Taylor Devices, Inc. — Form 10-Q Summary
Business context and period: Taylor Devices designs and manufactures engineered shock absorption, vibration damping, and energy storage products. This filing covers the three months ended August 31, 2022, the first quarter of fiscal 2023, and compares results with the three months ended August 31, 2021. The interim financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial results and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $9.09 million | $7.31 million | +24% |
| Gross profit | $3.38 million | $1.87 million | +81% |
| Gross margin | 37% | 26% | +11 percentage points |
| Operating income | $1.18 million | $118,000 | Nearly 10 times higher |
| Net income | $1.00 million | $182,000 | +451% |
| Basic and diluted EPS | $0.29 | $0.05 | Higher |
| Operating cash flow | $(31,000) | $29,000 | Lower |
| Capital expenditures | $833,000 | $462,000 | Higher |
Cash and cash equivalents were $21.69 million at August 31, 2022, down from $22.52 million at May 31, 2022; short-term investments were $1.10 million. Current assets were $37.77 million and current liabilities $5.13 million, for working capital of approximately $32.64 million and a current ratio of about 7.4. The balance sheet reports no debt. Stockholders’ equity was $44.29 million. Management says operating cash flows should be sufficient for operations and capital improvements over the next 12 months; $1.7 million of capital expenditure commitments are expected during that period.
Changes and management commentary
- Management attributed growth to higher sales across customer groups and more projects in process: 33 projects versus 26 a year earlier. Project revenue rose 14%; non-project revenue rose 45%.
- U.S. sales increased 45%, while sales to Asia declined 40%; the company said the strong U.S. dollar was making its products less competitive in Asian markets. Geographic sales mix was 82% U.S., 10% Asia, and 8% other, versus 70%, 20%, and 10%, respectively, a year earlier.
- Sales to building and bridge customers rose 17%, aerospace and defense customers 37%, and industrial customers 25%. Management said sales were at or above pre-pandemic levels and that pandemic effects appeared to be behind the company.
- Gross margin improved as the company raised prices to recover more of higher material and labor costs. R&D was $375,000, up 33%, and SG&A was $1.83 million, up 24%, primarily due to higher employee compensation and incentive compensation. R&D is now presented separately below gross profit; prior-period figures were reclassified for comparison.
- Backlog was $23.0 million at August 31, 2022, up 19% year over year but slightly below $23.7 million at May 31, 2022. Open orders were 146, down 12% year over year. Management cautions that backlog, revenue, margins, and earnings fluctuate and current-period changes may not predict future results.
- Accounts receivable rose 31% from May 31 to $5.83 million, and days sales outstanding increased from 42 to 58 days. Management attributed this mainly to more than half of quarterly revenue being recorded in the final month and expects collection within 12 months. Net contract assets (costs and estimated earnings in excess of billings, less billings in excess) were $7.05 million, up 6% from May 31.
Outlook, risks, and unusual items
The filing provides no specific earnings or revenue guidance. Management notes that quarterly results are not necessarily indicative of full-year results. Forward-looking risks include customer capital-budget reductions, changes in demand and industry capacity, competition and pricing pressure, technology changes, natural disasters, and pandemics. Maintenance and other inventory may be exposed to technological obsolescence; management maintains an obsolescence allowance and is reworking or disposing of slow-moving stock. The prior-year quarter included $54,000 of federal Employee Retention Credit assistance in other income; no comparable amount is identified for the current quarter. The filing states there are no provisions for profit sharing, dividends, or other benefits for the fiscal year. Legal matters are described as routine litigation incidental to the business.
Important facts for investors to verify
- Whether stronger U.S. demand, the project pipeline, and the $23.0 million backlog convert into sustained revenue and earnings.
- Whether price increases continue to offset material and labor inflation and support the improved gross margin.
- Collection timing for receivables and contract assets, given the increase in receivables and DSO.
- Execution, timing, and funding of the $1.7 million in planned capital expenditures.
- Exposure to Asian-market weakness, currency competitiveness, competition, and inventory obsolescence.
- The company’s results remain subject to normal quarterly volatility; management states that the reported quarter is not a reliable standalone forecast of full-year performance.