COLUMBUS, Ohio (November 2, 2020) SCI Engineered Materials, Inc. (“SCI”) (SCIA: OTCQB), 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, today reported financial results for the three months and nine months ended September 30, 2020.
Jeremy Young, President and Chief Executive Officer, stated, “We achieved profitable results for the third quarter 2020 following several months of challenges related to COVID-19 issues. Customer orders, which began to improve in April, continued to increase throughout the third quarter. Our photonics business is benefiting from this positive development plus the addition of customers in complementary niche markets such as defense. Our growth strategy is focused on further diversification of SCI’s customer base and markets served. We exited the third quarter positioned to achieve sequential quarterly improvement in our financial performance.”
Mr. Young added, “During this past year we adapted to several challenges related to the COVID-19 global pandemic. These efforts included ensuring a safe work environment, maintaining virtual contact with our customers, developing more efficient production methods, and pursuing innovative ways to continue implementing our growth strategy. These and other initiatives were successful due to the dedicated efforts of all our emp1loyees.”
Financial Highlights
Revenue
For the three months and nine months ended September 30, 2020, total revenue was adversely impacted by lower volume, pricing and COVID-19 related issues compared to the same periods in 2019. Total revenue decreased 25% to $\text{\$7,539,460}$ for the first nine months of 2020 from $\text{\$10,012,187}$ a year ago. For the third quarter 2020, total revenue was $\text{\$1,494,078}$ versus $\text{\$3,255,201}$ in 2019, a decrease of 54%.
Order backlog was $\text{\$3.6 million}$ on September 30, 2020 and June 30, 2020. A $\text{\$1.0 million}$ net increase in orders from photonics customers during the third quarter 2020 was offset by management’s decision to reduce previously reported backlog by $\text{\$1.0 million}$.
Gross Profit
The decline in gross profit for the first nine months of 2020, compared to a year ago, was attributable to lower revenue. Gross profit decreased 24% for the 2020 year-to-date period to $\text{\$1,406,261}$ from $\text{\$1,849,491}$ last year. For the third quarter 2020, gross profit was $\text{\$459,139}$ versus $\text{\$458,920}$ last year. Gross margin for the three months ended September 30, 2020, was 30.7% compared to 14.1% a year ago due to pricing, product mix and improved manufacturing efficiency.
As the Company implements its growth strategy in complementary niche markets it is anticipated that gross margin, which was 18.7% for the 2020 year-to-date period, will improve although it will continue to be influenced by product mix and price fluctuation of a high priced, low margin raw material for the foreseeable future.
Operating Expenses
Operating expenses (general and administrative expense, research and development expense, and marketing and sales expense) decreased 15% to $\text{\$1,223,459}$ for the 2020 year-to-date period from $\text{\$1,442,519}$ a year ago. The most significant decrease occurred in general and administrative expense, due to the Company’s executive management transition which was completed mid-year 2019. Marketing and sales expense decreased $\text{\$57,404}$ for the first nine months of 2020 due to cancellation of in person tradeshows and limited travel.
For the third quarter 2020, operating expenses were flat versus last year.
Concerning research and development initiatives, we continue to invest in developing new applications for our markets, including electrically conductive Zinc Tin Oxide for Thin Film Solar, Architectural Glass and Thin-Film Transistors. Specialty materials are being researched for use in niche markets such as additive manufacturing.
EBITDA*
Earnings before interest, income taxes, depreciation, and amortization (EBITDA) decreased to $\text{\$521,418}$ for 2020 year-to-date period from $\text{\$777,078}$ a year ago. EBITDA increased to $\text{\$177,493}$ for the three months ended September 30, 2020, from $\text{\$163,493}$ in 2019.
Income Applicable to Common Stock
Income applicable to common stock was $\text{\$142,361}$, $\text{\$0.03}$ per share, for the first nine months of 2020, versus $\text{\$365,978}$, $\text{\$0.08}$ per share, the prior year. Third quarter 2020 income applicable to common stock was $\text{\$52,461}$, $\text{\$0.01}$ per share, compared to $\text{\$56,294}$, $\text{\$0.01}$ per share, a year ago.
Cash and Total Debt Outstanding
Cash on hand on September 30, 2020, was a record $\text{\$2,503,908}$, representing a 37% increase compared to $\text{\$1,828,397}$ on December 31, 2019. This increase included funds received in April 2020 from a $\text{\$325,300}$ unsecured promissory note pursuant to the U.S. government’s Paycheck Protection Program.
Total debt outstanding was $\text{\$771,870}$ on September 30, 2020, compared to $\text{\$223,835}$ on December 31, 2019. This increase included the $\text{\$325,300}$ unsecured promissory note and a $\text{\$307,000}$ finance lease agreement for manufacturing equipment.
About SCI Engineered Materials, Inc.
SCI Engineered Materials is a global supplier and manufacturer of advanced materials for PVD thin film applications that works closely with end user and OEMs to develop innovative, customized solutions. Additional information is available at www.sciengineeredmaterials.com or follow SCI Engineered Materials, Inc. at:
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*Note Regarding Non-GAAP Financial Measure
*A reconciliation of the differences between the GAAP and non-GAAP financial measure of EBITDA as used in this release with the most directly comparable GAAP financial measures is included in the financial schedules that are a part of this release. This non-GAAP financial measure is intended to supplement and should be read together with our financial results. It should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on this non-GAAP financial measure.
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, the Company is positioned to achieve sequential quarterly improvement in its financial performance, and as the Company implements its growth strategy anticipation that gross margin will improve from the 2020 year-to-date percentage. 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, 2019. One or more of these factors have affected, and could in the future affect, the Company’s projections. 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.