Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2014. The interim financial statements are unaudited and were reviewed by the independent accountant, not audited.
Financial performance
| Metric | Three months ended Nov. 30, 2014 | Year-over-year change | Six months ended Nov. 30, 2014 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $6.705 million | +46% | $13.256 million | +34% |
| Gross profit | $1.988 million | +52% | $3.673 million | +42% |
| Gross margin | 30% (28% prior year) | +2 percentage points | 28% (26% prior year) | +2 percentage points |
| Operating income | $771,238 | +82% | $1.370 million | About doubled |
| Net income | $504,313 | +65% | $896,619 | +77% |
| Diluted EPS | $0.15 | vs. $0.09 | $0.27 | vs. $0.15 |
Six-month SG&A rose 21% to $2.304 million, but fell to 17% of sales from 19%. Outside commissions increased 80%, mainly reflecting higher commissionable sales. For the quarter, SG&A rose 38% to $1.217 million, including a 172% increase in outside commissions.
Cash, liquidity and balance sheet
- Cash and equivalents were $3.161 million at November 30, 2014, versus $2.794 million at May 31, 2014. Six-month operating cash flow was $647,000, compared with $242,000 a year earlier; investing cash outflow was $293,000, including $290,000 of capital expenditures.
- Current assets were $21.355 million and current liabilities $5.497 million. The company reported covenant-defined working capital of $15.858 million, above the $3 million minimum.
- No amount was drawn on the $6 million bank demand line at November 30; the full unused amount was reported available within covenants. The line is renewable annually and the bank is not expressly obligated to lend. Long-term liabilities were $558,485.
- Capital expenditures were $290,000 for the half-year, versus $1.074 million in the prior-year period; commitments for the next 12 months were $18,000. Management said operating cash flows and borrowing capacity should fund operations, capital improvements and any share repurchases over the next 12 months.
Period changes and operating context
- Growth was led by long-term construction projects: project revenue rose 74% for the six months and 93% for the quarter. The company reported 42 projects in process during the half-year versus 34 a year earlier. Non-project revenue declined 10% for the half-year and 3% for the quarter.
- For the six months, U.S. sales rose 33% and sales to Asia rose 37%; building and bridge customers increased 31%, aerospace/defense 53%, while industrial sales fell 14%. Customer mix was 52% construction, 41% aerospace/defense and 7% industrial.
- Backlog was $27.1 million at November 30, up 64% from $16.5 million a year earlier and 10% from $24.6 million at May 31, 2014. It comprised 119 open orders, versus 103 a year earlier; $13 million related to projects already in progress.
- Costs and estimated earnings in excess of billings increased to $4.773 million from $2.374 million at May 31; billings in excess of costs and estimated earnings increased to $2.430 million from $851,000. Management attributed the movements to normal project progression and expected to bill the former balance and complete deliveries under the latter-related contracts within 12 months. Accounts receivable days outstanding declined to 41 from 49.
Outlook, risks and other items
The filing provides no specific earnings or revenue guidance. Management cautioned that backlog, revenue, margins, profits and net income fluctuate and that interim results are not necessarily indicative of full-year results. Revenue on certain long-term fixed-price contracts is recognized using percentage-of-completion estimates; changes in estimated costs can affect reported results, and expected contract losses are charged when identified.
Disclosed risks include lower customer capital budgets, changing demand and industry capacity, competition and pricing pressure, technology changes that reduce product demand, and natural disasters affecting demand. Maintenance and other inventory is exposed to technological obsolescence; the company recorded a $90,000 obsolescence provision in each six-month period presented. The company reported only routine litigation and no material changes to internal controls. It had no share repurchases during the quarter; $419,815 was designated for open-market purchases. No profit sharing, dividends or other benefits were provided for the fiscal year as of the filing.
Important facts for investors to verify
- Whether project growth and the $27.1 million backlog convert to billings, deliveries, collections and sustained margins.
- Project cost estimates and recoverability/timing of the $4.773 million unbilled contract asset, alongside the $2.430 million excess-billings liability.
- Availability and annual renewal of the demand credit line, despite the reported $6 million unused capacity and covenant compliance.
- Exposure to customer concentration by industry and geography, competition, demand variability and inventory obsolescence.
- The company had not determined the effects of adopting the new revenue-recognition standard, expected to apply in fiscal 2018.