year ended December 31,
2020 2019
US$ 000
Except per US$ 000
share Except per
data share data
----------------------- -----------------------
Revenue 88,572 89,306
Cost of sales 39,758 38,602
----------------------- -----------------------
Gross profit 48,814 50,704
Operating expenses
Selling, marketing and customer support 10,312 11,108
Engineering and product development 1,826 1,796
General and administrative 12,821 11,198
-----------------------------------------
Total operating expenses 24,959 24,102
----------------------------------------- ----------------------- -----------------------
Operating income 23,855 26,602
Other income (expense)
Interest expense (45) (42)
Interest income 244 241
Foreign exchange impact 47 (71)
Other 511 310
----------------------------------------- ----------------------- -----------------------
Income before income taxes 24,612 27,040
----------------------------------------- ----------------------- -----------------------
Provision for income taxes 5,839 5,929
----------------------------------------- ----------------------- -----------------------
Net income 18,773 21,111
Per Share Per Share
US$ US$
----------------------------------------- ----------------------- -----------------------
Basic earnings per share 0.33 0.37
Diluted earnings per share 0.33 0.37
Basic adjusted net income per share
(1), (3), (4) 0.34 0.38
Diluted adjusted net income per share
(1), (3), (4) 0.33 0.37
Other data
Adjusted EBITDA (1), (2), (4) 26,106 28,714
Adjusted net income (1), (3), (4) 18,873 21,126
Depreciation expense 965 977
Amortization of intangibles 153 145
Capital expenditures 3,734 3,015
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
Year ended December 31,
2020 2019
US$ 000 US$ 000
Adjusted EBITDA reconciliation
Net income 18,773 21,111
Tax provision 5,839 5,929
Interest expense 45 42
Interest income (244) (241)
Foreign exchange impact (47) 71
Other (511) (310)
Depreciation 965 977
Amortization 153 145
Stock-based compensation 911 760
Non-cash lease expense 222 230
------------ ------------
Adjusted EBITDA 26,106 28,714
------------ ------------
Adjusted net income
Net income 18,773 21,111
Amortization 153 145
Tax impact of stock option & RSU settlements (53) (130)
Adjusted net income 18,873 21,126
------------ ------------
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 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 declined by 1% to US$ 88.6m
(2019: US$ 89.3m). Company revenues consist primarily of sales from
Boomed screed products, which include the S-22E, S-22EZ, S-15R,
S-10A and SRS-4 Laser Screed machines, sales from Ride-on screed
products, which are drive through the concrete machines that
include the S-485, S-940 and S-158C Laser Screed machines,
Remanufactured machine sales, 3-D Profiler System, Somero Line
Dragon (formerly SP-16 Concrete Hose Line-Pulling and Placing
Systems), SkyScreed and Other revenues which consist primarily of
revenue from sales of parts and accessories, sales of other
equipment, including the Broom + Cure (TM) , service, training and
shipping charges.
Boomed screed sales declined to US$ 31.7m (2019: US$ 38.0m) due
to a change in the product mix of boom screeds sold, while Ride-on
screed and Remanufactured sales increased to US$ 17.6m (2019: US$
16.9m) and to US$ 5.8m (2019: US$ 4.4m), respectively. Further
contributions came from Somero Line Dragon, formerly known as SP-16
Concrete Hose Line-Pulling and Placing Systems, sales US$ 4.7m
(2019: US$ 2.8m) and the 3D Profiler System US$ 7.5m (2019: US$
6.2m) due to higher volume. Sales of the SkyScreed remained
consistent contributing US$ 1.0m, and Other revenues increased to
US$ 20.3m (2019: US$ 20.0m) primarily due to sales of the Somero
Broom + Cure (TM) , partly offset by decreased parts revenue.
Revenue breakdown by geography
Total
North America EMEA (1) ROW (2) US$ in millions
US$ in millions US$ in US$ in 2020 2019
millions millions
2020 2019 2020 2019 2020 2019 Net % of Net % of
sales Net sales Net
sales sales
Boomed screeds (3) 24.3 27.4 5.2 4.9 2.2 5.7 31.7 35.8% 38.0 42.6%
Ride-on screeds (4) 13.8 12.7 2.0 2.3 1.8 1.9 17.6 19.7% 16.9 18.9%
Remanufactured machines 5.1 3.0 0.2 0.7 0.5 0.7 5.8 6.5% 4.4 4.9%
3-D Profiler System 6.9 5.8 0.1 0.2 0.5 0.2 7.5 8.5% 6.2 6.9%
Somero Line Dragon
(5) 4.3 2.2 0.3 0.5 0.1 0.1 4.7 5.3% 2.8 3.2%
SkyScreed 1.0 1.0 - - - - 1.0 1.1% 1.0 1.1%
Other (6) 15.3 13.4 2.1 2.1 2.9 4.5 20.3 23.1% 20.0 22.4%
Total 70.7 65.5 9.9 10.7 8.0 13.1 88.6 100.0% 89.3 100.0%
-------- -------- ----- ----- ------- -------
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-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 2020 2019
Boomed screeds 125 128
Ride-on screeds 157 159
Remanufactured machines 37 27
3D Profiler System 67 56
Somero Line Dragon (R) (1) 132 87
SkyScreed (R) 3 4
Other (2) 46 34
---------------------------- ------- -------
Total 567 495
---------------------------- ------- -------
Notes :
1. Includes sales of the Somero Line Dragon and its predecessor
the SP-16 Concrete Hose Line-Pulling and Placing Systems.
2. 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 80% of
total revenue (2019: 73%), sales to customers in EMEA (Europe,
Middle East, Scandinavia, and Russia) contributed 11% (2019: 12%)
and sales to customers in ROW (Southeast Asia, Australia, Latin
America, India and China) contributed 9% (2019: 15%).
Sales in North America were US$ 70.7m (2019: US$ 65.5m) up 8%
driven mostly by sales from new products, including the SRS-4 and
Somero Broom+ Cure, coupled with volume growth of Remanufactured
machines and price increases across most of the product lines,
partly offset by a decrease in volume of legacy Boomed screeds.
Sales in EMEA were US$ 9.9m (2019: US$ 10.7m), which is a decrease
of 7% primarily due to a decrease in legacy Boom screeds, partly
offset by incremental sales of the SRS-4. Sales in ROW were US$
8.0m (2019: US$ 13.1m), representing a 39% decline driven primarily
by lower sales across most of the product lines.
US$ in millions
------------------
Regional sales 2020 2019
------------------- -------- --------
North America 70.7 65.5
Europe 8.6 10.0
China 3.9 5.6
Middle East 0.4 0.7
Latin America 1.1 2.0
Rest of World (1) 3.9 5.5
------------------- -------- --------
Total 88.6 89.3
------------------- -------- --------
Notes:
1. Includes Australia, India, Southeast Asia, Korea and
Russia.
Gross profit
Gross profit declined to US$ 48.8m (2019: US$ 50.7m), with gross
margins declining to 55% (2019: US$ 57%) primarily due to
unfavorable product mix mostly driven by the decrease in sales of
Boomed screeds, offset by an increase in sales of Remanufactured
machines, which generate lower gross margin.
Operating expenses
Operating expenses increased by US$ 0.9m to US$ 25.0m (2019: US$
24.1m). This increase is due to higher general and administrative
costs, offset by lower selling, marketing and customer support
expense.
Debt
As of December 31, 2020, the Company had no outstanding debt.
The Company renewed its US$ 10.0m secured revolving line of credit
extending the term to mature in September 2024 and no other
material changes.
Other income (expense)
Other income (expense) was US$ 0.8m of other income, compared to
US$ 0.4m in 2019, primarily due to a higher unrealized foreign
currency exchange gains.
Provision for income taxes
The provision for income taxes was US$ 5.8m in 2020 compared to
US$ 5.9m in 2019. Overall, Somero's effective tax rate changed to
23.7% in 2020 from 21.9% in 2019.
Earnings per share
Basic earnings per share represents income available to common
stockholders divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share reflect
additional common shares that would have been outstanding if
dilutive potential common shares had been issued, as well as any
adjustments to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate to
outstanding restricted stock units.
Earnings per common share has been computed based on the
following:
Year ended December 31,
2020 2019
US$ 000 US$ 000
------------------------ -----------------------
Income available to stockholders 18,773 21,111
Basic weighted shares outstanding 56,336,687 56,330,400
Net dilutive effect of stock options
and restricted stock units 636,909 489,218
Diluted weighted average shares outstanding 56,973,596 56,819,618
--------------------------------------------- ------------------------ -----------------------
Per Share Per Share
US$ US$
Basic earnings per share 0.33 0. 37
Diluted earnings per share 0.33 0. 37
Basic adjusted net income per share 0.34 0. 38
Diluted adjusted net income per share 0.33 0. 37
--------------------------------------- ---------- ----------
Consolidated Balance Sheets
As of December 31, 2020 and 2019
As of December 31,
2020 2019
US$ 000 US$ 000
------------------------- ----------------------
Assets
Current assets:
Cash and cash equivalents 35,388 23,757
Accounts receivable - net 6,411 11,979
Inventories- net 11,127 12,289
Prepaid expenses and other assets 1,676 1,291
Total current assets 54,602 49,316
Accounts receivable, non-current - net 736 904
Property, plant, and equipment - net 16,509 13,714
Financing lease right-of-use assets-net 485 557
Operating lease right-of-use assets-net 1,295 1,213
Intangible assets - net 1,545 1,698
Goodwill 3,294 3,303
Deferred tax asset 80 564
Other assets 303 261
-------------------------------------------------------- ------------------------- ----------------------
Total assets 78,849 71,530
-------------------------------------------------------- ------------------------- ----------------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 4,380 2,227
Accrued expenses 6,702 5,960
Financing lease liability - current 162 148
Operating lease liability - current 204 247
Income tax payable 888 1,078
Total current liabilities 12,336 9,660
Financing lease liability - long-term 228 262
Operating lease liability - long-term 1,133 982
Other liabilities 1,622 1,587
Total liabilities 15,319 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 56,124,409 and 56,348,068
shares outstanding at December 31, 2020
and 2019, respectively 26 26
Less: treasury stock, 301,189 shares as
of December 31, 2020 and 77,530 shares
as of December 31, 2019 at cost (1,040) (191)
Additional paid in capital 17,598 17,001
Retained earnings 49,771 44,923
Other comprehensive loss (2,825) (2,720)
Total stockholders' equity 63,530 59,039
------------------------------------------------------- ------------------------- ----------------------
Total liabilities and stockholders' equity 78,849 71,530
-------------------------------------------------------- ------------------------- ----------------------
See Notes to consolidated financial statements.
Consolidated Statements of Comprehensive
Income
For the years ended December 31, 2020
and 2019
Year ended December 31,
2020 2019
US$ 000 US$ 000
except per share except per share
data data
-------------------------- -------------------------
Revenue 88,572 89,306
Cost of sales 39,758 38,602
------------------------------------------- -------------------------- -------------------------
Gross profit 48,814 50,704
------------------------------------------- -------------------------- -------------------------
Operating expenses
Sales, marketing and customer support 10,312 11,108
Engineering and product development 1,826 1,796
General and administrative 12,821 11,198
-------------------------- -------------------------
Total operating expenses 24,959 24,102
------------------------------------------ -------------------------- -------------------------
Operating income 23,855 26,602
Other income (expense)
Interest expense (45) (42)
Interest income 244 241
Foreign exchange impact 47 (71)
Other 511 310
------------------------------------------ -------------------------- -------------------------
Income before income taxes 24,612 27,040
Provision for income taxes 5,839 5,929
Net income 18,773 21,111
------------------------------------------- -------------------------- -------------------------
Other comprehensive income
Cumulative translation adjustment (105) 104
Comprehensive income 18,668 21,215
------------------------------------------- -------------------------- -------------------------
Earnings per common share
Earnings per share - basic 0.33 0.37
Earnings per share - diluted 0.33 0.37
Weighted average number of common shares outstanding
Basic 56,336,687 56,330,400
Diluted 56,973,596 56,819,618
See Notes to consolidated financial
statements.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 2020 and 2019
Common stock Treasury stock
Additional Other Total
paid-in Retained Comprehensive Stockholders'
Amount capital Amount earnings income equity
(loss)
Shares US$ US$ 000 Shares US$ 000 US$ 000 US$ 000 US$ 000
000
Balance -
January
1, 2019 56,425,598 26 16,969 137,269 (326) 41,255 (2,824) 55,100
-------------- ----------- -------- ----------- --------- ----------- ---------- -------------- --------------
Cumulative
translation
adjustment - - - - - - 104 104
Net income - - - - - 21,111 - 21,111
Stock-based
compensation - - 760 - - - - 760
Dividend - - - - - (17,443) - (17,443)
Treasury
stock - - (135) (59,739) 135 - - -
RSUs settled
for cash - - (593) - - - - (593)
Balance -
December
31, 2019 56,425,598 26 17,001 77,530 (191) 44,923 (2,720) 59,039
-------------- ----------- -------- ----------- --------- ----------- ---------- -------------- --------------
Cumulative
translation
adjustment - - - - - - (105) (105)
Net income - - - - - 18,773 - 18,773
Stock-based
compensation - - 911 - - - - 911
Dividend - - - - - (13,925) - (13,925)
Treasury
stock - - 849 (44,354) (849) - - 0
RSUs settled
for cash - - (223) - - - - (223)
Share
buy-back - - (951) 268,013 - - - (951)
Investment in
Subsidiary - - 11 - - - - 11
Balance -
December
31, 2020 56,425,598 26 17,598 301,189 (1,040) 49,771 (2,825) 63,530
-------------- ----------- -------- ----------- --------- ----------- ---------- -------------- --------------
See Notes to consolidated financial
statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 2020
and 2019
Year ended December 31,
2020 2019
US$ 000 US$ 000
----------------------- -----------------------
Cash flows from operating activities:
Net income 18,773 21,111
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred taxes 484 286
Depreciation and amortization 1,118 1,122
Non-cash lease expense 222 230
Bad debt 215 188
Stock-based compensation 911 760
Gain on non-cash payment for intangible
asset - (171)
Gain/Loss on disposal of property
and equipment (98) 16
Working capital changes:
Accounts receivable 5,521 (2,494)
Inventories 1,162 (1,374)
Prepaid expenses and other assets (385) 210
Other assets (42) (35)
Accounts payable, accrued expenses
and other liabilities 2,945 936
Income taxes payable (190) (1,934)
Net cash provided by operating activities 30,636 18,851
------------------------------------------------- ----------------------- -----------------------
Cash flows from investing activities:
Proceeds from sale of property and 80 -
equipment
Property and equipment purchases (3,734) (3,015)
Payments for intangible assets - (138)
Business acquisition, net of cash acquired - (2,073)
Net cash used in investing activities (3,654) (5,226)
------------------------------------------------- ----------------------- -----------------------
Cash flows from financing activities:
Payment of dividend (13,925) (17,443)
RSUs settled for cash (223) (593)
Stock buy-back (951) -
Investment in subsidiary 11 -
Payments under financing leases (158) (169)
Net cash used in financing activities (15,246) (18,205)
Effect of exchange rates on cash and
cash equivalents (105) 104
Net increase (decrease) in cash and
cash equivalents 11,631 (4,476)
------------------------------------------------- ----------------------- -----------------------
Cash and cash equivalents:
Beginning of year 23,757 28,233
----------------------- -----------------------
End of year 35,388 23,757
------------------------------------------------- ----------------------- -----------------------
See Notes to consolidated financial
statements.
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 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; New Delhi, India; and Melbourne, Australia.
2. Summary of significant accounting policies
Basis of presentation
The consolidated financial statements of the Company have been
prepared in accordance with accounting principles generally
accepted in the United States of America using the accrual basis of
accounting.
Principles of consolidation
The consolidated financial statements include the accounts of
Somero Enterprises, Inc. and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
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 December 31, 2020 and 2019, the allowance for
doubtful accounts was approximately US$ 1,187,000 and US$ 961,000,
respectively. Bad debt expense was US$ 215,000 and US$ 188,000 in
2020 and 2019, 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 December 31, 2020 and 2019, the provision for
obsolete and slow-moving inventory was US$ 361,000 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 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 December 31, 2020 nor
December 31, 2019.
Revenue recognition
The Company generates revenue by selling equipment, parts,
accessories, service agreements and training. The Company
recognizes revenue for equipment, parts and accessories when it
satisfies the performance obligation of transferring the control to
the customer. For product sales where shipping terms are FOB
shipping point, revenue is recognized 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 year ended December 31, 2020 and 2019, there was US$
633,000 and US$ 652,000, respectively, of revenue recognized during
the period from liabilities related to extended service agreements
(deferred contract revenue).
As of December 31, 2020 and 2019, there are US$ 3,009,000 and
US$ 596,000, respectively, in customer deposit liabilities for
advance payments received during the period for contracts expected
the following period. As of the year ended December 31, 2020 and
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 248
Accruals (491)
---------------------------- --------
Balance, December 31, 2020 (1,174)
---------------------------- --------
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$
911,000 and US$ 760,000 for the years ended December 31, 2020 and
2019, respectively. In addition, the Company settled US$ 223,000
and US$ 593,000 in restricted stock units for cash during the years
ended December 31, 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:
Year ended December
31,
2020 2019
US$ 000 US$ 000
-------------- --------------
Income available to stockholders 18,773 21,111
Basic weighted shares outstanding 56,336,687 56,330,400
Net dilutive effect of stock options and restricted
stock units 636,909 489,218
Diluted weighted average shares outstanding 56,973,596 56,819,618
----------------------------------------------------- -------------- --------------
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: Goodwill 3,303 3,303
Year ended December 31,
2020
Asset: Goodwill 3,294 3,294
3. Inventories
Inventories consisted of the following:
Year ended December
31,
2020 2019
US $ 000 US $ 000
------------------- ------------------
Raw material 5,543 4,267
Finished goods and work in process 2,933 3,154
Remanufactured 2,651 4,868
Total 11,127 12,289
--------------------------------------- ------------------- ------------------
4. Acquisition
On January 15, 2019, the Company concurrently executed a
settlement agreement and mutual release with Daniel R. Stoltzfus
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 at December 31, 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 results of the qualitative assessment indicated that goodwill
was not impaired as of December 31, 2020 and 2019, and that the
value of patents was not impaired as of December 31, 2020. The
following table reflects other intangible assets:
Year ended December
Weighted average 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 18,626 18,578
Intangible
Assets 6,510 6,405
25,136 24,983
--------------------------- --------------------- ------------------- ---------------
Net carrying costs Patents 12 years 621 669
Intangible
Assets 924 1,029
1,545 1,698
--------------------------- --------------------- ------------------- ---------------
Amortization expense associated with the intangible assets in
each of the years ended December 31, 2020 and 2019 was
approximately US$ 153,000 and US$ 145,000, respectively.
6. Property, plant, and equipment
Property, plant, and equipment consist of the following:
Year ended December 31,
2020 2019
US$ 000 US$ 000
---------- -----------
Land 864 864
Building and improvements 15,278 13,149
Machinery and equipment 6,906 5,414
-------------------------------------------------------- ---------- -----------
23,048 19,427
Less: accumulated depreciation and amortization (6,539) (5,713)
16,509 13,714
-------------------------------------------------------- ---------- -----------
Depreciation expense for the years ended December 31, 2020 and
2019 was approximately US$ 965,000 and US$ 977,000,
respectively.
7. 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 line of credit 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 line of credit in the years ended December
31, 2020 or in 2019.
Interest expense for the years ended December 31, 2020 and 2019
was approximately US$ 45,000 and US$ 42,000, 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$ 767,000 to the savings and retirement plan during
2020 and contributed US$ 690,000 during 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 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 Sheet, reflect management's current expectations regarding
the exercise of renewal options. The components for lease expense
were as follows as of December 31, 2020:
US$ 000
Operating lease cost 307
Finance lease cost:
Amortization of right-of-use assets 222
Interest on lease liabilities 19
----------------------------------------- ---------
Total finance lease cost 241
----------------------------------------- ---------
As of December 31, 2020, the weighted average discount rate for
finance and operating leases was 4.7% and 3.9%, respectively, and
the weighted average remaining lease term for finance and operating
leases was 3.0 years and 10.0 years, respectively. Maturities of
lease liabilities are as follows for the years ended:
Operating Finance Leases
Leases
US$ 000 US$ 000
---------- ------------------------------
2021 252 177
2022 199 133
2023 194 84
2024 163 21
2025 102 -
Thereafter 717 -
---------- ------------------------------
Total 1,627 415
Less imputed interest (290) (25)
----------------------- ---------- ------------------------------
Total 1,337 390
10. Supplemental cash flow and non-cash financing
disclosures
Year ended December
31,
2020 2019
US$ 000 US$ 000
---------- ----------
Cash paid for interest 45 41
Cash paid for taxes 5,491 6,315
Finance lease liabilities arising from obtaining
right-of-use assets (20) 245
Operating lease liabilities arising from obtaining
right-of-use assets 108 1,229
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 December 31, 2020 and 2019, the Company
had five customers which represented 32% and three customers which
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
Year ended December
31,
2020 2019
US$ 000 US$ 000
------------- ------------
Current Income Tax
Federal 4,320 4,431
State 824 823
Foreign 216 389
---------------------------------- ------------- ------------
Total current income tax expense 5,360 5,643
---------------------------------- ------------- ------------
Deferred tax expense
Federal 407 256
State 72 30
Foreign - -
---------------------------------- ------------- ------------
Total deferred tax expense 479 286
Total tax provision 5,839 5,929
---------------------------------- ------------- ------------
As of December 31, 2020 and 2019, the effects of temporary
differences that give rise to the deferred tax assets are as
follows:
Year ended December
31,
2020 2019
US$ 000 US$ 000
----------- ----------
Deferred tax assets
Bad debt allowance 277 220
Inventory 128 288
Accrued expenses 303 378
UK intangibles 105 105
Stock compensation 382 279
Italy - NOL 196 189
Australia- NOL 36
Lease liability 41 -
Other 182 202
-------------------------------- ----------- ----------
Total deferred tax assets 1,650 1,661
-------------------------------- ----------- ----------
Deferred tax liabilities
Prepaid insurance (130) (109)
Fixed assets (571) (607)
Intangible assets (590) (191)
Right of use asset (47) -
-------------------------------- ----------- ----------
Total deferred tax liabilities (1,338) (907)
-------------------------------- ----------- ----------
Valuation allowance (232) (190)
-------------------------------- ----------- ----------
Total net deferred tax asset 80 564
-------------------------------- ----------- ----------
A reconciliation of the income tax provision with the amount of
tax computed by applying the federal statutory rate to pretax
income follows:
Year ended December 31,
2020 2019
US$ 000 US$ 000
--------- ---------
Consolidated income before tax 24,612 27,040
Statutory rate 21% 21%
----------------------------------------------------- --------- ---------
Statutory tax expense 5,169 5,678
----------------------------------------------------- --------- ---------
State taxes 723 681
Foreign taxes (33) (48)
Permanent differences due to stock options and RSUs 34 (70)
Permanent differences due to other items 25 (11)
Foreign derived intangible income (323) (458)
Change in valuation allowance 42 60
Change in reserve 76 108
Other 126 (11)
----------------------------------------------------- --------- ---------
Tax expense 5,839 5,929
----------------------------------------------------- --------- ---------
As of December 31, 2020, the Company has US$ 936,000 of foreign
loss carryforwards with an indefinite carryforward life. Management
assesses the recoverability of our deferred tax assets as of the
end of each quarter, weighing all positive and negative evidence,
and is required to establish and maintain a valuation allowance for
these assets if we determine that it is more likely than not that
some or all of the deferred tax assets will not be realized. The
weight given to the evidence is commensurate with the extent to
which the evidence can be objectively verified. If negative
evidence exists, positive evidence is necessary to support a
conclusion that a valuation allowance is not needed. As of December
31, 2020, management has determined that a valuation allowance is
currently needed against the Company's net operating loss
carryforward deferred tax assets.
The Company files income tax returns in the U.S. federal
jurisdiction and various state jurisdictions. The Company has open
years for the tax year 2013 and forward. The Company has open years
related to United Kingdom filings for the tax year 2018, and open
years related to Italian filings for tax years 2014 forward.
The Company adopted the accounting standard for uncertain tax
positions, ASC 740-10, and as required by the standard, the Company
recognizes the financial statement benefit of a tax position only
after determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax positions
meeting the more likely than not threshold, the amount recognized
in the financial statements is the largest benefit that has a
greater than 50 percent likelihood of being realized upon ultimate
settlement with the relevant tax authority.
Increases or decreases to the unrecognized tax benefits could
result from management's belief that a position can or cannot be
sustained upon examination based on subsequent information or
potential lapse of the applicable statute of limitation for certain
tax positions.
Unrecognized tax benefits - January 1, 2019 958
Increases from positions taken during prior periods -
Increases from positions taken during current period -
Settled positions -
Lapse of statute of limitations -
------------------------------------------------------------- ---------------------
Unrecognized tax benefits - December 31, 2019 958
Unrecognized tax benefits - January 1, 2020 958
Increases from positions taken during prior periods -
Increases from positions taken during current period -
Settled positions -
Lapse of statute of limitations -
------------------------------------------------------------- ---------------------
Unrecognized tax benefits - December 31, 2020 958
------------------------------------------------------------- ---------------------
The amount of unrecognized tax benefits as of December 31, 2020,
if recognized, would favorably affect the Company's effective tax
rate. These unrecognized tax benefits are classified as "Other
long-term liabilities" in the Company's consolidated balance sheet
as the Company does not intend to make significant payments in the
next twelve months. The interest and penalties related to the
unrecognized tax benefits are US$ 76,000 and US$ 108,000 as of
December 31, 2020 and 2019, respectively. Interest and penalties
related to unrecognized tax benefits are included in the provision
for income tax expense.
14. Revenues by geographic region
The Company sells its products to customers throughout the
world. The breakdown by location is as follows:
2020 2019
US$ 000 US$ 000
-------- --------
United States and U.S. possessions 70,683 65,534
Rest of World 17,889 23,772
--------
Total 88,572 89,306
------------------------------------ -------- --------
15. Stock-based compensation
The Company has stock-based compensation plans which are
described below. The compensation cost that has been charged
against income for the plans was approximately US$ 911,000 and US$
760,000 for the years ended December 31, 2020 and 2019,
respectively. The income tax effect recognized for stock-based
compensation was US$ 0.05m and US$ 0.1m, respectively, for the
years ended December 31, 2020 and 2019.
Restricted stock units
The Company also regularly issues restricted stock units to
employees and Non-Executive Directors, subject to Board
approval.
A summary of restricted stock unit activity in 2020 and 2019 is
presented below:
Grant date
Shares fair market
value US$
---------------------------------- ----------- -------------
Outstanding at January 1, 2019 440,476 1,665,386
Granted 197,135 994,392
Vested or settled for cash (148,581) (332,194)
Forfeited (2,940) (15,000)
Outstanding at December 31, 2019 486,090 2,312,584
---------------------------------- ----------- -------------
Outstanding at January 1, 2020 486,090 2,312,584
Granted 326,960 924,737
Vested and settled for cash (115,759) (411,661)
Forfeited (31,221) (138,633)
---------------------------------- ----------- -------------
Outstanding at December 31, 2020 666,070 2,687,027
---------------------------------- ----------- -------------
RSUs settled for cash were US$ 0.2m in 2020 and US$ 0.6m in
2019.
As of December 31, 2020, there was US$ 1,111,000 total
unrecognized compensation cost related to non-vested restricted
stock units. Restricted stock unit expense is being recognized over
the three-year vesting period. The weighted average remaining
vesting period is 1.5 years.
16. Employee compensation
The Board approved management bonuses and profit-sharing
payments totaling US$ 1.6m, partly paid in December 2020 and the
remainder to be paid in early 2021, based upon the Company meeting
certain financial targets.
Equity bonus plan
The Company has an Equity Bonus Plan, under which eligible
senior managers may choose to receive a percentage of their annual
performance bonus in shares of common stock. In March 2020, the
Company issued 35,247 shares of common stock, valued at US$ 100,000
at the time of grant. In March 2019, the Company issued 39,373
shares of common stock, valued at US$ 201,000 at the time of
grant.
17. Share buyback
In August 2020, the Board authorized a on market share buyback
program for such number of its listed shares of common stock as are
equal to US$ 1,000,000. 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 December 31, 2020, the Company purchased 268,013 shares of
common stock for an aggregate value of $950,330. The Company
estimates the program will be completed by the end of H1 2021.
18. Subsequent events
Dividend
In recognition of Somero's strong performance and the Board of
Directors' confidence in the continued growth of the Company, the
Board approved a dividend payout ratio of 50% of adjusted net
income and is pleased to announce a final 2021 dividend of 12.81 US
cents per share that will be payable on April 30, 2021 to
shareholders on the register at April 9, 2021. Together with the
interim dividend paid in October 2020 of 4.00 US cents per share,
this represents a full year regular dividend to shareholders of
16.81 US cents per share. In addition, due to the strength of the
Company's cash position at the end of 2020, and upon the review of
anticipated future cash requirements for the business, the Board of
Directors' has approved a supplemental dividend of 18.10 US cents
per share that will be paid together with the final 2020 dividend
on April 30, 2021 to shareholders on the register at April 9, 2021.
The combined dividend payment on April 30, 2021 will total 30.91 US
cents per share, representing a total dividend payment of US$
17.3m.
Distribution amount: $0.3091 cents per share
Ex-dividend date: 8 April 2021
-----------------------
Dividend record date: 9 April 2021
-----------------------
Final day for currency election: 23 April 2021
-----------------------
Payment date: 30 April 2021
-----------------------
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.
All dividends, including both ordinary and supplemental, 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 Computhershare Investor Services PLC at
https://www-uk.computershare.com/investor/formscatalogue.asp . 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 .
Equity bonus plan
In January 2021, the Board approved the 2020 Equity Bonus Plan,
under which eligible senior managers can elect to receive up to
100% of their 2020 annual performance bonus in shares of common
stock. The Company expects to issue shares for awards under the
2020 Equity Bonus Plan in 2021.
Share buyback
In February 2021, the Board approved a share buyback program,
pursuant to which, the Board intends to carry out an on market
buyback of such number of its listed shares of common stock as are
equal to US$ 1,000,000. The purpose of the program is to mitigate
future dilution resulting from share issuances under the Company's
equity award programs. The Company estimates that the program will
be fulfilled by the end of 2021.
Annual General Meeting
The Annual General Meeting of Stockholders (the "AGM") of the
Company will be held at 14530 Global Parkway, Fort Myers, FL 33913
USA on June 15, 2021 at 9:00 am local time. The notice of the AGM
shall be released with the Annual Report and shall include
instructions for remote participation. Stockholders of record at
the close of business on April 19, 2021 will be entitled to receive
notice of, and vote at, the AGM.
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END
FR UKRKRAUUORAR
(END) Dow Jones Newswires
March 10, 2021 02:00 ET (07:00 GMT)
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