COLUMBUS, Ohio (July 28, 2023) – SCI Engineered Materials, Inc. (“SCI”) (SCIA: OTCQB), today reported financial results for the three months and six months ended June 30, 2023. SCI is a global supplier and manufacturer of advanced materials for physical vapor deposition thin film applications who works closely with end users and OEMs to develop innovative, customized solutions.
Jeremy Young, President, and Chief Executive Officer, commented, “Strong revenue growth in the second quarter and first half of 2023 was driven by record volume. These increases benefited from higher sales to customers in multiple niche markets as the Company continues to implement its growth strategy. New product offerings and targeted marketing initiatives are gaining traction as we continue to increase SCI’s corporate visibility and customer recognition of our manufacturing capabilities. We entered the second half of 2023 with sales momentum and a stronger balance sheet which included a 29% increase in cash since 2022 year-end.”
Revenue
Revenue for the first six months of 2023 increased 12% to $13,254,837 from $11,831,437 last year. The 2023 second quarter revenue increased 15% to a record $7,457,690 from $6,505,005 for the same period in 2022. The double-digit increases for both periods in 2023 were due to record volume which more than offset lower raw material costs compared to last year.
Order backlog was approximately $4.5 million on June 30, 2023, versus $4.1 million at 2022 year-end and $5.3 million on the same date last year. Customer orders, which included a substantial number of intra-quarter shipments, accelerated throughout the first six months of 2023.
Gross Profit
Gross profit for the six months ended June 30, 2023, increased 9% to $2,578,207 from $2,371,769 in 2022. The 2023 second quarter gross profit decreased 9% to $1,253,610 from $1,377,668 for the same period last year due to the combined effect of change in product mix and lower raw material costs.
Operating Expenses
Operating expenses (general and administrative, research and development (R&D), and marketing and sales) increased 15% to $1,339,163 for the first half of 2023 from $1,166,033 a year ago. The increase was primarily driven by a 7% increase in general and administrative expenses (mainly higher compensation), a 40% increase in R&D expense, and a 24% increase in marketing and sales expenses (due to compensation, online marketing, and trade shows).
For the 2023 second quarter, operating expenses increased 6% to $661,819 from $623,626 a year ago. General and administrative expenses were flat, while R&D increased 25% and marketing and sales increased 18%.
Interest (Income)/Expense, Net
Net interest income was $112,891 for the first half of 2023 compared to net interest expense of $12,262 a year ago. For the 2023 second quarter, net interest income was $63,914 versus net interest expense of $5,769 the prior year. Both periods in 2023 benefited from approximately $2 million invested in marketable securities and an increase in interest rates.
Income Taxes
Income tax expense increased to $302,556 for the first six months of 2023 from $144,200 for the same period a year ago. The 2023 second quarter income tax expense was $144,346 compared to $83,400 last year. The effective tax rate for the first half and second quarter of 2023 was 22.4% and 22.0%, respectively.
Net Income
Net income of $1,049,379 for the six months ended June 30, 2023, was flat compared to the prior year, representing $0.23 per share for both periods. The 2023 second quarter net income was $511,359, or $0.11 per share, compared to $664,873, or $0.15 per share, for the same period last year primarily due to lower gross profit and higher income tax expense.
Cash and Debt
Cash on hand was $5.1 million on June 30, 2023, an increase of 29% since December 31, 2022. There was also approximately $2.0 million of investments in marketable securities on both dates. The cash increase was due to net cash provided by operating activities, partially offset by investment in manufacturing equipment.
Total debt outstanding (finance lease obligations) was $96,564 on June 30, 2023, a decrease of 34% compared to $146,516 on December 31, 2022.
About SCI Engineered Materials, Inc.
SCI Engineered Materials is a global supplier and manufacturer of advanced materials for PVD thin film applications who works closely with end users and OEMs to develop innovative, customized solutions. Additional information is available at www.sciengineeredmaterials.com or follow SCI Engineered Materials, Inc. at:
https://www.linkedin.com/company/sci-engineered-materials.-inc https://www.facebook.com/sciengineeredmaterials/ https://www.twitter.com/SciMaterials
Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, customer guidance, forecasts, plans of the Company and its management. These forward-looking statements involve numerous risks and uncertainties, including without limitation, other risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. One or more of these factors have affected and could affect the Company’s projections in the future. Therefore, there can be no assurances that the forward-looking statements included in this press release will prove to be accurate. Due to the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other persons, that the objectives and plans of the Company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.