What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2025-02-14 · 105 added, 50 removed, 137 unchanged (53% of the section changed)

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(17) investigations, claims, disputes, enforcement actions, litigation and/or other legal proceedings;

and (18) extraordinary or force majeure events affecting the business or operations of our business.

(18) extraordinary or force majeure events affecting the business or operations of our business;

and (19) significant tariffs and other trade measures, including recently announced U.S.

tariffs on aluminum and steel.

The Company engages in the production of forgings and machined components primarily for the A&E and commercial space markets.

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and (iv) commercial space, semiconductor and other commercial applications.

In October 2024, the Company sold its European operations in order to streamline operational synergies and refocus on its core aerospace forging business.

In October 2024, the Company sold its European operations in order to streamline operations and refocus on its core aerospace forging business.

SIFCO Irish Holdings, Ltd., a wholly owned subsidiary of the Company, entered into a Share Purchase Agreement (the “SPA”) pursuant to which it sold 100% of the share capital of C Blade S.p.A.

Forging & Manufacturing, an Italian joint stock company and wholly-owned subsidiary of the Company (“CBlade”), for cash consideration.

As a result of the sale transaction, the Company’s financial statements have been prepared with the net assets of CBlade presented as held for sale as of September 30, 2024, and the results of operations and cash flows of CBlade have been presented as discontinued operations for the three months ended December 31, 2024 and 2023.

All historical statements, amounts and

related disclosures have been retrospectively adjusted to conform to this presentation.

All historical statements, amounts and related

disclosures have been retrospectively adjusted to conform to this presentation.

Refer to Note 2 — Discontinued Operations of the Notes to Unaudited Consolidated Condensed Financial Statements.

Backlog of Orders

SIFCO’s total backlog as of December 31, 2024 was $121.9 million, of which $90.1 million are anticipated to be complete within the next 12 months, compared with total backlog of $104.8 million as of December 31, 2023.

SIFCO’s total backlog as of March 31, 2025 was $129.2 million, of which $98.9 million are anticipated to be complete within the next 12 months, compared with total backlog of $122.9 million as of March 31, 2024.

Orders may be subject to modification or cancellation by the customer with limited charges.

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Backlog information may not be indicative of future sales.

Three Months Ended December 31, 2024 compared with Three Months Ended December 31, 2023

Net sales comparative information for the first three months of fiscal 2025 and 2024 is as follows:

Three Months Ended March 31, 2025 compared with Three Months Ended March 31, 2024

Net sales comparative information for the second quarter of fiscal 2025 and 2024 is as follows:

(Dollars in millions) Three Months Ended

December 31, Increase/ (Decrease)

March 31, Increase/ (Decrease)

Aerospace components for:

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Total $ 19.0 $ 20.5 $ (1.5)

Net sales for the first three months of fiscal 2025 increased $5.4 million to $20.9 million, compared with $15.5 million in the comparable period of fiscal 2024.

Net sales for the second quarter of fiscal 2025 decreased $1.5 million to $19.0 million, compared with $20.5 million in the comparable period of fiscal 2024.

Fixed wing sales increased $4.3 million compared with the same period last year, primarily due to higher demand across most programs.

Rotorcraft sales were slightly higher compared with the same period last year.

Commercial space products increased by $1.1 million year-over-year due to higher demand for staged-combustion engine components.

Rotorcraft sales declined compared with the same period last year primarily due to the timing of orders in the H60 and Osprey V22 programs.

Commercial space products decreased by $3.4 million year-over-year due to delays in commercial launch programs.

Net sales for the energy components for power generation units increased slightly by $0.3 million.

Commercial products and other revenue decreased $1.4 million compared with the same period last year mostly due to the timing of orders related to munitions programs.

Commercial net sales and military net sales were 43.7% and 56.3%, respectively, of total net sales in the second quarter of fiscal 2025, compared with 55.3% and 44.7%, respectively, in the comparable period in fiscal 2024.

Commercial net sales decreased $3.0 million to $8.3 million in the second quarter of fiscal 2025, compared with $11.3 million in the comparable period of fiscal 2024, primarily due to delays in the commercial space market, partially offset by higher demand in the commercial aerospace market.

Military net sales increased by $1.5 million to $10.7 million in the second quarter of fiscal 2025, compared with $9.2 million in the comparable period of fiscal 2024, primarily due to increased demand across multiple programs.

Cost of Goods Sold

Cost of goods sold (“COGS”) decreased by $1.6 million, or (8.2)%, to $17.5 million, or 91.7% of net sales, during the second quarter of fiscal 2025, compared with $19.0 million, or 92.7% of net sales, in the comparable period of fiscal 2024.

The decrease is primarily due to lower sales in the commercial space market and munitions programs, partially offset by higher sales volume and favorable mix of products sold in our fixed wing aircraft sector.

Gross profit increased slightly by $0.1 million to $1.6 million in the second quarter of fiscal 2025, compared with $1.5 million gross profit in the comparable period of fiscal 2024, primarily due to the decreases in sales volume and COGS discussed above and the impact of favorable mix of products sold.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses were $2.4 million, or 12.4% of net sales, during the second quarter of fiscal 2025, compared with $2.8 million, or 13.7% of net sales, in the comparable period of fiscal 2024.

The decrease in SG&A expenses was primarily due to lower employee-related expenses attributable to previous headcount reductions, as well as reduced spend related to cost reduction initiatives and legal and strategic alternative expenses.

Other/General

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreements in the second quarter of fiscal 2025 and 2024:

(Dollars in millions) Weighted Average

Interest Rate

Three Months Ended March 31,

Weighted Average

Outstanding Balance

Three Months Ended March 31,

2025 2024 2025 2024

Revolving credit agreement 9.7 % 8.1 % $ 11.7 $ 16.8

Term loan 10.0 % — % $ 2.8 $ —

Other debt 2.3 % 0.8 % $ 0.4 $ 0.3

Promissory note (related party) — % 13.2 % $ — $ 3.2

The Company’s effective tax rate through the second quarter of fiscal 2025 was (5.9)%, compared with (0.2)% for the same period of fiscal 2024.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2025 compared with the same period of fiscal 2024.

The effective tax rate differs from the U.S.

federal statutory rate due primarily to the valuation allowance against the Company’s U.S.

deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S.

statutory tax rate.

Loss from Continuing Operations

Loss from continuing operations was $1.2 million during the second quarter of fiscal 2025, compared with $2.2 million in the comparable period of fiscal 2024 due to gross margins improvements and lower SG&A expenses discussed above, as well as lower interest expense due to lower average debt outstanding.

Six Months Ended March 31, 2025 compared with Six Months Ended March 31, 2024

Net sales comparative information for the first six months of fiscal 2025 and 2024 is as follows:

(Dollars in millions) Six Months Ended

March 31, Increase/ (Decrease)

Aerospace components for:

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 $ 39.9 $ 36.0 $ 3.9

Net sales for the first six months of fiscal 2025 increased $3.9 million to $39.9 million, compared with $36.0 million in the comparable period of fiscal 2024.

Fixed wing sales increased $7.2 million compared with the same period last year, primarily due to higher demand across most programs.

Rotorcraft sales declined $1.0 million compared with the same period last year primarily due to the timing of orders in the H60 and Osprey V22 programs.

Commercial space products decreased by $2.3 million year-over-year due to delays in commercial launch programs.

Net sales for the energy components for power generation units increased by $0.6 million due to growth in the steam turbine markets.

Commercial products and other revenue increased $0.8 million compared with the same period last year mostly due to the timing of orders related to munitions programs.

Commercial net sales were 53.4% of total net sales and military net sales were 46.6% of total net sales in the first three months of fiscal 2025, compared with 49.5% and 50.5%, respectively, in the comparable period in fiscal 2024.

Commercial net sales increased $3.5 million to $11.2 million in the first three months of fiscal 2025, compared with $7.7 million in the comparable period of fiscal 2024, primarily due to increases in the commercial space and aerospace markets.

Military net sales increased by $1.9 million to $9.7 million in the first three months of fiscal 2025, compared with $7.8 million in the comparable period of fiscal 2024, primarily due to increased demand across multiple programs.

Commercial products and other revenue decreased $0.6 million compared with the same period last year mostly due to the timing of orders related to munitions programs.

Commercial net sales were 48.8% of total net sales and military net sales were 51.2% of total net sales in the first six months of fiscal 2025, compared with 52.8% and 47.2%, respectively, in the comparable period in fiscal 2024.

Commercial net sales increased $0.5 million to $19.5 million in the first six months of fiscal 2025, compared with $19.0 million in the comparable period of fiscal 2024, primarily due to the continued rebound in the aerospace market.

Military net sales increased by $3.4 million to $20.4 million in the first six months of fiscal 2025, compared with $17.0 million in the comparable period of fiscal 2024, primarily due to increased demand across most programs.

Cost of Goods Sold

Cost of goods sold (“COGS”) increased by $3.9 million, or 24.6%, to $20.0 million, or 95.6% of net sales, during the first three months of fiscal 2025, compared with $16.0 million, or 103.5% of net sales, in the comparable period of fiscal 2024.

COGS increased by $2.4 million, or 6.8%, to $37.4 million, or 93.7% of net sales, during the first six months of fiscal 2025, compared with $35.0 million, or 97.4% of net sales, in the comparable period of fiscal 2024.

The increase is primarily due to higher sales volume and favorable mix of products sold.

Gross profit increased $1.5 million to $0.9 million in the first three months of fiscal 2025, compared with $0.5 million gross loss in the comparable period of fiscal 2024, primarily due to the increases in sales volume and COGS discussed above and the impact of favorable mix of products sold, particularly due to growth in the commercial space market.

Gross profit increased $1.6 million to $2.5 million in the first six months of fiscal 2025, compared with $0.9 million gross profit in the comparable period of fiscal 2024, primarily due to the increases in sales volume and COGS discussed above and the impact of favorable mix of products sold.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses were $2.8 million, or 13.6% of net sales, during the first three months of fiscal 2025, compared with $3.1 million, or 20.1% of net sales, in the comparable period of fiscal 2024.

The decrease in SG&A expenses was primarily due to lower general operating expenses, particularly legal and strategic alternative costs, of $0.2 million and lower employee-related costs of $0.1 million.

Selling, general and administrative (“SG&A”) expenses were $5.2 million, or 13.0% of net sales, during the first six months of fiscal 2025, compared with $5.9 million, or 16.5% of net sales, in the comparable period of fiscal 2024.

The decrease in SG&A expenses was primarily due to lower general operating expenses, particularly employee-related costs and legal and strategic alternative costs.

Other/General

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first three months of both fiscal 2025 and 2024:

Weighted Average

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first six months of both fiscal 2025 and 2024:

(Dollars in millions) Weighted Average

Interest Rate

Three Months Ended

December 31, Weighted Average

Six Months Ended March 31,

Weighted Average

Outstanding Balance

Three Months Ended

Six Months Ended March 31,

2025 2024 2025 2024

Revolving credit agreement 9.6 % 7.7 % $ 13.3 million $ 15.6 million

Term loan 10.5 % — % 2.4 million — million

Other debt 8.2 % 1.0 % 0.4 million 0.3 million

Promissory note (related party) — % — % — million 3.2 million

The Company’s effective tax rate through the first three months of fiscal 2025 was (0.21)%, compared with (0.15)% for the same period of fiscal 2024.

Revolving credit agreement 9.7 % 7.9 % $ 12.5 $ 16.2

Term loan 10.2 % — % $ 2.6 $ —

Other debt 5.2 % 0.9 % $ 0.4 $ 0.3

Promissory note (related party) — % 6.6 % $ — $ 3.2

The Company’s effective tax rate through the first six months of fiscal 2025 was (2.2)%, compared with (0.2)% for the same period of fiscal 2024.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2025 compared with the same period of fiscal 2024.

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Loss from Continuing Operations

Loss from continuing operations was $2.4 million during the first three months of fiscal 2025, compared with $4.1 million in the comparable period of fiscal 2024 due to higher sales volumes and gross margins improvements coupled with lower SG&A expenses, partially offset by higher interest expense.

Loss from continuing operations was $3.7 million during the first six months of fiscal 2025, compared with $6.3 million in the comparable period of fiscal 2024 due to higher sales volumes and gross margins improvements coupled with lower SG&A expenses and lower interest expense attributable to lower average debt outstanding during the period.

Non-GAAP Financial Measures

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Three Months Ended

March 31, Six Months Ended

Dollars in thousands 2025 2024 2025 2024

Net loss $ (1,392) $ (1,590) $ (3,708) $ (5,013)

Income from discontinued operations, net of tax 106 647

(Loss) income from discontinued operations, net of tax (70) 642 36 1,289

Loss from continuing operations (1,322) (2,232) (3,744) (6,302)

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EBITDA 370 (229) (397) (2,719)

Foreign currency exchange (gain) loss, net (1)

Foreign currency exchange loss (gain), net (1)

Other expense, net (2)

Gain on disposal of assets (3)

Non-recurring severance expense adjustments (4)

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LIFO impact (6)

(637) 58 (136) 351

IT incident costs, net (7)

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(1) Represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated.

(2) Represents miscellaneous non-operating income or expense, such as pension costs or grant income.

(2) Represents miscellaneous non-operating income or expense, such as pension costs.

(3) Represents the difference between the proceeds from the sale of operating equipment and the carrying value shown on the Company's books.

(4) Represents the equity-based compensation expense recognized by the Company under the 2016 Plan due to granting of awards, awards not vesting and/or forfeitures and executive severance.

(4) Represents credits related to transaction-related legal fees incurred primarily in connection with the unsuccessful acquisition of another company.

(5) Represents credits related to transaction-related legal fees incurred primarily in connection with the unsuccessful attempt in which the Company was the acquisition target.

(6) Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.

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Liquidity and Capital Resources

Cash and cash equivalents were $3.1 million and $1.7 million as of December 31, 2024 and September 30, 2024, respectively.

Cash and cash equivalents were $1.9 million and $1.7 million as of March 31, 2025 and September 30, 2024, respectively.

A nominal amount of the Company’s cash and cash equivalents were in the possession of its non-U.S.

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Historically, the main sources of liquidity of the Company have been cash flows from operations and borrowings under our debt agreements.

As of December 31, 2024, the Company was not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

As of March 31, 2025, the Company was not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

The cash requirements for the upcoming fiscal year relate to payments on our outstanding debt and leases, operating and capital purchase commitments, and expected contributions to our defined benefit and contribution plans.

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Historically, the cash flows from the Company’s CBlade business represented a material portion of the consolidated results of operations, financial condition and cash flows.

Although future contributions from the CBlade business ceased with the execution of the

sale transaction, the Company believes that its streamlined operations will allow management to focus on domestic growth opportunities.

Although future contributions from the CBlade business ceased with the execution of the sale transaction, the Company believes that its streamlined operations will allow management to focus on domestic growth opportunities.

There is no guarantee however that the Company’s continuing operations will sufficiently replace the liquidity and cash flows previously provided by CBlade’s operations.

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Operating Activities

The Company’s operating activities used $3.8 million of cash in the first three months of fiscal 2025, primarily due to net operating loss from continuing operations of $2.4 million partially offset by depreciation and amortization of $1.2 million and change in inventory valuation accounts of $0.3 million and LIFO effect of $0.5 million.

The uses of cash from working capital of $3.5 million was primarily due to decreases in accounts payable and accrued liabilities due to timing of payments, higher prepaid expenses attributable to deferred financing costs related to the refinanced revolver, decreases in contract liabilities due to satisfaction of performance obligations in sales contracts, and higher inventories due to timing of raw material receipts, partially offset by decreases in accounts receivable and contract assets mostly due to timing of receipts and higher billings to customers, respectively.

The Company’s operating activities used $1.5 million of cash in the first three months of fiscal 2024, primarily due to net operating loss of $4.1 million partially offset by depreciation and amortization of $1.2 million and change in inventory valuation accounts of $0.4 million and LIFO effect of $0.3 million.

The uses of cash from working capital of $0.6 million was primarily due to increase in inventory of $3.1 million, contract asset of $0.9 million and other assets/prepaids of $0.2 million, partially offset by accounts receivable reductions of $3.2 million and increase in contract liabilities of $1.7 million.

The increase in inventory is primarily driven by increase in work in process to meet heightened customer demand.

The Company’s operating activities used $1.0 million of cash in the first six months of fiscal 2025, primarily due to net operating loss from continuing operations of $3.7 million partially offset by depreciation and amortization of $2.4 million and change in inventory valuation accounts of $0.3 million and LIFO effect of $0.1 million.

The uses of cash from working capital of $0.1 million was primarily due to higher prepaid expenses attributable to deferred financing costs related to the refinanced revolver and customer deposits, and decreases in accrued liabilities and accounts payable due to timing of payments, partially offset by decreases in accounts receivable.

The Company’s operating activities used $2.9 million of cash in the first six months of fiscal 2024, primarily due to net operating loss of $6.3 million partially offset by depreciation and amortization of $2.4 million and change in inventory valuation accounts of $0.5 million and LIFO effect of $0.4 million.

The uses of cash from working capital of $0.4 million was primarily due to increases in inventory of $4.4 million, partially offset by accounts receivable and prepaid expense reductions of $1.0 million and $0.4 million, respectively, and an increase in accounts payable of $2.9 million.

The increase in inventory was primarily due to increase in raw material and work in process to meet heightened customer demand.

The increase in accounts receivable was due to increases in customer shipments.

The increase in accounts payable was due to increases in raw material purchases and outside processing fees related to inventory build.

Investing Activities

During the first three months of fiscal 2025 and 2024, cash used for investing activities was $0.1 million and $0.5 million, respectively, attributable to capital expenditures.

Capital commitments as of December 31, 2024 were $0.3 million.

During the first six months of fiscal 2025 and 2024, cash used for investing activities was $0.3 million and $1.2 million, respectively, attributable to capital expenditures.

Capital commitments as of March 31, 2025 were $0.2 million.

The Company anticipates that the remaining total fiscal 2025 capital expenditures will be within the range of $1.5 million to $2.0 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Financing Activities

Cash provided by financing activities was $9.2 million in the first three months of fiscal 2025, compared with $2.6 million in the first three months of fiscal 2024.

The year-over-year decrease was primarily related to the debt refinancing during fiscal 2025.

Refer to Note 6 — Debt of the Notes to Unaudited Consolidated Condensed Financial Statements for details regarding our financing activities during the three months ended December 31, 2024.

Cash used in financing activities was $13.1 million in the first six months of fiscal 2025, compared with $4.0 million provided by financing activities in the first six months of fiscal 2024.

The year-over-year decrease was primarily related to higher repayments on our revolving credit line and the debt refinancing during fiscal 2025.

Refer to Note 6 — Debt of the notes to unaudited consolidated condensed financial statements for details regarding our financing activities during the six months ended March 31, 2025.

Future cash flows from the Company’s operations may be used to pay down outstanding debt amounts.

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Recent Accounting Standards

No recent accounting standards were adopted during the three months ended December 31, 2024 .

No recent accounting standards were adopted during the six months ended March 31, 2025 .

Refer to Note 1 — Summary of Significant Accounting Policies for further detail.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis