# Compx International Inc: Form 10-Q for the period ended Mar 31, 2023

- Company: [Compx International Inc](/companies/cix.md) (CIK 1049606)
- Form: 10-Q
- Filed: 2023-05-02
- Accepted by EDGAR: May 2, 2023, 16:15 ET
- Period: 2023-03-31
- Accession: 0001558370-23-007663
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1049606/000155837023007663/cik-20230331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1049606/000155837023007663/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $41.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $28.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $12.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $5.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $7.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $1.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $6.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.49 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.49 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 12,307,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $3.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $270.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-01-01 to 2023-03-31 | $3.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-03-31 | $18.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $111.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $176.5m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $13.1m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2023-03-31 | $161.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,371 characters.

### Business Overview

We are a leading manufacturer of engineered components utilized in a variety of applications and industries. Through our Security Products segment we manufacture mechanical and electrical cabinet locks and other locking mechanisms used in postal, recreational transportation, office and institutional furniture, cabinetry, tool storage and healthcare applications. We also manufacture wake enhancement systems, stainless steel exhaust systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine and other industries through our Marine Components segment.

### General

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. In some cases, you can identify forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expects” or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. The factors that could cause actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the SEC and include, but are not limited to, the following:

- Future demand for our products,
- Changes in our raw material and other operating costs (such as zinc, brass, aluminum, steel and energy costs) and our ability to pass those costs on to our customers or offset them with reductions in other operating costs,
- Price and product competition from low-cost manufacturing sources (such as China),
- The impact of pricing and production decisions,
- Customer and competitor strategies including substitute products,
- Uncertainties associated with the development of new products and product features,
- Future litigation,
- Our ability to protect or defend our intellectual property rights,
- Potential difficulties in integrating future acquisitions,
- Decisions to sell operating assets other than in the ordinary course of business,
- Environmental matters (such as those requiring emission and discharge standards for existing and new facilities),
- The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform,
- Government laws and regulations and possible changes therein including new environmental health and safety or other regulations,
- General global economic and political conditions that disrupt or introduce instability into our supply chain, impact our customers’ level of demand or our customers’ perception regarding demand or impair our ability to operate our facilities (including changes in the level of gross domestic product in various regions of the world, natural disasters, terrorist acts, global conflicts and public health crises such as COVID-19),
- Operating interruptions (including, but not limited to, labor disputes, hazardous chemical leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, cyber-attacks and public health crises such as COVID-19); and
- Possible disruption of our business or increases in the cost of doing business resulting from terrorist activities or global conflicts.

Should one or more of these risks materialize or if the consequences worsen, or if the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.

### Operating Income Overview

In the first quarter of 2023 operating income increased to $7.0 million compared to $6.3 million in the first quarter of 2022. The increase in operating income in the first quarter of 2023 compared to 2022 is due to higher Marine Components sales and gross margins which more than offset lower Security Products sales.

We sell a large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on our ability to quantify the impact of changes in individual product sales quantities and selling prices on our net sales, cost of sales and gross margin. In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our products sold.

### Results of Operations

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three months ended March 31, 2022 | ​ ​ ​ ​% ​ | ​ ​ 2023 | ​ ​ ​ ​% ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Net sales | ​ | $42,050 | 100.0% | **$41,151** | **100.0%** |
| Cost of sales | ​ | 29,970 | 71.3 **​** | **28,447** | **69.1** **​** |
| Gross margin | ​ | 12,080 | 28.7 **​** | **12,704** | **30.9** **​** |
| Operating costs and expenses | ​ | 5,774 | 13.7 **​** | **5,664** | **13.8** **​** |
| Operating income | ​ | $6,306 | 15.0% | **$7,040** | **17.1%** |

*Net sales*. Net sales decreased $.9 million in the first quarter of 2023 compared to the same period in 2022 primarily due to lower Security Products sales to the government security and healthcare industry markets, partially offset by higher Marine Components sales predominantly to the industrial market.

*Cost of sales and gross margin.* Cost of sales as a percentage of sales decreased 2.2% in the first quarter of 2023 compared to the same period in 2022. As a result, gross margin as a percentage of sales increased over the same period. Gross margin percentage increased in the first quarter of 2023 compared to the same period in 2022 primarily due to higher gross margin at Marine Components. See segment discussion below.

*Operating costs and expenses.* Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as any gains and losses on property and equipment. Operating costs and expenses for the first quarter of 2023 were comparable to the same period in 2022.

*Operating income.* As a percentage of net sales, operating income for the first quarter of 2023 increased compared to the same period of 2022 and was primarily impacted by the factors impacting sales, cost of sales, gross margin and operating costs. See segment discussion below.

*Interest income.* Interest income increased $.7 million in the first quarter of 2023 compared to the same period in 2022 primarily due to higher average interest rates and increased investment balances, somewhat offset by lower average balances on the revolving promissory note receivable from Valhi. See Notes 3 and 10 to our Condensed Consolidated Financial Statements.

*Provision for income taxes.* A tabular reconciliation of our actual tax provision to the U.S. federal statutory income tax rate is included in Note 7 to the Condensed Consolidated Financial Statements. Our operations are wholly within the U.S. and therefore our effective income tax rate is primarily reflective of the U.S. federal statutory rate and applicable state taxes.

### Segment Results

The key performance indicator for our segments is operating income.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Security Products: | ​ ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2022 ​ | ​ ​ ​ ​ ​% 2023 ​ ​ | ​ ​ ​ ​ Change ​ ​ |
| --- | --- | ---: | ---: | ---: |
| Net sales | ​ | $29,581 **​** | **$27,342** | **(8)%** |
| Cost of sales | ​ | 20,500 **​** | **18,875** | **(8)** ​ |
| Gross margin | ​ | 9,081 **​** | **8,467** | **(7)** ​ |
| Operating costs and expenses | ​ | 3,071 **​** | **3,088** | **1** ​ |
| Operating income | ​ | $6,010 **​** | **$5,379** | **(10)** ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ |
| Gross margin | ​ | 30.7% | **31.0%** | ​ ​ |
| Operating income margin | ​ | 20.3 **​** | **19.7** | ​ **​** |

*Security Products*. Security Products net sales decreased 8% in the first quarter of 2023 compared to the same period last year. Relative to the first quarter of 2022, sales were $1.8 million lower to the government security market and $.5 million lower to the healthcare industry market. Gross margin and operating margin as a percentage of net sales for the first quarter of 2023 were comparable with the first quarter of 2022.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ Marine Components: | ​ ​ ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2022 ​ ​ ​ ​ | ​ ​ ​ ​ ​% 2023 ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ Change ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: |
| Net sales | ​ | $12,469 **​** | **$13,809** | **11%** |
| Cost of sales | ​ | 9,470 **​** | **9,572** | **1** ​ |
| Gross margin | ​ | 2,999 **​** | **4,237** | **41** ​ |
| Operating costs and expenses | ​ | 990 **​** | **920** | **(7)** ​ |
| Operating income | ​ | $2,009 **​** | **$3,317** | **65** ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ |
| Gross margin | ​ | 24.1% | **30.7%** | ​ ​ |
| Operating income margin | ​ | 16.1 **​** | **24.0** | ​ **​** |

*Marine Components*. Marine Components net sales increased 11% in the first quarter of 2023 compared to the same period last year. Relative to the first quarter of 2022, sales were $1.2 million higher to the industrial market, $.3 million higher to distributors and $.3 million higher to dealers, partially offset by $.9 million lower sales to the towboat market. Gross margin as a percentage of sales increased in the first quarter of 2023 compared to the same period last year primarily due to more favorable product mix and, to a lesser extent, increased selling prices and surcharges and increased production efficiencies. Operating income as a percentage of net sales increased in the first quarter of 2023 compared to the first quarter of 2022 due to the factors impacting gross margin and increased coverage of operating costs and expenses from higher sales.

*Outlook.* The softening demand we began seeing in the fourth quarter of 2022 at both segments continued during the first quarter. As a result, Marine Components largely worked through its backlog in the first quarter, primarily related to the towboat market, and Security Products continued to experience declining order rates. Entering into 2023, labor markets have become more favorable in each of the regions we operate and raw material prices have generally stabilized. Our supply chains are stable and transportation and logistical delays are minimal, although we continue to face shortages related to certain electronic components. We have adjusted production rates at our facilities to reflect the stability of our raw material supplies and near-term demand levels.

Over the remainder of the year, we expect gross margins at Security Products will be challenged as higher cost inventory works its way through cost of sales and reduced demand may limit our ability to implement further price increases. We are in close contact with our key customers and believe reduced order rates will continue through the second quarter. As expected, Marine Components net sales were strong during the first quarter but we expect net sales overall will decline as compared to 2022 as marine market demand is challenged by higher interest rates and several original equipment boat manufacturers, including certain of our customers, have publicly announced reduced production schedules in 2023 compared to 2022. Overall, we expect Marine Components gross margins as a percentage of net sales for the full year of 2023 to be comparable to 2022 as the favorable impact of product mix in the first quarter of 2023 is not expected for the remainder of the year. Based on the softening demand and general economic conditions in North America, we currently expect to report lower net sales and operating income at both segments during 2023 compared to 2022. We are focused on managing inventory levels to support anticipated lower demand in 2023. With raw materials and other components more readily available, we believe we will be able to achieve additional operating efficiencies during the year although the extent and impact of such efficiencies is not yet known.

Our expectations for our operations and the markets we serve are based on a number of factors outside our control. As noted above, there continue to be some global and domestic supply chain challenges and any future impacts on our operations will depend on, among other things, any future disruption in our operations or our suppliers’ operations, the impact of economic conditions and geopolitical events on demand for our products or our customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

### Liquidity and Capital Resources

### Consolidated cash flows –

*Operating activities*. Trends in cash flows from operating activities, excluding changes in assets and liabilities, have generally been similar to the trends in operating earnings. Changes in assets and liabilities result primarily from the timing of production, sales and purchases. Changes in assets and liabilities generally tend to even out over time. However, period-to-period relative changes in assets and liabilities can significantly affect the comparability of cash flows from operating activities.

Our net cash provided by operating activities for the first three months of 2023 increased by $5.2 million as compared to the first three months of 2022. The increase in net cash provided is primarily due to the net effects of:

- A $4.4 million decrease in the amount of net cash used by relative changes in our inventories, receivables, prepaids, payables and non-tax related accruals in 2023,
- A $.7 million increase in operating income in 2023,
- A $.4 million increase in interest received in 2023 due to higher interest rates and increased investment balances, partially offset by lower average balances on our loan to an affiliate, and
- A $.3 million increase in cash paid for taxes in 2023 due to higher operating income and the relative timing of payments.

Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, the change in our average days sales outstanding from December 31, 2022 to March 31, 2023 varied by segment primarily as a result of relative changes in the timing of sales and collections relative to the end of the quarter. For comparative purposes, we have provided December 31, 2021 and March 31, 2022 numbers below.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| ​ | **​** | **December 31,** | **​** | **March 31,** | **​** | **December 31,** | **​** | **March 31,** |
| **Days Sales Outstanding:** |  | **2021** |  | **2022** |  | **2022** |  | **2023** |
| Security Products |  | 46 Days |  | 42 Days | ​ | 45 Days |  | 44 Days |
| Marine Components |  | 30 Days |  | 31 Days | ​ | 30 Days |  | 36 Days |
| Consolidated CompX |  | 42 Days |  | 38 Days | ​ | 41 Days |  | 41 Days |

Our average number of days in inventory decreased from December 31, 2022 to March 31, 2023 primarily due to sales growth at Marine Components in the first quarter of 2023 somewhat offset by sales decline at Security Products as well as lower inventory balances at both segments. For comparative purposes, we have provided December 31, 2021 and March 31, 2022 numbers below.

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| ​ | **​** | **December 31,** | **​** | **March 31,** | **​** | **December 31,** | **​** | **March 31,** | **​** |
| **Days in Inventory:** |  | **2021** |  | **2022** |  | **2022** |  | **2023** | **​** |
| Security Products |  | 95 Days |  | 87 Days | ​ | 101 Days |  | 102 Days | ​ |
| Marine Components |  | 97 Days |  | 82 Days | ​ | 95 Days |  | 87 Days | ​ |
| Consolidated CompX |  | 96 Days |  | 85 Days | ​ | 99 Days |  | 97 Days | ​ |

*Investing activities.* Our capital expenditures were $.3 million and $1.7 million in the first three months of 2023 and 2022, respectively. During the first three months of 2023, Valhi repaid a net $1.0 million under the promissory note ($6.8 million of gross borrowings and $7.8 million of gross repayments). During the first three months of 2022, Valhi repaid a net $.6 million under the promissory note ($7.1 million of gross borrowings and $7.7 million of gross repayments). See Note 10 to our Condensed Consolidated Financial Statements.

During the first quarter of 2023, we purchased marketable securities totaling $13.5 million and received gross proceeds totaling $4.0 million related to U.S. treasury bill maturities. See Note 3 to our Condensed Consolidated Financial Statements.

*Financing activities.* Financing activities consisted only of quarterly cash dividends. Our board of directors declared a regular quarterly dividend of $.25 per share in each of the first quarters of 2022 and 2023. The declaration and payment of future dividends and the amount thereof, if any, is discretionary and is dependent upon our results of operations, financial condition, cash requirements for our businesses, contractual requirements and restrictions and other factors deemed relevant by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which we might pay.

### Future cash requirements –

*Liquidity*. Our primary source of liquidity on an ongoing basis is our cash flow from operating activities, which is generally used to (i) fund capital expenditures, (ii) repay short-term or long-term indebtedness incurred primarily for capital expenditures, investment activities or reducing our outstanding stock, (iii) provide for the payment of dividends (if declared), and (iv) lend to affiliates. From time-to-time, we will incur indebtedness, primarily to fund capital expenditures or business combinations.

Periodically, we evaluate liquidity requirements, alternative uses of capital, capital needs and available resources in view of, among other things, our capital expenditure requirements, dividend policy and estimated future operating cash flows. As a result of this process, we have in the past and may in the future seek to raise additional capital, refinance or restructure indebtedness, issue additional securities, modify our dividend policy or take a combination of such steps to manage our liquidity and capital resources. In the normal course of business, we may review opportunities for acquisitions, joint ventures or other business combinations in the component products industry. In the event of any such transaction, we may consider using available cash, issuing additional equity securities or increasing our indebtedness or that of our subsidiaries.

We believe that cash generated from operations together with cash on hand, as well as our ability to obtain external financing, will be sufficient to meet our liquidity needs for working capital, capital expenditures, debt service, dividends (if declared) and any amounts we might loan from time to time under the terms of our revolving loan to Valhi discussed in Note 10 to our Condensed Consolidated Financial Statements (which loans would be solely at our discretion) for both the next 12 months and five years. To the extent that our actual operating results or other developments differ from our expectations, our liquidity could be adversely affected.

All of our $61 million aggregate cash, cash equivalents and marketable securities at March 31, 2023 were held in the U.S.

*Capital expenditures.* Firm purchase commitments for capital projects in process at March 31, 2023 totaled $.1 million. We expect our capital expenditures for 2023 will be approximately $2.5 million primarily to meet our existing customer demand and those required to properly maintain our facilities and technology infrastructure.

*Stock repurchase program.* At March 31, 2023, we have 523,647 shares available for repurchase under a stock repurchase program authorized by our board of directors. See Note 8 to our Condensed Consolidated Financial Statements.

*Commitments and contingencies.* There have been no material changes in our contractual obligations since we filed our 2022 Annual Report and we refer you to that report for a complete description of these commitments.

### Recent accounting pronouncements –

None.

### Critical accounting policies –

There have been no changes in the first three months of 2023 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report.

## Market risk

As filed, 375 characters.

We are exposed to market risk from changes in interest rates and raw material prices. There have been no material changes in these market risks since we filed our 2022 Annual Report, and we refer you to Part I, Item 7A – “Quantitative and Qualitative Disclosure About Market Risk” in our 2022 Annual Report. See also Note 9 to the Condensed Consolidated Financial Statements.

## Controls and procedures

As filed, 3,049 characters.

**Evaluation of Disclosure Controls and Procedures.** We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Our management with the participation of Scott C. James, our President and Chief Executive Officer, and Amy A. Samford, our Executive Vice President and Chief Financial Officer, has evaluated the design and operating effectiveness of our disclosure controls and procedures as of March 31, 2023. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of such evaluation.

**Internal Control Over Financial Reporting**. Our management is responsible for establishing and maintaining adequate internal control over financial reporting which, as defined in Exchange Act Rule 13a-15(f), means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets,
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and
- Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of our assets that could have a material effect on our Condensed Consolidated Financial Statements.

**Changes in Internal Control Over Financial Reporting**. There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed May 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-007663. Last ingested by Listed: Oct 24, 2026, 15:03 ET. No prices; not investment advice.