Taylor Devices, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2020. Although the request metadata says “2019 Q4,” this filing reports full-year FY2020 results and does not provide clear standalone fourth-quarter financial results. Taylor Devices designs and manufactures shock absorption, rate control, and energy storage products, including seismic dampers and aerospace, defense, industrial, and construction equipment.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net revenue | $28.38 million | $33.62 million | Down 16% |
| Gross profit | $9.24 million | $9.05 million | Up 2% |
| Gross margin | 33% | 27% | Up 6 percentage points |
| Operating income | $3.30 million | $3.00 million | Up 10% |
| Net income | $3.03 million | $2.54 million | Up 19% |
| Basic and diluted EPS | $0.87 | $0.73 | Up $0.14 |
| Cash flow from operations | $9.83 million | $2.66 million | Up $7.18 million |
| Capital expenditures | $1.23 million | $0.47 million | Up $0.76 million |
- Cash and cash equivalents were $15.16 million at year-end, versus $5.07 million a year earlier. Short-term investments were $1.07 million.
- Current assets were $34.42 million and current liabilities $5.54 million. Inventory was $10.11 million, down 10%; accounts receivable were $5.82 million, up 10%.
- Operating cash flow benefited substantially from a $5.82 million reduction in costs and estimated earnings in excess of billings. DSO rose to 68 days from 53 days.
- The company recorded a $1.46 million SBA Paycheck Protection Program loan as short-term borrowings. Some or all may be forgiven if program conditions are met; otherwise, the loan bears 1% interest.
- No balance was drawn on the $10 million bank demand line of credit at May 31, 2020. The bank is not committed to lend under the facility, which is subject to annual renewal.
- Management reported sufficient liquidity for the next 12 months based on cash, operating cash flows, the SBA loan, and potential line-of-credit borrowing.
Material changes and operating trends
- Revenue declined in both long-term projects and other sales. Project revenue fell 12%, with 41 projects in process during the year versus 48 in FY2019; non-project revenue fell 20%.
- Construction sales fell 23%, aerospace/defense sales fell 5%, and industrial sales fell 4%. Asian sales declined 47%, which management attributed in part to tariffs and competition from local manufacturers. Domestic construction sales were affected by project delays.
- Gross margin improved primarily because of better margins on domestic construction projects, despite lower sales. The effective tax rate decreased to 11.3% from 16.8%, including benefits from research tax credits and a foreign-derived intangible income deduction.
- Year-end sales backlog decreased to $9.8 million across 102 open orders, from $13.3 million across 153 orders. Aerospace/defense represented 63% of backlog, versus 43% a year earlier; construction represented 32%, versus 52%.
- FY2020 revenue mix was 55% construction, 38% aerospace/defense, and 7% industrial. Six customers represented approximately 41% of sales.
- Manufacturing research spending increased to $585,000 from $319,000, primarily to meet new specifications for domestic seismic protection contracts. Defense-sponsored research spending was $26,000 in both years.
- Comparability note: FY2019 figures were not restated after adoption of the new revenue standard. The filing states that adoption increased FY2019 reported revenue by about $1.10 million and reduced FY2019 net income by about $5,000 relative to figures without adoption.
Outlook, risks, and unusual items
- The filing gives no quantified revenue, earnings, or margin guidance. Management cautions that orders, backlog, revenues, commissions, and profits fluctuate and that current-period changes may not predict future results.
- COVID-19 created substantial uncertainty. Taylor Devices was designated an essential business in New York, reported no furloughs or layoffs, and said it had not experienced significant supply-chain delays. Management nevertheless reported that some construction customers delayed orders, lowering backlog, and warned that a prolonged downturn could hurt operations and liquidity.
- Other disclosed risks include changing order timing and demand, competition and pricing pressure, competing seismic-protection technologies with lower initial costs, and possible reductions or termination of federal contracts. Government contracts are generally fixed-price and may be terminated at the government’s election.
- Accounts receivable allowance for doubtful accounts rose to $211,000 from $110,000. Management said the allowance was not expected to change materially over the next 12 months, but estimates could be affected by collections.
- The company had approximately $200,000 of capital expenditure commitments at year-end. It declared no dividends in the two fiscal years and plans to retain cash for working capital.
- The auditor issued an unqualified opinion on the financial statements. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor was not engaged to audit internal control effectiveness.
Important facts for investors to verify
- Whether the $1.46 million PPP loan qualifies for forgiveness, and the resulting cash, debt, and earnings effects.
- Whether construction-project delays persist and how backlog conversion affects future sales and margins.
- Whether elevated DSO and the larger doubtful-account allowance lead to slower collections or additional credit losses.
- Whether FY2020’s higher gross margin and operating cash flow are sustainable, given lower revenue and the large working-capital contribution from reduced unbilled project balances.
- The renewal and availability terms of the uncommitted $10 million demand credit line, particularly if operating conditions weaken.
- Future sales concentration and geographic exposure, including the impact of Asian competition and tariffs and the reliance on six customers for 41% of sales.