SigmaTron International, Inc. (NASDAQ: SGMA) is an independent provider of electronic manufacturing services (EMS) with a robust history spanning over four decades. Headquartered in Elk Grove Village, Illinois, the company has strategically positioned itself as a versatile partner, offering a wide range of manufacturing and assembly services to its diverse customer base.

Business Overview and History

SigmaTron was founded in 1993 and has since grown to become a leading player in the EMS industry. The company operates in one reportable segment, providing manufacturing and assembly services that range from the assembly of individual components to the assembly and testing of box-build electronic products. This includes printed circuit board assemblies, electro-mechanical subassemblies, and completely assembled box-build electronic products.

In its early years, SigmaTron faced challenges related to component sourcing. The company relied on numerous third-party suppliers, with some components only available from single-sources or a limited number of suppliers. This posed potential risks, as customers’ specifications sometimes required SigmaTron to obtain components from specific suppliers. To maintain flexibility, the company opted for short-term purchase orders rather than long-term agreements with major or single-source suppliers.

Over the years, SigmaTron has expanded its global footprint, establishing operations in the United States, Mexico, China, Vietnam, and Taiwan. This international network allows the company to offer its customers flexibility in manufacturing, with the ability to produce assemblies in various locations to meet their specific needs. However, this global presence has also exposed SigmaTron to currency fluctuations, which have at times materially impacted its financial results.

Financial Performance and Ratios

Financials

In the fiscal year ended April 30, 2024, SigmaTron reported revenues of $373.9 million, a 10% decrease compared to $414.4 million in the previous fiscal year. The company incurred a net loss of $2.5 million, compared to a net income of $14.2 million in fiscal 2023. This decline in financial performance was primarily attributed to lower sales volumes, higher labor and manufacturing costs, and severance-related expenses during the year.

For the most recent quarter (Q1 2025 ended July 31, 2024), SigmaTron reported revenue of $84.78 million, representing a 13.6% year-over-year decrease compared to Q1 2024. The company reported a net loss of $3.29 million for the quarter. The decrease in revenue was primarily due to lower sales volumes across the industrial electronics and medical/life science markets, partially offset by increased sales in the consumer electronics market.

Operating cash flow (OCF) for fiscal year 2024 was $27.76 million, with free cash flow (FCF) of $25.96 million. For Q1 2025, OCF was $2.63 million and FCF was $2.46 million.

The company’s primary end-markets include industrial electronics, consumer electronics, and medical/life sciences. During the three-month period ended July 31, 2024, net sales to the industrial electronics market were $55.07 million, the consumer electronics market were $24.24 million, and the medical/life sciences market were $5.46 million.

Cost of products sold decreased 11.4% to $78.37 million, or 92.4% of net sales, for the three-month period ended July 31, 2024, compared to $88.48 million, or 90.2% of net sales, for the same period in the prior fiscal year. The increase in cost of products sold as a percentage of sales was primarily due to lower sales volumes, higher labor costs, and other fixed manufacturing costs in the current quarter compared to the prior year period.

Gross profit margin was 7.6% of net sales for the three-month period ended July 31, 2024, compared to 9.8% for the same period in the prior fiscal year. The decrease in gross margins was primarily attributable to the lower sales volumes, higher labor and other fixed manufacturing costs, and severance-related expenses during the current quarter.

Selling and administrative expenses decreased 3.2% to $6.62 million, or 7.8% of net sales, for the three-month period ended July 31, 2024, compared to $6.84 million, or 7.0% of net sales, for the same period in the prior fiscal year. The decrease was primarily due to lower accounting, legal, and bonus expenses.

Interest expense, net, decreased to $2.27 million for the three-month period ended July 31, 2024, compared to $2.72 million for the same period in the prior fiscal year, due to lower debt levels. Income tax expense increased to $802,210 for the three-month period, compared to a benefit of $154,130 in the prior year period, due to variations in forecasted tax rates and income earned by jurisdiction.

Liquidity

The company’s liquidity position remained relatively stable, with a current ratio of 1.15 as of July 31, 2024, compared to 1.45 in the prior year. The quick ratio, a measure of short-term liquidity, stood at 0.36, indicating a potential need to manage working capital more efficiently. SigmaTron’s debt-to-equity ratio was 1.21, reflecting a moderately leveraged capital structure.

As of July 31, 2024, SigmaTron had cash and cash equivalents of $5.30 million. The company has a revolving credit facility that allows it to borrow up to the lesser of $70 million or an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base minus any reserves. As of July 31, 2024, there was $30.28 million outstanding and $16.09 million of unused availability under the revolving loan facility.

Operational Challenges and Responses

SigmaTron has faced several operational challenges in recent years, including the ongoing global supply chain disruptions and the impact of the COVID-19 pandemic. The company has taken proactive steps to address these issues, such as consolidating its Illinois operations, reducing headcounts, and implementing inventory reduction initiatives.

Despite supply chain component shortages improving in fiscal 2024, the company’s business, results of operations, and financial condition continue to be adversely affected by certain supply chain issues due to worldwide component shortages. The company anticipates continuing improvement in supply chain predictability in fiscal 2025.

Additionally, SigmaTron has been working to reduce its debt and strengthen its financial position. In August 2024, the company received a waiver from its lenders regarding non-compliance with certain financial covenants and amended the terms of its credit agreements. These actions are aimed at providing the company with greater financial flexibility and the ability to navigate the current industry challenges.

Industry Landscape and Competitive Positioning

The EMS industry in which SigmaTron operates is highly competitive, with numerous players vying for market share. The company competes with both larger, global EMS providers as well as smaller, regional competitors. SigmaTron’s ability to offer a diverse range of services, its international manufacturing capabilities, and its long-standing relationships with customers have been key factors in its competitive positioning.

However, the industry has faced headwinds, including supply chain disruptions, labor shortages, and inflationary pressures. These challenges have put pressure on margins and overall profitability for many EMS providers, including SigmaTron.

Risks and Uncertainties

SigmaTron’s business operations are subject to various risks and uncertainties, including its reliance on a limited number of significant customers, the continued market acceptance of its products and services, and the impact of global economic and geopolitical conditions on its supply chain and customer demand.

Additionally, the company’s ability to comply with financial covenants in its credit agreements and its ongoing efforts to reduce debt levels pose risks that could affect its long-term financial stability. The company’s management has acknowledged these challenges and is actively working to address them through strategic initiatives and operational improvements.

Conclusion

Despite the recent challenges faced by SigmaTron, the company’s long-standing history, global manufacturing capabilities, and diversified customer base positions it as a resilient player in the EMS industry. As the company navigates the current industry headwinds, its focus on debt reduction, cost optimization, and strategic initiatives could be key to unlocking future growth and profitability. Investors will need to closely monitor SigmaTron’s progress in executing its turnaround plan and managing the evolving competitive landscape.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.