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 2023 amount included a 7% increase in general and administrative expenses which were primarily related to higher compensation. The 40% increase in R&D expense was attributable to higher compensation and outside consulting plus additional materials and supplies. Marketing and sales expenses increased 24% due to higher compensation, the launch of online marketing programs, and exhibiting at a greater number of industry 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% due to higher outside consulting and compensation expenses. The 18% increase in marketing and sales was attributable to higher compensation, travel expenses related to exhibiting at a major international photonics trade show, and an addition to sales staff.
Interest (income)/expense, net
Interest income, net was $112,891 for the first half of 2023 compared to interest expense, net of $12,262 a year ago. For the 2023 second quarter interest income, net was $63,914 versus interest expense, net of $5,769 the prior year. Both periods in 2023 benefited from investments of approximately $2 million in marketable securities during the 2022 fourth quarter plus 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 was 22.4% and 22.0%, for the first half and second quarter of 2023, respectively, compared to 21.7% for the 2022 calendar year.
Net income
Net income of $1,049,379 for the six months ended June 30, 2023, was flat compared to the prior year which represents net income of $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 investments
Cash on hand was $5.1 million on June 30, 2023, compared to $3.9 million on December 31, 2022, an increase of 29%. There was also approximately $2.0 million of investments in marketable securities on both dates referenced above. The increase in cash on hand during the first six months of 2023 was due to net cash provided by operating activities partially offset by investment in the Company's manufacturing footprint and acquisition of production equipment.
Debt outstanding
Total debt outstanding, comprised entirely of finance lease obligations, was $96,564 on June 30, 2023, representing a decrease of 34% compared to $146,516 on December 31, 2022. Principal payments of $49,951 were made during the first half of 2023.
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.
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.
Contact:
Robert Lentz
Tel: (614) 439-6006
SCI ENGINEERED MATERIALS, INC. 