TAYLOR DEVICES, INC. annual report, FY2022

Taylor Devices, Inc. — FY2022 Form 10-K

Reporting period: Fiscal year ended May 31, 2022, compared with the fiscal year ended May 31, 2021. This is an annual report, not a calendar-quarter filing. The company designs and manufactures shock-absorption, rate-control, and energy-storage products, including seismic dampers and aerospace/defense components.

Financial performance and liquidity

Metric	FY2022	FY2021
Net sales	$30.87 million	$22.51 million
Gross profit	$8.63 million; 28% margin	$3.17 million; 14% margin
Operating income (loss)	$2.47 million	$(2.35) million
Income before taxes	$2.56 million	$0.68 million
Net income	$2.24 million; $0.64 per diluted share	$1.06 million; $0.30 per diluted share
Net cash from operations	$3.31 million	$7.03 million
Capital expenditures	$1.39 million	$1.62 million
Cash and cash equivalents at year-end	$22.52 million	$20.58 million

Sales rose 37%; gross profit increased 172%, with management attributing the margin improvement primarily to stronger domestic structural sales and noting that FY2021 was adversely affected by the pandemic.
FY2022 operating results exclude the prior-year boost from $1.46 million of forgiven Paycheck Protection Program loans and $1.51 million of Employee Retention Credit income. FY2022 included $54,000 of ERC income. This makes the year-over-year comparison of net income less indicative of underlying operating improvement than the operating-income comparison.
The effective tax rate was 12.4%, versus negative 55.9% in FY2021. FY2022 tax expense was $317,000; FY2021 had a $381,000 tax benefit.
Operating cash flow declined to $3.31 million, partly reflecting a $1.84 million increase in costs and estimated earnings in excess of billings and other working-capital movements. Cash nevertheless increased by $1.94 million during the year.
At May 31, 2022, total assets were $49.22 million, current assets $37.98 million, and current liabilities $5.96 million. The company had no line-of-credit balance and reported no long-term debt in the presented balance sheet.
A $10 million demand credit line was available but is uncommitted by the bank, renewable annually, and secured by a negative pledge. Management said cash, operating cash flow, and borrowing capacity should fund operations and capital improvements for the next 12 months. Approximately $1.6 million of capital expenditures were committed at year-end.

Business changes and operating trends

Structural sales increased 60% to $16.27 million and represented 53% of revenue, up from 45%. Aerospace/defense sales rose 22% to $12.44 million; industrial sales declined 1% to $2.16 million.
Long-term project revenue increased 92%; 45 projects were in process during FY2022 versus 41 in FY2021. Revenue recognized over time accounted for 60% of sales, compared with 43% the prior year.
Backlog increased to $23.7 million across 135 open orders at May 31, 2022, from $22.0 million across 132 orders a year earlier. The company cautions that project timing and backlog changes do not necessarily predict future results.
North American sales rose 52%; Asia sales declined 5%. The filing reports 78% of revenue from North America and 14% from Asia in FY2022.
Research and development expense increased to $1.21 million from $924,000. Defense-sponsored R&D was $334,000, compared with $243,000.
Inventory was $6.96 million, down 7%. The company disposed of $772,000 of inventory in FY2022 and recorded no current-year obsolescence provision, following a $1.5 million provision in FY2021. Maintenance and other inventory remains subject to obsolescence risk.

Outlook, risks, and unusual items

No specific revenue, earnings, or margin guidance is provided. Management said the pandemic’s impact was minimal in FY2022 and was not expected to be significant in FY2023, while emphasizing that future effects depend on developments that cannot be predicted.
Key stated business risks include order timing and volatility, economic cycles, competition and pricing pressure, changing technology and product demand, and possible reductions or termination of federal-government contracts. Government contracts are generally fixed-price and may be terminated at the government’s election.
Four customers accounted for approximately 37% of FY2022 sales, including one customer at approximately 15%. Loss of significant customers could adversely affect results if business is not replaced.
Management estimates contract costs and completion margins for over-time revenue recognition. The auditor identified long-term contract cost estimates and inventory valuation as critical audit matters. Adverse estimate changes could affect reported revenue, margins, or inventory values.
Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements; it was not engaged to audit internal control.
The company reported no current legal proceedings in the business section; the financial-statement note refers to routine litigation incidental to the business.
No dividends were declared in the last two fiscal years; the company expects to retain cash for working-capital needs.

Most important facts for investors to verify

Review whether the FY2022 sales and margin improvement—especially structural-project growth—continues, and how much depends on project timing and completion estimates.
Track conversion of the $23.7 million backlog into revenue and cash, including collection and billing of the $3.34 million costs-and-earnings asset.
Assess operating cash generation against capital spending and the $1.6 million of committed expenditures; do not assume the uncommitted demand line is guaranteed funding.
Monitor inventory obsolescence reserves and disposals, and the assumptions supporting contract cost estimates and deferred tax asset recovery.
Consider customer concentration and exposure to government spending, competitive alternatives, and changing demand across structural and aerospace/defense markets.