SigmaTron International(SGMA) - 2025 Q2 - Quarterly Report

Financial Performance - Net loss for the three-month period ended October 31, 2024, was $9,466,669, a decrease of $9,494,931 compared to a net income of $28,262 for the same period in the prior fiscal year [183]. - The Company reported a net loss of $12,755,829 for the six-month period ended October 31, 2024, a decrease of $13,046,190 compared to net income of $290,361 for the same period in the prior fiscal year [186]. - Net sales for the three months ended October 31, 2024, decreased by $23,972,324, or -24.3%, to $74,719,360 compared to $98,691,684 for the same period in the prior fiscal year [200]. - Net sales for the six months ended October 31, 2024, decreased by $37,325,702, or -19.0%, to $159,496,338 compared to $196,822,040 for the same period in the prior fiscal year [205]. - Gross profit margin for the three months ended October 31, 2024, was 9.2%, down from 9.8% for the same period in the prior fiscal year [202]. - Gross profit margin for the six months ended October 31, 2024, was 8.3%, down from 9.8% for the same period in the prior fiscal year [207]. Expenses and Costs - Selling and administrative expenses decreased by $243,123, or 3.7%, to $6,370,511, representing 8.5% of net sales for the three-month period ended October 31, 2024 [179]. - Selling and administrative expenses decreased by $462,062, or -3.4%, to $12,994,377 for the six months ended October 31, 2024 [209]. - Cost of products sold for the three months ended October 31, 2024, decreased by $21,188,773, or -23.8%, to $67,815,156, representing 90.8% of net sales [201]. - Cost of products sold for the six months ended October 31, 2024, decreased by $31,296,125, or -17.6%, to $146,186,940, which is 91.7% of net sales [206]. Interest and Tax Expenses - Interest expense, net, increased to $4,701,108 for the three-month period ended October 31, 2024, compared to $2,708,696 for the same period in the prior fiscal year [181]. - Interest expense, net, increased to $6,969,383 for the six months ended October 31, 2024, compared to $5,427,774 for the same period in the prior fiscal year [211]. - Income tax expense increased by $4,329,588 to $4,673,254 for the three-month period ended October 31, 2024, with an effective tax rate of (61.46)% [182]. - Income tax expense increased by $5,285,936 to $5,475,467 for the six months ended October 31, 2024, compared to $189,531 for the same period in the prior fiscal year [243]. Cash Flow and Financing - Cash flow provided by operating activities decreased to $12,931,640 for the six months ended October 31, 2024, down from $15,766,616 in the prior fiscal year, primarily due to a decrease in inventory of $12,798,326 [190]. - Cash used in financing activities was $10,657,216 for the six months ended October 31, 2024, primarily due to net payments under the line of credit and term loan agreement [250]. - Cash flow provided by operating activities was $15,766,616 for the six months ended October 31, 2023, primarily due to a decrease in inventory of $19,214,849 and accounts receivable of $5,244,132 [248]. Debt and Liabilities - The Company has reduced its debt by selling assets and reducing workforce, and is exploring additional activities to further reduce its debt load [188]. - The TCW Term Loan has a principal amount of $40,000,000, with an outstanding balance of $38,245,241 as of October 31, 2024 [222]. - The Revolving Commitment was reduced from $70 million to $55 million as part of the 2024 Amendments [228]. - The Company is obligated to meet certain debt ratios by August 31, 2025 or find a Replacement Transaction by September 30, 2025 [246]. - The Company was not in compliance with financial covenants as of August 19, 2024, with the Fixed Charge Coverage Ratio being less than 1.10:1.00 and the Total Debt to EBITDA Ratio exceeding 4.50:1.00 for the twelve-month period ending April 30, 2024 [258]. Compliance and Internal Controls - The Company has identified a material weakness in its internal controls related to revenue recognition, which continues to exist as of October 31, 2024 [239]. - The Company received a delinquency notification from Nasdaq on August 16, 2024, for failing to timely file its Form 10-K annual report for the fiscal year ended April 30, 2024, which constituted a default under the Credit Agreements [259]. - The Company entered into waivers with JPM and TCW on April 28, 2023, to address non-compliance with financial covenants, including modifications to the definition of EBITDA [257]. Asset Management - The Company’s right-of-use assets for operating leases increased to $10,090,512 as of October 31, 2024, compared to $7,463,301 as of April 30, 2024 [165]. - The Company’s operating lease current liabilities increased to $3,155,101 as of October 31, 2024, compared to $2,789,107 as of April 30, 2024 [165]. - The Company executed a sale/leaseback transaction for its principal facility in December 2024, with a sale price of $9,500,000 intended to reduce debt [194]. - The Company recorded a liability of $2,263,000 for warrants classified as a derivative liability, which were valued at $2,889,000 as of October 31, 2024 [264]. Foreign Operations - The Company incurred net foreign currency transaction losses of $767,167 for the six-month period ended October 31, 2024, compared to losses of $461,859 for the same period in the prior year [268]. - The Company paid approximately $28,440,000 to its foreign subsidiaries for manufacturing services during the six months of fiscal year 2025 [268].