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SIGMATRON INTERNATIONAL INC 10-Q Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

SIGMATRON INTERNATIONAL INC

Filing date:

03/14/2025

TLDR:

ELI5:

SigmaTron is in financial trouble. They might not be able to pay their debts and stay in business, even though they made some money this quarter by selling a building and leasing it back. Their sales are down, and they’re struggling to make a profit.

Accession #:

0000915358-25-000003

Published on

Analyst Summary

  • Net sales decreased by 25.9% for the quarter and 21.2% year-to-date, indicating weakening demand.
  • Gross margins declined by 2.5% for the quarter and 1.8% year-to-date, suggesting increased costs or pricing pressure.
  • Q3 net income was primarily due to a sale-leaseback transaction, masking underlying operational struggles.
  • Current liabilities exceed current assets, raising liquidity concerns.
  • Management acknowledges ‘substantial doubt’ about the company’s ability to continue as a going concern.
  • The company has violated debt covenants and requires a ‘Replacement Transaction’ by September 2025.
  • A material weakness in internal controls over financial reporting persists.
  • Gross Profit Margin decreased from 10.0% to 8.2%, a -18% change.
  • Operating Profit Margin decreased significantly from 3.1% to -0.2%, a -106.45% change.
  • Net Profit Margin decreased from 0.3% to -3.8%, a -1366.67% change.
  • ROA decreased from 0.4% to -4.6%, a -1250% change.
  • ROE decreased from 1.4% to -15.4%, a -1200% change.
  • EPS decreased significantly from $0.15 to $(1.44) for basic and $0.14 to $(1.44) for diluted.
  • The current ratio increased slightly from 1.21 to 1.23, a 1.65% change.
  • The quick ratio increased from 0.34 to 0.39, a 14.71% change.
  • The cash ratio remained constant at 0.017.
  • The debt-to-equity ratio decreased from 1.05 to 0.91, a -13.33% change.
  • The debt-to-assets ratio remained constant at 0.70.
  • The interest coverage ratio decreased significantly from 1.14 to -0.05, a -104.39% change.
  • The inventory turnover decreased from 2.04 to 1.98, a -2.94% change.
  • DSO decreased from 39.9 days to 33.9 days, a -15.04% change.
  • DPO increased from 63.0 days to 71.2 days, a 13.02% change.
  • The asset turnover decreased from 1.31 to 1.19, a -9.16% change.
  • The P/E ratio is negative in 2025 due to negative earnings.
  • The P/B ratio increased from 0.10 to 0.11, a 10% change.
  • The P/S ratio remained constant at 0.02.
  • The EV/EBITDA ratio decreased from 6.9 to -10.4.
  • Revenue decreased by 21.38%.
  • Net Income decreased by 1109.9%.
  • EPS decreased by 1060%.

Opportunities and Risks

  • Risk: The company’s ability to continue as a going concern is the most significant risk.
  • Risk: Failure to meet debt covenants or secure a ‘Replacement Transaction’ could lead to bankruptcy.
  • Risk: Continued sales decline would further strain finances.
  • Risk: Inability to improve gross margins would erode profitability.
  • Risk: The material weakness in internal controls increases the risk of financial misstatements.
  • Risk: Economic downturns, supply chain disruptions, and tariffs pose risks.
  • Risk: Potential warrant issuance could dilute shareholders.
  • Opportunity: Successful cost reduction efforts could improve profitability.
  • Opportunity: Securing more favorable debt terms could ease financial pressure.
  • Opportunity: A recovery in the electronics market could boost sales.
  • Opportunity: Strategic initiatives could drive growth.

Potential Implications

Company Performance

  • Continued financial distress could limit the company’s ability to invest in growth initiatives.
  • Inability to address the ‘going concern’ warning could lead to liquidation.
  • Failure to meet debt obligations could result in bankruptcy.
  • The company’s current margin is at the lower end of this range.
  • SigmaTron’s current negative margin indicates operational challenges.
  • SigmaTron’s negative margin suggests significant financial strain.
  • SigmaTron’s negative ROA indicates inefficient asset utilization.
  • SigmaTron’s negative ROE suggests poor returns to shareholders.
  • SigmaTron’s negative EPS indicates losses for shareholders.
  • SigmaTron’s ratio is below this range, indicating potential liquidity concerns.
  • SigmaTron’s low ratio suggests difficulty meeting short-term obligations without relying on inventory.
  • SigmaTron’s very low ratio indicates a heavy reliance on other current assets to meet obligations.
  • SigmaTron’s ratio is slightly below this level, indicating moderate leverage.
  • SigmaTron’s ratio indicates that a significant portion of its assets are financed by debt.
  • SigmaTron’s ratio indicates difficulty covering interest expenses with operating income.
  • SigmaTron’s turnover suggests room for improvement in inventory management.
  • SigmaTron’s DSO indicates relatively efficient collection of receivables.
  • SigmaTron’s DPO suggests they are taking longer to pay suppliers.
  • SigmaTron’s turnover suggests room for improvement in asset utilization.
  • A negative P/E ratio is unfavorable and indicates losses.
  • A P/B ratio below 1.0 may indicate undervaluation, but it can also reflect concerns about the company’s future prospects.
  • A low P/S ratio can indicate undervaluation, but it can also reflect concerns about the company’s growth prospects.
  • A negative EV/EBITDA ratio is unfavorable and indicates losses.
  • A negative revenue growth is unfavorable.
  • A negative net income growth is unfavorable.
  • A negative EPS growth is unfavorable.

Stock Price

  • The ‘going concern’ warning and financial distress are likely to negatively impact the stock price.
  • Failure to secure debt refinancing or a ‘Replacement Transaction’ could lead to a significant stock price decline.
  • Positive news regarding cost reduction, debt management, or market recovery could provide a temporary boost to the stock price.

SigmaTron International, Inc. (SGMA) – Form 10-Q Report – Q3 2025

Executive Summary

This report analyzes SigmaTron International, Inc.’s Form 10-Q for the quarter ended January 31, 2025. The company faces significant challenges, including a “going concern” warning, covenant defaults on its debt, and a material weakness in internal controls. While the company reported net income for the quarter, this was largely due to a one-time gain from a sale-leaseback transaction. Underlying operational performance remains weak, with declining sales and gross margins. The company’s ability to meet its debt obligations and continue as a going concern is highly uncertain. Recommendation: Sell.

Company Overview

SigmaTron International, Inc. is an independent provider of electronic manufacturing services (EMS). They offer a range of services from component assembly to complete box-build electronic products. Their services include material sourcing, manufacturing and test engineering, design, warehousing, and regulatory compliance. They operate internationally with facilities in the US, Mexico, China, Vietnam, and Taiwan. The company serves the industrial, consumer, and medical/life sciences electronics markets.

Detailed Analysis

Financial Statement Analysis

Key Ratios and Trends

Metric Q3 2025 Q3 2024 Change YTD 2025 YTD 2024 Change
Net Sales $71.07M $95.92M -25.9% $230.56M $292.74M -21.2%
Gross Margin 7.8% 10.3% -2.5% 8.2% 10.0% -1.8%
Net Income/(Loss) $3.88M $0.60M +546.7% ($8.87M) $0.89M -1096.6%

* **Sales Decline:** Net sales decreased significantly in both the quarter and year-to-date periods, indicating weakening demand or loss of market share.
* **Margin Compression:** Gross margins have deteriorated, suggesting increased costs, pricing pressure, or a shift in product mix towards lower-margin offerings.
* **Net Income Distorted:** While Q3 shows net income, this is primarily due to the sale-leaseback transaction. The YTD net loss paints a clearer picture of the company’s struggles.

Balance Sheet Concerns

* **Current Liabilities Exceed Current Assets:** Current liabilities are significantly higher than current assets, indicating potential liquidity issues. This is exacerbated by the classification of long-term debt as current due to covenant defaults and the requirement to pursue a “Replacement Transaction” for debt.
* **Decreasing Inventory:** While decreasing inventory contributed to positive operating cash flow, it also reflects lower sales volume and potential future supply constraints if demand recovers.
* **Contingent Warrant Liability:** The contingent warrant liability adds another layer of complexity and potential dilution for shareholders.

Cash Flow Analysis

* **Operating Cash Flow Positive:** Operating cash flow is positive, driven by working capital management (primarily inventory reduction). However, this may not be sustainable in the long term.
* **Financing Activities Negative:** The company is using cash to pay down debt, which is necessary but limits its ability to invest in growth.
* **Sale-Leaseback Impact:** The sale-leaseback transaction provided a short-term cash infusion but creates a long-term lease obligation.

Management’s Discussion and Analysis (MD&A) Insights

* **Going Concern Warning:** Management acknowledges “substantial doubt” about the company’s ability to continue as a going concern. This is a major red flag.
* **Debt Covenants:** The company has repeatedly violated debt covenants and required waivers and amendments. This highlights financial distress and dependence on lenders.
* **Replacement Transaction:** The requirement to pursue a “Replacement Transaction” by September 2025 adds significant pressure and uncertainty.
* **Cost Reduction Efforts:** Management is taking steps to reduce costs (facility consolidation, headcount reductions), but these may not be sufficient to offset the sales decline.
* **Material Weakness:** The company continues to have a material weakness in internal controls over financial reporting, raising concerns about the reliability of financial information.
* **Forward-Looking Statements:** The MD&A contains numerous forward-looking statements with cautionary language, reflecting the high degree of uncertainty surrounding the company’s future.

Risks and Opportunities

Risks

* **Going Concern:** The most significant risk is the company’s ability to continue as a going concern.
* **Debt Obligations:** Failure to meet debt covenants or secure a “Replacement Transaction” could lead to acceleration of debt and potential bankruptcy.
* **Sales Decline:** Continued decline in sales would further strain the company’s financial resources.
* **Margin Pressure:** Inability to improve gross margins would erode profitability.
* **Material Weakness:** The material weakness in internal controls increases the risk of financial misstatements.
* **Economic Conditions:** The company is exposed to risks related to economic downturns, supply chain disruptions, and tariffs.
* **Dilution:** The potential issuance of warrants could dilute existing shareholders.

Opportunities

* **Cost Reduction:** Successful cost reduction efforts could improve profitability.
* **Debt Refinancing:** Securing more favorable debt terms could ease financial pressure.
* **Market Recovery:** A recovery in the electronics market could boost sales.
* **Strategic Initiatives:** Successful execution of strategic initiatives (e.g., new product development, market expansion) could drive growth.

Uncommon Metrics

* **Contingent Warrant Liability:** This liability is unusual and reflects the company’s distressed financial situation. The value of the warrants is subject to change based on the company’s performance.
* **”Replacement Transaction”:** This term, used in the debt agreements, highlights the lender’s demand for the company to find a way to pay off its debt by September 2025.

Conclusion and Actionable Insights

SigmaTron International, Inc. faces significant financial and operational challenges. The “going concern” warning, debt covenant defaults, and material weakness in internal controls are major red flags. While the company reported net income for the quarter, this was largely due to a one-time gain. Underlying operational performance remains weak. The company’s ability to meet its debt obligations and continue as a going concern is highly uncertain.

**Recommendation: Sell.** The risks outweigh any potential opportunities. The company’s financial distress and dependence on lenders make it a highly speculative investment.

1. Commentary

SigmaTron International’s financial performance shows a mixed picture. While the company experienced a net loss for the nine months ended January 31, 2025, it achieved net income for the three months ended January 31, 2025. Revenue decreased significantly compared to the previous year, impacting profitability. The company’s liquidity position has weakened, and it carries a substantial amount of debt. A notable gain from the sale of a building positively impacted cash flow from investing activities.

2. Financial Ratio and Metric Analysis

Note: Calculations are based on the provided data for the nine months ended January 31, 2025, and January 31, 2024, unless otherwise specified. Industry comparisons are based on general knowledge as a financial analyst.

Profitability

  • Gross Profit Margin

    • Metric: 8.2% (2025); 10.0% (2024)
    • Trend: The gross profit margin decreased from 10.0% to 8.2%, a -18% change.
    • Industry: The Electronic Manufacturing Services (EMS) industry typically has gross profit margins ranging from 8% to 15%. SigmaTron’s current margin is at the lower end of this range.
  • Operating Profit Margin

    • Metric: -0.2% (2025); 3.1% (2024)
    • Trend: The operating profit margin decreased significantly from 3.1% to -0.2%, a -106.45% change.
    • Industry: The EMS industry generally sees operating margins between 3% and 7%. SigmaTron’s current negative margin indicates operational challenges.
  • Net Profit Margin

    • Metric: -3.8% (2025); 0.3% (2024)
    • Trend: The net profit margin decreased from 0.3% to -3.8%, a -1366.67% change.
    • Industry: Typical net profit margins for the EMS industry range from 2% to 5%. SigmaTron’s negative margin suggests significant financial strain.
  • Return on Assets (ROA)

    • Metric: -4.6% (2025); 0.4% (2024) – Calculated as Net Income / Total Assets
    • Trend: The ROA decreased from 0.4% to -4.6%, a -1250% change.
    • Industry: Average ROA for the EMS industry is around 5% to 10%. SigmaTron’s negative ROA indicates inefficient asset utilization.
  • Return on Equity (ROE)

    • Metric: -15.4% (2025); 1.4% (2024) – Calculated as Net Income / Total Stockholder’s Equity
    • Trend: The ROE decreased from 1.4% to -15.4%, a -1200% change.
    • Industry: A good ROE for the EMS industry is typically between 10% and 20%. SigmaTron’s negative ROE suggests poor returns to shareholders.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Metric: Basic: $(1.44) (2025); $0.15 (2024)
    • Metric: Diluted: $(1.44) (2025); $0.14 (2024)
    • Trend: EPS decreased significantly from $0.15 to $(1.44) for basic and $0.14 to $(1.44) for diluted.
    • Industry: EPS varies widely, but positive and growing EPS is generally expected. SigmaTron’s negative EPS indicates losses for shareholders.

Liquidity

  • Current Ratio

    • Metric: 1.23 (2025); 1.21 (2024) – Calculated as Current Assets / Current Liabilities
    • Trend: The current ratio increased slightly from 1.21 to 1.23, a 1.65% change.
    • Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. SigmaTron’s ratio is below this range, indicating potential liquidity concerns.
  • Quick Ratio (Acid-Test Ratio)

    • Metric: 0.39 (2025); 0.34 (2024) – Calculated as (Current Assets – Inventory) / Current Liabilities
    • Trend: The quick ratio increased from 0.34 to 0.39, a 14.71% change.
    • Industry: A quick ratio of 1.0 or higher is preferred. SigmaTron’s low ratio suggests difficulty meeting short-term obligations without relying on inventory.
  • Cash Ratio

    • Metric: 0.017 (2025); 0.017 (2024) – Calculated as Cash and Cash Equivalents / Current Liabilities
    • Trend: The cash ratio remained constant at 0.017.
    • Industry: A cash ratio of 0.2 or higher is generally considered strong. SigmaTron’s very low ratio indicates a heavy reliance on other current assets to meet obligations.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: 0.91 (2025); 1.05 (2024) – Calculated as Total Liabilities / Total Stockholders’ Equity
    • Trend: The debt-to-equity ratio decreased from 1.05 to 0.91, a -13.33% change.
    • Industry: A debt-to-equity ratio of 1.0 or lower is generally considered acceptable. SigmaTron’s ratio is slightly below this level, indicating moderate leverage.
  • Debt-to-Assets Ratio

    • Metric: 0.70 (2025); 0.70 (2024) – Calculated as Total Liabilities / Total Assets
    • Trend: The debt-to-assets ratio remained constant at 0.70.
    • Industry: A debt-to-assets ratio below 0.5 is generally preferred. SigmaTron’s ratio indicates that a significant portion of its assets are financed by debt.
  • Interest Coverage Ratio (Times Interest Earned)

    • Metric: -0.05 (2025); 1.14 (2024) – Calculated as EBIT / Interest Expense. EBIT = Operating Income + Interest Expense
    • Trend: The interest coverage ratio decreased significantly from 1.14 to -0.05, a -104.39% change.
    • Industry: An interest coverage ratio of 3.0 or higher is generally considered healthy. SigmaTron’s ratio indicates difficulty covering interest expenses with operating income.

Activity/Efficiency

  • Inventory Turnover

    • Metric: 1.98 (2025); 2.04 (2024) – Calculated as Cost of Products Sold / Average Inventory
    • Average Inventory 2025: (106,976,234 + 128,850,901) / 2
    • Average Inventory 2024: (128,850,901 + 108,224,069 + 2323689) / 2
    • Trend: The inventory turnover decreased from 2.04 to 1.98, a -2.94% change.
    • Industry: Inventory turnover varies, but a higher turnover is generally better. SigmaTron’s turnover suggests room for improvement in inventory management.
  • Days Sales Outstanding (DSO)

    • Metric: 33.9 days (2025); 39.9 days (2024) – Calculated as (Accounts Receivable / Net Sales) * 365
    • Trend: DSO decreased from 39.9 days to 33.9 days, a -15.04% change.
    • Industry: DSO varies, but a lower DSO is generally better. SigmaTron’s DSO indicates relatively efficient collection of receivables.
  • Days Payable Outstanding (DPO)

    • Metric: 71.2 days (2025); 63.0 days (2024) – Calculated as (Trade Accounts Payable / Cost of Products Sold) * 365
    • Trend: DPO increased from 63.0 days to 71.2 days, a 13.02% change.
    • Industry: A higher DPO can indicate better cash management, but excessively high DPO can strain supplier relationships. SigmaTron’s DPO suggests they are taking longer to pay suppliers.
  • Asset Turnover

    • Metric: 1.19 (2025); 1.31 (2024) – Calculated as Net Sales / Average Total Assets
    • Average Total Assets 2025: (192,987,114 + 223,793,975) / 2
    • Average Total Assets 2024: (223,793,975 + 68091027) / 2
    • Trend: The asset turnover decreased from 1.31 to 1.19, a -9.16% change.
    • Industry: Asset turnover varies, but a higher turnover is generally better. SigmaTron’s turnover suggests room for improvement in asset utilization.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: Negative (2025); 6.93 (2024) – Calculated as Stock Price / EPS. EPS is multiplied by 4/3 to annualize.
    • 2024 EPS = 0.15 * 4/3
    • Trend: The P/E ratio is negative in 2025 due to negative earnings.
    • Industry: A negative P/E ratio is unfavorable and indicates losses.
  • Price-to-Book Ratio (P/B)

    • Metric: 0.11 (2025); 0.10 (2024) – Calculated as Market Cap / Book Value of Equity. Market Cap = $1.04 * 6,119,288
    • Book Value of Equity 2025: 57,553,519
    • Book Value of Equity 2024: 66,072,253
    • Trend: The P/B ratio increased from 0.10 to 0.11, a 10% change.
    • Industry: A P/B ratio below 1.0 may indicate undervaluation, but it can also reflect concerns about the company’s future prospects.
  • Price-to-Sales Ratio (P/S)

    • Metric: 0.02 (2025); 0.02 (2024) – Calculated as Market Cap / Annualized Revenue. Revenue is multiplied by 4/3 to annualize.
    • Annualized Revenue 2025: 230,564,201 * 4/3
    • Annualized Revenue 2024: 292,741,928 * 4/3
    • Trend: The P/S ratio remained constant at 0.02.
    • Industry: A low P/S ratio can indicate undervaluation, but it can also reflect concerns about the company’s growth prospects.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: -10.4 (2025); 6.9 (2024) – Calculated as (Market Cap + Total Debt – Cash) / EBITDA. EBITDA = Operating Income + Depreciation and Amortization
    • Market Cap 2025: $1.04 * 6,119,288
    • Total Debt 2025: 52,385,706
    • Cash 2025: 2,100,287
    • EBITDA 2025: -510,057 + 4,291,162 + 243,678
    • Market Cap 2024: $1.04 * 6,119,288
    • Total Debt 2024: 69,583,387
    • Cash 2024: 2,417,360
    • EBITDA 2024: 9,126,008 + 4,485,512 + 249,033
    • Trend: The EV/EBITDA ratio decreased from 6.9 to -10.4.
    • Industry: A negative EV/EBITDA ratio is unfavorable and indicates losses.

Growth Rates

  • Revenue Growth

    • Metric: -21.38% – Calculated as (Current Revenue – Previous Revenue) / Previous Revenue
    • Current Revenue: 230,564,201
    • Previous Revenue: 292,741,928
    • Trend: Revenue decreased by 21.38%.
    • Industry: A negative revenue growth is unfavorable.
  • Net Income Growth

    • Metric: -1109.9% – Calculated as (Current Net Income – Previous Net Income) / Previous Net Income
    • Current Net Income: -8,872,218
    • Previous Net Income: 889,367
    • Trend: Net Income decreased by 1109.9%.
    • Industry: A negative net income growth is unfavorable.
  • EPS Growth

    • Metric: -1060% – Calculated as (Current EPS – Previous EPS) / Previous EPS
    • Current EPS: -1.44
    • Previous EPS: 0.15
    • Trend: EPS decreased by 1060%.
    • Industry: A negative EPS growth is unfavorable.

Other Relevant Metrics

  • Contingent Warrants

    • Description: These are warrants whose value is contingent on certain events or conditions.
    • Calculation: The fair value is adjusted based on market conditions and the likelihood of the contingent events occurring.
    • Significance: Changes in the fair value of these warrants can significantly impact net income, as seen in the three months ended January 31, 2025, where a $1,524,985 change was recorded.
    • Trend: The ending balance decreased from $2,263,000 to $1,188,546.
  • Gain on Sale of Building

    • Description: The company sold a building, resulting in a gain.
    • Calculation: The gain is calculated as the difference between the sale price and the book value of the building.
    • Significance: This gain significantly boosted the company’s other income for the nine months ended January 31, 2025, and positively impacted cash flow from investing activities.
    • Trend: There was no sale of building in the previous year.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️