SIFCO Industries(SIF) - 2025 Q2 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited consolidated condensed financial statements and related notes for SIFCO Industries, Inc. for the periods ended March 31, 2025 and 2024 Consolidated Condensed Statements of Operations This statement details the company's revenues, expenses, and net loss for the three and six months ended March 31, 2025 and 2024 Three Months Ended March 31, 2025 vs. 2024 (Amounts in thousands) | Metric | 2025 | 2024 | Change | % Change | | :----------------------------------- | :----- | :----- | :----- | :------- | | Net sales | $19,027 | $20,515 | $(1,488) | -7.25% | | Gross profit | $1,570 | $1,494 | $76 | 5.09% | | Operating loss | $(781) | $(1,329) | $548 | -41.23% | | Loss from continuing operations | $(1,322) | $(2,232) | $910 | -40.77% | | Net loss | $(1,392) | $(1,590) | $198 | -12.45% | | Basic and diluted loss per share | $(0.23) | $(0.27) | $0.04 | -14.81% | Six Months Ended March 31, 2025 vs. 2024 (Amounts in thousands) | Metric | 2025 | 2024 | Change | % Change | | :----------------------------------- | :----- | :----- | :----- | :------- | | Net sales | $39,910 | $35,989 | $3,921 | 10.90% | | Gross profit | $2,498 | $949 | $1,549 | 163.22% | | Operating loss | $(2,693) | $(4,977) | $2,284 | -45.89% | | Loss from continuing operations | $(3,744) | $(6,302) | $2,558 | -40.59% | | Net loss | $(3,708) | $(5,013) | $1,305 | -26.03% | | Basic and diluted loss per share | $(0.61) | $(0.84) | $0.23 | -27.38% | Consolidated Condensed Statements of Comprehensive Income (Loss) This statement presents the net loss and other comprehensive income or loss components for the three and six months ended March 31, 2025 and 2024 Three Months Ended March 31, 2025 vs. 2024 (Amounts in thousands) | Metric | 2025 | 2024 | Change | | :------------------------------------ | :------- | :------- | :----- | | Net loss | $(1,392) | $(1,590) | $198 | | Other comprehensive income (loss): | | | | | Foreign currency translation adjustment, net of tax | — | $(128) | $128 | | Retirement plan liability adjustment, net of tax | $22 | $43 | $(21) | | Comprehensive (loss) income | $(1,370) | $(1,675) | $305 | Six Months Ended March 31, 2025 vs. 2024 (Amounts in thousands) | Metric | 2025 | 2024 | Change | | :------------------------------------ | :------- | :------- | :------- | | Net loss | $(3,708) | $(5,013) | $1,305 | | Other comprehensive income (loss): | | | | | Reclassification of foreign translation adjustments to net loss | $5,554 | — | $5,554 | | Retirement plan liability adjustment, net of tax | $45 | $86 | $(41) | | Comprehensive (loss) income | $1,889 | $(4,801) | $6,690 | Consolidated Condensed Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity as of March 31, 2025 and September 30, 2024 As of March 31, 2025 vs. September 30, 2024 (Amounts in thousands) | Metric | March 31, 2025 | September 30, 2024 | Change | % Change | | :----------------------------------- | :------------- | :----------------- | :----- | :------- | | Total current assets | $38,099 | $54,323 | $(16,224) | -29.87% | | Total assets | $78,829 | $104,624 | $(25,795) | -24.65% | | Total current liabilities | $30,391 | $54,010 | $(23,619) | -43.73% | | Total liabilities and shareholders' equity | $78,829 | $104,624 | $(25,795) | -24.65% | | Total shareholders' equity | $32,367 | $30,425 | $1,942 | 6.38% | Consolidated Condensed Statements of Cash Flows This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the six months ended March 31, 2025 and 2024 Six Months Ended March 31, 2025 vs. 2024 (Amounts in thousands) | Metric | 2025 | 2024 | Change | | :------------------------------------------ | :------- | :------- | :------- | | Net cash used for operating activities | $(970) | $(2,908) | $1,938 | | Net cash used for investing activities | $(263) | $(1,155) | $892 | | Net cash (used for) provided by financing activities | $(13,074) | $4,029 | $(17,103) | | Net cash provided by discontinued operations | $13,506 | $413 | $13,093 | | (Decrease) increase in cash and cash equivalents | $(801) | $379 | $(1,180) | | Cash and cash equivalents from continuing operations at end of period | $1,922 | $218 | $1,704 | Consolidated Condensed Statements of Shareholders' Equity This statement details changes in the company's shareholders' equity components between September 30, 2024, and March 31, 2025 Shareholders' Equity as of March 31, 2025 vs. September 30, 2024 (Amounts in thousands) | Metric | March 31, 2025 | September 30, 2024 | Change | | :------------------------------------ | :------------- | :----------------- | :----- | | Common Shares (Amount) | $6,190 | $6,158 | $32 | | Additional Paid-In Capital | $11,796 | $11,775 | $21 | | Retained Earnings | $14,173 | $17,881 | $(3,708) | | Accumulated Other Comprehensive Income (Loss) | $208 | $(5,389) | $5,597 | | Total Shareholders' Equity | $32,367 | $30,425 | $1,942 | Notes to Unaudited Consolidated Condensed Financial Statements This section provides detailed explanations and disclosures for the significant accounting policies and financial statement line items Note 1. Summary of Significant Accounting Policies This note describes the foundational accounting principles and recent accounting pronouncements impacting the company's financial reporting - The Company's financial statements are consolidated and reflect the sale of its European operations (CBlade) in October 2024, with CBlade's results presented as discontinued operations retrospectively[20][21][22] - The U.S. dollar is the functional currency for all U.S. and non-operating non-U.S. subsidiaries. Prior to the CBlade sale, the Euro was the functional currency for other non-U.S. subsidiaries[23] - Recent accounting standards issued by FASB, ASU 2025-01 (Expense Disaggregation), ASU 2023-07 (Segment Reporting), and ASU 2023-09 (Income Tax Disclosures), are being assessed for their impact on the Company's financial statements, with ASU 2023-07 not anticipated to have a significant impact[29][30][31] Note 2. Discontinued Operations This note details the sale of the company's European operations and its financial impact on the consolidated statements - The Company completed the sale of its European operations (CBlade S.p.A.) in October 2024 for approximately $14.5 million cash, net of transaction costs, to streamline operations and refocus on core aerospace forging business[35][36] - The CBlade sale resulted in the recognition of a $5.851 million cumulative translation adjustment loss in the statement of operations, as European operations were substantially liquidated[37][38] Operating Results for Discontinued Operations (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $— | $6,028 | $622 | $11,606 | | Income from discontinued operations before income tax expense and gain on sale | $— | $685 | $214 | $1,376 | | (Loss) income from discontinued operations, net of tax | $(70) | $642 | $36 | $1,289 | Note 3. Inventories This note provides a breakdown of inventory components and valuation methods Inventories, Net (Amounts in thousands) | Category | March 31, 2025 | September 30, 2024 | | :---------------------- | :------------- | :----------------- | | Raw materials and supplies | $1,802 | $1,044 | | Work-in-process | $2,459 | $3,419 | | Finished goods | $1,937 | $1,767 | | Total inventories, net | $6,198 | $6,230 | - Approximately 40% of inventories as of March 31, 2025, and 30% as of September 30, 2024, are valued using the LIFO method. If FIFO were used for LIFO inventories, total inventories would be $10,360 thousand higher at March 31, 2025[40] Note 4. Accumulated Other Comprehensive Income (Loss) This note details the components of accumulated other comprehensive income or loss, including foreign currency translation adjustments Components of Accumulated Other Comprehensive Income (Loss) (Amounts in thousands) | Component | March 31, 2025 | September 30, 2024 | | :------------------------------------ | :------------- | :----------------- | | Foreign currency translation adjustment | $— | $(5,554) | | Retirement plan liability adjustment, net of tax | $208 | $163 | | Interest rate swap agreement, net of tax | $— | $2 | | Total accumulated other comprehensive income (loss) | $208 | $(5,389) | - During the six months ended March 31, 2025, $5,554 thousand from foreign currency translation adjustment was reclassified to income from discontinued operations due to the CBlade disposition and liquidation of European operations[41] Note 5. Leases This note presents information on lease expenses, lease assets, and lease liabilities Total Lease Expense (Amounts in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended March 31, | $445 | $431 | | Six Months Ended March 31, | $887 | $862 | Lease Liabilities (Amounts in thousands) | Category | March 31, 2025 | September 30, 2024 | | :------------------------------------ | :------------- | :----------------- | | Total lease assets | $13,015 | $13,330 | | Total lease liabilities | $13,635 | $13,914 | | Weighted-average remaining lease term (Operating leases) | 11.3 years | 11.7 years | | Weighted-average discount rate (Operating leases) | 5.9% | 5.9% | Note 6. Debt This note outlines the company's debt composition, new loan agreements, and compliance with loan covenants Debt Composition (Amounts in thousands) | Category | March 31, 2025 | September 30, 2024 | | :------------------------------------ | :------------- | :----------------- | | Revolving credit agreement | $8,959 | $20,142 | | Term loan | $2,682 | $— | | Promissory note — related party | $— | $3,510 | | Total debt | $12,122 | $24,005 | | Total long-term debt | $74 | $— | - On October 17, 2024, the Company entered into a new Loan and Security Agreement providing a $20 million revolving credit facility and a $3 million term loan, maturing October 17, 2027. Proceeds were used to repay previous debt and for working capital[46][47][48] - The Term Loan and Revolver are classified as current maturities due to a subjective acceleration clause related to collateral value. As of March 31, 2025, the Company was in compliance with all loan covenants and had $2.595 million available under the Revolver[53][54] Note 7. Income Taxes This note discusses the effective tax rate and factors contributing to its difference from the U.S. federal statutory rate - The effective tax rate for the first six months of fiscal 2025 was (2.16)%, a decrease from (0.17)% in the prior year, primarily due to changes in the jurisdictional mix of income[60] - The effective tax rate differs from the U.S. federal statutory rate mainly due to a valuation allowance against U.S. deferred tax assets and income in foreign jurisdictions taxed at different rates[60] Note 8. Retirement Benefit Plans This note provides details on net periodic pension costs and cash contributions to defined benefit pension plans Net Periodic Pension Cost (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Service cost | $43 | $45 | $87 | $90 | | Interest cost | $236 | $271 | $472 | $542 | | Expected return on plan assets | $(264) | $(260) | $(529) | $(521) | | Amortization of net loss | $22 | $43 | $45 | $86 | | Net periodic pension cost | $37 | $99 | $75 | $197 | - The Company made $95 thousand in cash contributions to its defined benefit pension plans during the first six months of fiscal 2025, compared to $18 thousand in the prior year[62] Note 9. Stock-Based Compensation This note outlines stock-based compensation grants, expense, and unrecognized compensation costs - During the first six months of fiscal 2025, the Company granted 47 time-based restricted shares to non-employee directors and 10 time-based restricted shares to key employees under the 2016 Plan[64][65] Stock-Based Compensation Expense (Amounts in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended March 31, | $67 | $84 | | Six Months Ended March 31, | $88 | $171 | - As of March 31, 2025, there was $273 thousand of total unrecognized compensation cost related to performance and restricted shares, expected to be recognized over the next 1.2 years[67] Note 10. Revenue This note describes the company's primary product offerings and revenue breakdown by end market - The Company produces forged and machined components primarily for turbine engines (commercial, business, regional, military aircraft), airframe applications, industrial gas/steam turbine engines, and commercial space/semiconductor applications[68] Revenue by End Market (Amounts in thousands) | End Market | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Fixed wing aircraft | $14,381 | $10,080 | $27,226 | $20,019 | | Rotorcraft | $2,929 | $4,197 | $6,324 | $7,347 | | Commercial space | $593 | $4,027 | $3,041 | $5,360 | | Energy components for power generation units | $686 | $442 | $1,713 | $1,055 | | Commercial product and other revenue | $438 | $1,769 | $1,606 | $2,208 | | Total | $19,027 | $20,515 | $39,910 | $35,989 | - Approximately 57% of total net sales for the six months ended March 31, 2025, were recognized over time due to continuous transfer of control to the customer, compared to 53% in the prior year[72] Note 11. Commitments and Contingencies This note addresses the company's involvement in legal actions and its assessment of their materiality - The Company is involved in ordinary legal actions but does not believe any are material to its financial condition or results of operations. It maintains various liability insurance coverages[77] Note 12. Related Party Transactions This note details the repayment of outstanding amounts under a secured subordinated loan from a related party - In October 2024, the Company repaid all outstanding amounts under its secured subordinated loan from Garnet Holdings, Inc. (GHI), a related party, including accrued paid-in-kind interest and fees totaling $880 thousand and $150 thousand respectively[78] Note 13. Business Information This note provides updates on the company's collective bargaining agreements with its labor unions - The Company reached an agreement on a new Collective Bargaining Agreement (CBA) with IAM for its Cleveland bargaining unit 1, effective May 15, 2025. Negotiations are ongoing with IBB for the second bargaining unit, with a new agreement anticipated in Q3 fiscal 2025[79][80][81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial performance, condition, liquidity, and capital resources for the periods presented - The Company primarily produces forgings and machined components for the aerospace and energy (A&E) and commercial space markets, operating under one business segment[83] - Higher net sales volumes are expected to result in greater operating income due to leveraging the fixed component of the cost structure[85] A. Results of Operations This subsection analyzes the company's operational performance, including sales, gross profit, and net loss, for the periods presented Overview This overview describes the company's core manufacturing activities and key end markets - The Company manufactures forged components for turbine engines (commercial, business, military aircraft), airframe applications, industrial gas/steam turbine engines, and commercial space/semiconductor applications[86] CBlade Sale This section discusses the strategic sale of European operations and its impact on financial reporting - In October 2024, the Company sold its European operations (CBlade S.p.A.) to streamline operations and refocus on its core aerospace forging business. Financial statements have been retrospectively adjusted to present CBlade as discontinued operations[87][88][89] Backlog of Orders This section provides an overview of the company's order backlog and its drivers Backlog of Orders (Amounts in millions) | Metric | March 31, 2025 | March 31, 2024 | | :------------------------------------ | :------------- | :------------- | | Total backlog | $129.2 | $122.9 | | Anticipated to be complete within 12 months | $98.9 | N/A | - The increase in backlog is primarily attributed to recovery in the aerospace markets[90] Three Months Ended March 31, 2025 compared with Three Months Ended March 31, 2024 This section analyzes the financial performance for the three-month period, highlighting changes in sales, gross profit, and operating loss Net Sales by End Market (Amounts in millions) | End Market | 2025 | 2024 | Increase/(Decrease) | | :------------------------------------ | :--- | :--- | :------------------ | | Fixed wing aircraft | $14.4 | $10.1 | $4.3 | | Rotorcraft | $2.9 | $4.2 | $(1.3) | | Commercial space | $0.6 | $4.0 | $(3.4) | | Energy components for power generation units | $0.7 | $0.4 | $0.3 | | Commercial product and other revenue | $0.4 | $1.8 | $(1.4) | | Total Net Sales | $19.0 | $20.5 | $(1.5) | - Net sales decreased by $1.5 million to $19.0 million, primarily due to delays in commercial space programs and timing of rotorcraft and munitions orders, partially offset by higher demand in fixed-wing aircraft[91] - Gross profit increased slightly by $0.1 million to $1.6 million, driven by lower COGS and a favorable product mix, despite decreased sales volume[93][94] - SG&A expenses decreased by $0.4 million to $2.4 million, mainly due to lower employee-related expenses and reduced spending on cost reduction initiatives and legal/strategic alternative expenses[95] - Loss from continuing operations improved by $1.0 million to $1.2 million, attributed to gross margin improvements, lower SG&A, and reduced interest expense[98] Six Months Ended March 31, 2025 compared with Six Months Ended March 31, 2024 This section analyzes the financial performance for the six-month period, detailing changes in sales, gross profit, and operating loss Net Sales by End Market (Amounts in millions) | End Market | 2025 | 2024 | Increase/(Decrease) | | :------------------------------------ | :--- | :--- | :------------------ | | Fixed wing aircraft | $27.2 | $20.0 | $7.2 | | Rotorcraft | $6.3 | $7.3 | $(1.0) | | Commercial space | $3.1 | $5.4 | $(2.3) | | Energy components for power generation units | $1.7 | $1.1 | $0.6 | | Commercial product and other revenue | $1.6 | $2.2 | $(0.6) | | Total Net Sales | $39.9 | $36.0 | $3.9 | - Net sales increased by $3.9 million to $39.9 million, primarily driven by higher demand in fixed-wing aircraft and growth in steam turbine markets, partially offset by declines in commercial space and rotorcraft[99] - Gross profit increased significantly by $1.6 million to $2.5 million, due to higher sales volume and a favorable product mix[101][102] - SG&A expenses decreased by $0.7 million to $5.2 million, mainly due to lower general operating expenses, employee-related costs, and legal/strategic alternative costs[103] - Loss from continuing operations improved by $2.6 million to $3.7 million, attributed to higher sales volumes, improved gross margins, lower SG&A, and reduced interest expense[106] Non-GAAP Financial Measures (EBITDA and Adjusted EBITDA) This section provides a reconciliation and explanation of non-GAAP financial measures, EBITDA and Adjusted EBITDA - EBITDA and Adjusted EBITDA are non-GAAP measures used by management to evaluate operating performance and prospective acquisitions, but should not be considered in isolation[107][108][109] EBITDA and Adjusted EBITDA Reconciliation (Amounts in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(1,392) | $(1,590) | $(3,708) | $(5,013) | | Loss from continuing operations | $(1,322) | $(2,232) | $(3,744) | $(6,302) | | EBITDA | $370 | $(229) | $(397) | $(2,719) | | Adjusted EBITDA | $(158) | $156 | $(406) | $(1,695) | B. Liquidity and Capital Resources This subsection discusses the company's cash position, liquidity requirements, and sources of capital Overview of Liquidity and Capital Resources This overview outlines the company's cash and cash equivalents, primary liquidity needs, and funding sources Cash and Cash Equivalents (Amounts in millions) | Date | Amount | | :---------------- | :----- | | March 31, 2025 | $1.9 | | September 30, 2024 | $1.7 | - Primary liquidity requirements include working capital, capital expenditures, debt payments, and general corporate needs. Main sources are cash flows from operations and debt agreements[113] - The CBlade sale increased cash on hand, used to repay debt and for operational needs. While CBlade was a material contributor, the Company believes streamlined operations will support domestic growth and satisfy liquidity requirements[114][115] Operating Activities This section analyzes cash flows generated from or used in the company's core operating activities - Operating activities used $970 thousand cash in the first six months of fiscal 2025, primarily due to a $3.744 million net operating loss from continuing operations, partially offset by non-cash adjustments and working capital changes[116] - Operating activities used $2.908 million cash in the first six months of fiscal 2024, mainly due to a $6.302 million net operating loss, partially offset by non-cash adjustments and working capital changes, including a $4.4 million increase in inventory[117] Investing Activities This section details cash flows related to the acquisition and disposal of long-term assets Cash Used for Investing Activities (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Six Months Ended March 31, | $0.3 | $1.2 | - Capital expenditures for the remainder of fiscal 2025 are anticipated to be $1.5 million to $2.0 million, focused on enhancing production, product offerings, and reducing operating costs[118] Financing Activities This section examines cash flows from debt, equity, and dividend transactions Cash Flows from Financing Activities (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------------- | :----- | :--- | | Six Months Ended March 31, | $(13.1) | $4.0 | - The year-over-year decrease in cash from financing activities was primarily due to higher repayments on the revolving credit line and debt refinancing during fiscal 2025[119] - The Company believes it has adequate cash/liquidity from expected cash flows and available funds under its loan and security agreement for domestic operations[121] C. Recent Accounting Standards This subsection addresses the adoption and impact assessment of recently issued accounting standards - No recent accounting standards were adopted during the six months ended March 31, 2025[123] Part II. Other Information This section provides additional disclosures including controls and procedures, risk factors, and exhibits Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were evaluated by the CEO and CFO and concluded to be effective at the reasonable assurance level as of March 31, 2025[124] Changes in Internal Control over Financial Reporting This subsection reports on any material changes to the company's internal control over financial reporting during the quarter - There were no material changes in the Company's internal controls over financial reporting during the most recent fiscal quarter[125] Item 1A. Risk Factors This section updates the risk factors from the Company's 2024 Annual Report, specifically highlighting the potential adverse impact of recently announced U.S. tariffs on aluminum and steel on the Company's business, results of operations, financial position, and cash flows - New U.S. tariffs on aluminum and steel (25% from 10%, effective February 10, 2025) could adversely affect the Company's business by increasing product, component, and raw material costs[128][129] - While the Company does not anticipate a material impact due to primarily U.S.-based production, these tariffs might necessitate renegotiating commercial agreements, increasing product prices, or altering supply procurement markets[130] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments to agreements, certifications from the CEO and CFO, and XBRL financial information - Key exhibits include amendments to the Share Purchase Agreement, Credit Agreement, Export Credit Agreement, and Subordination and Intercreditor Agreement, as well as the new Loan and Security Agreement dated October 17, 2024[132] - Certifications from the Chief Executive Officer and Chief Financial Officer are included pursuant to Rule 13a-14(a) / 15d-14(a) and 18 U.S.C. Section 1350[132] SIGNATURES This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the filing of the report on behalf of SIFCO Industries, Inc. - The report was signed by George Scherff, Chief Executive Officer, and Jennifer Wilson, Chief Financial Officer, on May 15, 2025[136]