Taylor Devices, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended August 31, 2020, Taylor Devices’ first fiscal quarter of 2021, compared with the three months ended August 31, 2019. The company sells products to industrial, construction, and aerospace/defense customers. The interim financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial performance and position
| Metric | Quarter ended Aug. 31, 2020 | Prior-year quarter |
|---|---|---|
| Net sales | $5.759 million | $5.709 million |
| Gross profit / gross margin | $1.555 million / 27% | $1.683 million / 29% |
| Operating income | $191,365 | $392,346 |
| Net income | $176,011 | $354,577 |
| Diluted earnings per share | $0.05 | $0.10 |
| Cash provided by operations | $507,127 | $1.734 million |
| Capital expenditures | $244,458 | $72,919 |
At August 31, 2020, cash and cash equivalents were $15.419 million, with short-term investments of $1.078 million. Total assets were $43.767 million and stockholders’ equity was $39.767 million. Short-term borrowings were $1.462 million, consisting of a Small Business Administration Paycheck Protection Program (PPP) loan; the filing reports no other debt balance. Current liabilities totaled $4.000 million, down from $5.538 million at May 31, 2020. Management said operating cash flows should be sufficient for operations and capital improvements over the next 12 months.
Material changes versus the prior comparable period
- Sales increased 1%, but cost of goods sold rose 4%; gross profit declined 8%, operating income declined 51%, and net income declined about 50%.
- SG&A increased 6% to $1.363 million. The filing attributes the earnings decline to lower gross profit and higher SG&A.
- Revenue from long-term construction projects fell 36%; non-project revenue rose 52%. Projects in process during the quarter numbered 19, versus 27 in the prior-year quarter.
- Construction represented 52% of sales, down from 60%; aerospace/defense rose to 40% from 30%, and industrial was 8% versus 10%. U.S. sales declined 13%, while sales to Asia increased 86%.
- Open-order backlog was $10.3 million (110 orders) versus $18.3 million (124 orders) a year earlier. It was slightly above the $9.8 million at the prior fiscal year-end.
- Cash increased by $259,174 during the quarter, versus a $1.659 million increase in the prior-year quarter. Operating cash flow was lower, while working-capital movements included cash inflows from receivables and inventory and outflows from other current liabilities and contract billings.
Outlook, risks, and unusual items
- No specific earnings or sales guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Management reported that COVID-19 had not materially disrupted its ability to fulfill existing orders or obtain supplies at the filing date. However, some construction customers were delaying orders, keeping backlog lower; a prolonged economic downturn could adversely affect operations and liquidity.
- The $1.462 million PPP loan bears 1% interest and may be forgiven if applicable criteria are met. If not forgiven, repayment terms are subject to the loan provisions described in the filing.
- The company had $300,000 of capital-expenditure commitments for the next 12 months. Management also noted technology-related obsolescence risk for maintenance and other inventory.
- Forward-looking risks include customer capital-budget reductions, demand changes, competition and pricing pressure, technological advances, and natural disasters. The filing reports no provision for profit sharing, dividends, or other benefits for the fiscal year.
Important facts for investors to verify
- Progress on converting the $10.3 million backlog into revenue, particularly given construction-customer delays and the year-over-year backlog decline.
- PPP loan forgiveness status, eligibility, and any resulting repayment obligations.
- Whether gross margins and earnings stabilize as project volumes and customer-sector mix change.
- Collection and billing trends: accounts-receivable days outstanding increased to 74 from 68 at May 31, 2020; management expects receivables and contract assets to be collected or billed within 12 months.
- Potential effects of a prolonged COVID-19-related downturn, inventory obsolescence, and the company’s ability to meet its capital spending plans.