What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-08 compared with 2026-02-11 · 126 added, 53 removed, 85 unchanged (68% of the section changed)

16 unchanged sentences

(11) cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners;

(12) our exposure to additional risks as a result of our international business, including risks

related to geopolitical and economic factors, suppliers, laws and regulatory compliance, and trade measures such as significant tariffs - including recently announced U.S.

(12) our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulatory compliance, and trade measures such as significant tariffs - including U.S.

tariffs on aluminum and steel;

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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.

and (18) extraordinary or force majeure events affecting the business or operations of our business, such as geopolitical conflicts and supply chain disruptions resulting therefrom.

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

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The Company operates within a cost structure that includes a significant fixed component.

Therefore, higher net sales volumes are expected to result in greater operating income because such higher volumes allow the business operations to better leverage the fixed component of their respective cost structures.

Therefore, higher net sales volumes are expected to result in greater operating income because such higher volumes allow the business operations to better leverage

the fixed component of their respective cost structures.

Conversely, the opposite effect is expected to occur at lower net sales and related production volumes.

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Backlog of Orders

SIFCO’s total backlog as of December 31, 2025 was $139.5 million, compared with total backlog of $121.9 million as of December 31, 2024.

SIFCO’s total backlog as of March 31, 2026 was $157.7 million, compared with total backlog of $129.2 million as of March 31, 2025.

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, 2025 compared with Three Months Ended December 31, 2024

Net sales comparative information for the first quarter of fiscal 2026 and 2025 is as follows:

Three Months Ended March 31, 2026 compared with Three Months Ended March 31, 2025

Net sales comparative information for the second quarter of fiscal 2026 and 2025 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 $ 26.4 $ 19.0 $ 7.4

Net sales for the first quarter of fiscal 2026 increased $3.1 million to $24.0 million, compared with $20.9 million in the comparable period of fiscal 2025.

The increase is attributable to increased throughput and favorable pricing, partially offset by the impact of customer-supplied raw materials.

Under these arrangements, net sales excludes the value of materials provided by customers, resulting in lower reported sales relative to comparable programs utilizing company-procured materials.

Fixed wing sales decreased $2.3 million compared with the same period last year, primarily due to timing across most programs, such as F-35.

Rotorcraft sales increased compared with the same period last year primarily due to the timing of orders for UH-60 Black Hawk and CH47 Chinook programs.

Commercial space products decreased by $1.3 million year-over-year due to reduced procurement activity in the commercial space market.

Net sales for the energy components for power generation units

decreased by $0.7 million.

Net sales for the second quarter of fiscal 2026 increased $7.4 million to $26.4 million, compared with $19.0 million in the comparable period of fiscal 2025.

The increase is driven by higher production volumes and favorable pricing, partially offset by the impact of customer-supplied raw materials.

Under these arrangements, the Company does not recognize revenue for materials provided by customers, resulting in lower reported net sales relative to comparable programs utilizing company-procured materials.

Fixed wing sales increased $1.9 million compared with the same period last year, primarily due to timing across most programs, including the F-15 and C-130 and increased market share in the F-35CV programs.

Rotorcraft sales increased compared with the same period last year primarily due to the timing of orders for CH53K and CH47 Chinook programs.

Commercial space products increased by $0.2 million due to timing of orders in the commercial space market.

Net sales for the energy components for power generation units decreased by $0.6 million, primarily due to lower customer demand.

Commercial products and other revenue increased $1.5 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 36.2% and 63.8%, respectively, of total net sales in the first quarter of fiscal 2026, compared with 53.4% and 46.6%, respectively, in the comparable period in fiscal 2025.

Commercial net sales decreased $2.5 million to $8.7 million in the first quarter of fiscal 2026, compared with $11.2 million in the comparable period of fiscal 2025, primarily due to reduced procurement activity in the commercial space market, partially offset by higher demand in the commercial aerospace market.

Military net sales increased by $5.6 million to $15.3 million in the first quarter of fiscal 2026, compared with $9.7 million in the comparable period of fiscal 2025, primarily due to increased demand across multiple programs, such as munitions and UH-60.

Commercial net sales and military net sales were 31.9% and 68.1%, respectively, of total net sales in the second quarter of fiscal 2026, compared with 43.7% and 56.3%, respectively, in the comparable period in fiscal 2025.

Commercial net sales increased $0.1 million to $8.4 million in the second quarter of fiscal 2026, compared with $8.3 million in the comparable period of fiscal 2025, primarily due to higher demand in the commercial aerospace market, partially offset by reduced procurement of components the Company provides for the power generation market.

Military net sales increased by $7.3 million to $18.0 million in the second quarter of fiscal 2026, compared with $10.7 million in the comparable period of fiscal 2025, primarily due to increased demand across multiple programs, such as munitions, CH47 and CH53K.

Cost of Goods Sold

Cost of goods sold (“COGS”) decreased by $1.2 million, or 5.9%, to $18.8 million, or 78.4% of net sales, during the first quarter of fiscal 2026, compared with $20.0 million, or 95.6% of net sales, in the comparable period of fiscal 2025.

The decrease is due to improved absorption of fixed manufacturing costs.

In addition, customer-supplied raw material reduced both reported net sales and COGS as customer-provided materials are excluded, with a generally neutral impact on gross profit.

Gross profit increased by $4.3 million to $5.2 million in the first quarter of fiscal 2026, compared with $0.9 million gross profit in the comparable period of fiscal 2025, primarily attributable to increased throughput, favorable pricing and shift in sales mix resulting from the exit of lower-margin business, partially offset by higher manufacturing costs.

Cost of goods sold (“COGS”) increased by $3.3 million, or 19.1%, to $20.8 million, or 78.6% of net sales, during the second quarter of fiscal 2026, compared with $17.5 million, or 91.7% of net sales, in the comparable period of fiscal 2025.

The increase is primarily as a result of higher sales volume.

However, the increase in COGS was partially offset by the impact of customer-supplied raw materials, which reduced material costs by the Company (generally neutral impact on gross profit).

Gross profit increased by $4.1 million to $5.7 million in the second quarter of fiscal 2026, compared with $1.6 million gross profit in the comparable period of fiscal 2025.

The margin expansion was primarily driven by improved pricing and more favorable customer and product mix, including increased volumes on higher-margin programs, improved overhead absorption resulting from higher production volumes, and the benefit of pricing actions.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses were $2.6 million, or 11.0% of net sales, during the first quarter of fiscal 2026, compared with $2.8 million, or 13.6% of net sales, in the comparable period of fiscal 2025.

The decrease is primarily driven by lower legal and professional fees.

Selling, general and administrative (“SG&A”) expenses were $3.0 million, or 11.3% of net sales, during the second quarter of fiscal 2026, compared with $2.4 million, or 12.4% of net sales, in the comparable period of fiscal 2025.

The increase is primarily driven by $0.2 million of environmental reserve and associated legal and professional fees, $0.1 million in incentive compensation accruals and $0.1 million increase in the provision for expected credit losses.

Interest Expense, Net

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreements in the first quarter of fiscal 2026 and 2025:

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 2026 and 2025:

(Dollars in millions) Weighted Average

Interest Rate

Three Months Ended December 31,

Three Months Ended March 31,

Weighted Average

Outstanding Balance

Three Months Ended December 31,

Three Months Ended March 31,

2026 2025 2026 2025

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Other debt 7.8 % 2.3 % $ 0.2 $ 0.4

The Company’s effective tax rate through the first quarter of fiscal 2026 was 18.5%, compared with (0.2)% for the same period of fiscal 2025.

The increase in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2026 compared with the same period of fiscal 2025 along with the Company's transition from a pre-tax loss to a pre-tax income position.

The revolving credit agreement weighted average interest rate for the three months ended reflects the impact of a provision within the Company's Loan Agreement that requires interest be calculated on a specified minimum borrowing level, regardless of actual outstanding borrowings.

As average borrowings during the period were below threshold, the Company incurred interest expense in amounts in excess of the actual debt outstanding.

As a result, the Company's effective interest rate was higher than would be expected based solely on the stated contractual rates applied to its outstanding borrowings.

Excluding the impact to this provision, the Company's effective interest rate for the period would have been approximately 9.3%, compared to the reported rate of 37.6%.

The impact of this provision may continue in future periods to the extent that outstanding borrowings remain below the specified minimum level.

The Company’s effective tax rate through the second quarter of fiscal 2026 was (13.0)%, compared with (5.9)% for the same period of fiscal 2025.

The change in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2026 compared with the same period of fiscal 2025 along with the Company's transition from a pre-tax loss to a pre-tax income position.

The effective tax rate differs from the U.S.

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statutory tax rate.

The Company continues to maintain a full valuation allowance against its U.S.

deferred tax assets.

It is reasonably possible that, if the Company continues to generate sufficient U.S.

taxable income, all or a portion of the valuation allowance could be released within the next 12 months.

Income (Loss) from Continuing Operations

Income from continuing operations was $1.8 million during the first quarter of fiscal 2026, compared with a loss from continuing operations of $2.4 million in the comparable period of fiscal 2025.

The improvement is primarily attributable to increased gross profit and lower SG&A expenses as noted above.

Income from continuing operations was $2.7 million during the second quarter of fiscal 2026, compared with a loss from continuing operations of $1.3 million in the comparable period of fiscal 2025.

The improvement is primarily attributable to increased gross profit as noted above.

Six Months Ended March 31, 2026 compared with Six Months Ended March 31, 2025

Net sales comparative information for the first six months of fiscal 2026 and 2025 is as follows:

(Dollars in millions) Six Months Ended

March 31, Increase/ (Decrease)

Aerospace components for:

Fixed wing aircraft $ 26.8 $ 27.2 $ (0.4)

Rotorcraft 16.5 6.3 10.2

Commercial space 2.0 3.1 (1.1)

Energy components for power generation units 0.4 1.7 (1.3)

Commercial product and other revenue 4.7 1.6 3.1

Total $ 50.4 $ 39.9 $ 10.5

Net sales for the first six months of fiscal 2026 increased $10.5 million to $50.4 million, compared with $39.9 million in the comparable period of fiscal 2025.

The increase was primarily driven by higher volumes in military programs, partially offset by declines in certain commercial markets.

Fixed wing sales decreased $0.4 million compared with the same period last year due to program timing.

Rotorcraft sales increased $10.2 million compared with the same period last year primarily due to the timing of orders in the CH47 and CH53K programs.

Commercial space products decreased by $1.1 million year-over-year due to reduced procurement activity, including one specific customer significantly scaling back orders to manage excess inventory.

Net sales for the energy components for power generation units decreased by $1.3 million due to lower customer demand.

Commercial products and other revenue increased $3.1 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 33.9% and 66.1%, respectively, of total net sales in the first six months of fiscal 2026, compared with 48.8% and 51.2%, respectively, in the comparable period in fiscal 2025.

Commercial net sales decreased $2.4 million to $17.1 million in the first six months of fiscal 2026, compared with $19.5 million in the comparable period of fiscal 2025, reflecting reduced demand in commercial space market and reduced procurement of components the Company provides for the power generation market.

Military net sales increased by $12.9 million to $33.3 million in the first six months of fiscal 2026, compared with $20.4 million in the comparable period of fiscal 2025, primarily due to increased demand across most programs.

Cost of Goods Sold

COGS increased by $2.2 million, or 5.8%, to $39.6 million, or 78.5% of net sales, during the first six months of fiscal 2026, compared with $37.4 million, or 93.7% of net sales, in the comparable period of fiscal 2025.

The increase in COGS was primarily attributable to higher production and sales volumes.

As a percentage of net sales, COGS decreased, reflecting improved overhead absorption on higher volumes and the impact of pricing actions.

Gross profit increased $8.4 million to $10.9 million in the first six months of fiscal 2026, compared with $2.5 million gross profit in the comparable period of fiscal 2025.

The increase was primarily driven by higher sales volumes, favorable product mix, and improved pricing.

Gross margin also increased, reflecting the benefit of these factors, as well as improved cost absorption and impact of cost drivers noted above.

Selling, General and Administrative Expenses

SG&A expenses were $5.6 million, or 11.2% of net sales, during the first six months of fiscal 2026, compared with $5.2 million, or 13.0% of net sales, in the comparable period of fiscal 2025.

The increase in SG&A expenses was primarily driven by $0.4 million related to environmental reserve and associated legal and professional fees as discussed in Note 10 — Commitments and Contingencies of the notes to unaudited consolidated condensed financial statements, $0.2 million increase in incentive compensation and $0.1 million in severance-related costs, partially offset by $0.3 million in lower legal and professional and consulting fees.

Interest Expense, Net

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 2026 and 2025:

(Dollars in millions) Weighted Average

Interest Rate

Six Months Ended March 31,

Weighted Average

Outstanding Balance

Six Months Ended March 31,

2026 2025 2026 2025

Revolving credit agreement 15.7 % 9.7 % $ 4.9 $ 12.5

Term loan 9.6 % 10.2 % $ 2.3 $ 2.6

Other debt 16.5 % 5.2 % $ 0.2 $ 0.4

Interest expense for the six months ended reflects the impact of a provision within the Company's Loan Agreement that requires interest be calculated on a specified minimum borrowing level, regardless of actual outstanding borrowings.

As average borrowings during the period were below threshold, the Company incurred interest expense in amounts in excess of the actual debt outstanding.

As a result, the Company's effective interest rate was higher than would be expected based solely on the stated contractual rates applied to its outstanding borrowings.

Excluding the impact to this provision, the Company's effective interest rate for the period would have been approximately 9.9%, compared to the reported rate of 15.7%.

The impact of this provision may continue in future periods to the extent that outstanding borrowings remain below the specified minimum level.

The Company’s effective tax rate through the first six months of fiscal 2026 was 2.2%, compared with (2.2)% for the same period of fiscal 2025.

The change in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2026 compared with the same period of fiscal 2025, as well as the Company's transition from a pre-tax loss to a pre-tax income position.

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.

The Company continues to maintain a full valuation allowance against its U.S.

deferred tax assets.

While the Company has generated U.S.

pretax income during fiscal 2026, it has not yet concluded that sufficient positive evidence exists to support a release of the valuation allowance.

The Company will continue to evaluate all available evidence, including the sustainability of earnings.

It is reasonably possible that, if sufficient positive evidence is obtained, all or a portion of the valuation allowance could be released within the next 12 months, which could result in a material income tax benefit in the period in which it is recognized.

Income (Loss) from Continuing Operations

Income from continuing operations was $4.4 million during the first six months of fiscal 2026, compared with a loss of $3.7 million in the comparable period of fiscal 2025 due to higher sales volumes and gross margin improvements as referenced above.

Liquidity and Capital Resources

Cash and cash equivalents were $1.1 million and $0.5 million as of December 31, 2025 and September 30, 2025, respectively.

Cash and cash equivalents were $0.3 million and $0.5 million as of March 31, 2026 and September 30, 2025, respectively.

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

holding company subsidiary, and certain distributions from which to the Company may be subject to adverse tax consequences.

Our primary requirements for liquidity and capital resources besides our growth initiatives, are working capital, capital expenditures, principal and interest payments on our outstanding debt, fulfilling obligations under our loan agreements, and

other general corporate needs.

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, 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.

For information regarding the Company’s expected cash requirements and timing of payments related to leases and noncancellable purchase commitments, see Note 11 — Leases and Note 12 — Commitments and Contingencies of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended September 30, 2025 (the “2025 Annual Report”).

As of March 31, 2026, 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 Company's primary cash requirements consist of obligations related to outstanding debt and lease payments, operating and capital purchase commitments, and contributions to our defined benefit and contribution plans.

These requirements are expected to be funded through a combination of cash on hand, cash generated from operations, and availability under the Company's credit facilities.

For additional information regarding the Company’s contractual obligations, including leases and noncancellable purchase commitments, see Note 11 — Leases and Note 12 — Commitments and Contingencies of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended September 30, 2025 (the “2025 Annual Report”).

Additionally, refer to Note 9 — Retirement Benefit Plans of the Notes to Consolidated Financial Statements in the Company’s 2025 Annual Report for more information related to the Company’s pension and defined contribution plans.

We believe that our existing cash and available credit lines will be sufficient to finance our continued operations, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months.

In order to support and achieve our future growth plans, we may need or advantageously seek to obtain additional funding through equity or debt financing.

We believe that our existing cash and available credit lines will be sufficient to finance our continued operations and planned capital expenditures for the next 12 months.

We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months.

If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to borrow under our loan agreement or seek additional financing.

The Company’s liquidity could be negatively affected if the Company is unable to obtain capital, by customers extending payment terms to the Company and/or the decrease in demand for our products.

The Company and management will continue to assess and actively manage liquidity needs.

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Operating Activities

The Company’s operating activities provided $8.1 million of cash in the first three months of fiscal 2026.

The cash provided by operating activities was primarily due to $4.5 million of cash generated from working capital, primarily due to increases in inventory due to timing of raw material receipts, contract liabilities due to receipt of milestone payment from a customer, and accounts payable due to timing of payments, along with $1.8 million of net income from continuing operations and $1.8 million adjusted for non-cash items, such as depreciation.

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 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.

Net cash provided by operating activities was $5.2 million for the first six months of fiscal 2026, compared to net cash used of $1.0 million in the first six months of fiscal 2025.

The increase was primarily driven by improved operating results, with net income of $4.4 million compared to a net loss of $3.7 million in the prior year period.

Non-cash adjustments included $2.1 million of depreciation and amortization and $1.2 million of LIFO expense in the current period, partially offset by a $0.6 million decrease in related inventory valuation accounts.

Changes in working capital resulted in a net use of cash of approximately $2.2 million during the period.

This use was primarily driven by increases in operating assets, including a $3.1 million increase in accounts receivable, $3.3 million increase in inventories, and a $1.7 million increase in contract assets, reflecting higher business activity and the timing of billings and production.

These uses were partially offset by increases in operating liabilities, including a $4.4 million increase in contract liabilities and a $1.3 million increase in accounts payable, reflecting the timing of customer advance payments and vendor disbursements.

In contrast, during the six months of fiscal 2025, operating activities used $1.0 million of cash, primarily due to net loss of $3.7 million, partially offset by of $2.4 million depreciation and amortization and $0.3 million related to inventory valuation accounts.

Changes in working capital resulted in a net use in cash, primarily driven by decreases in accounts payable and accrued liabilities due to timing of payments, increases in prepaid expenses related to deferred financing costs associated with the refinancing of the revolving credit facility, decreases in contract liabilities due to satisfaction of performance obligations, and increase in inventories due to timing of raw material receipts.

These uses were partially offset by a decrease in accounts receivable, reflecting the timing of customer receipts and billings.

Investing Activities

During the first three months of fiscal 2026 and 2025, cash used for investing activities was $0.1 million, respectively, attributable to capital expenditures.

Capital commitments as of December 31, 2025 were $0.3 million.

The Company anticipates that the remaining total fiscal 2026 capital expenditures will be within the range of $1.0 million to $2.0 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

During the first six months of fiscal 2026 and 2025, cash used for investing activities was $0.2 million and $0.3 million, respectively, attributable to capital expenditures.

Capital commitments as of March 31, 2026 were $0.4 million.

The Company anticipates that the remaining fiscal 2026 capital expenditures will be within the range of $1.0 million to $1.4 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Financing Activities

Cash used for financing activities was $7.9 million in the first three months of fiscal 2026, compared with $9.2 million in the first three months of fiscal 2025.

Cash used for financing activities was $5.6 million in the first six months of fiscal 2026, compared with $13.1 million in the first six months of fiscal 2025.

The year-over-year decrease in cash used from financing was primarily related to lower repayments on debt obligations during fiscal 2026.

Refer to Note 5 — Debt of the notes to unaudited consolidated condensed financial statements for details regarding our financing activities during the three months ended December 31, 2025.

Refer to Note 5 — Debt of the notes to unaudited consolidated condensed financial statements for details regarding our financing activities during the six months ended March 31, 2026.

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

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Tightening of the credit market and standards, as well as capital market volatility, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing debt agreements when needed in the future.

Capital market

uncertainty and volatility, together with the Company’s market capitalization and status as a smaller reporting company, could also negatively impact our ability to obtain equity financing.

Capital market uncertainty and volatility, together with the Company’s market capitalization and status as a smaller reporting company, could also negatively impact our ability to obtain equity financing.

Recent Accounting Standards

ASU 2024-01 was adopted during the three months ended December 31, 2025 .

ASU 2024-01 was adopted during the six months ended March 31, 2026 .

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