Smith-Midland Corporation — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; comparative period is FY2022. The filing was signed May 23, 2024. Amounts below are in millions unless noted.
Business context
Smith-Midland manufactures, sells, leases, installs and licenses precast concrete products, including highway barriers, soundwalls, SlenderWall panels, precast buildings and utility products. Its markets include construction, transportation, utilities and farming, with operations concentrated in the eastern United States. The business is seasonal and exposed to construction cycles, weather and government infrastructure spending.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $59.580 | $50.131 |
| Gross profit / gross margin | $10.652 / 17.9% | $9.469 / 18.9% |
| Operating income / margin | $1.118 / 1.9% | $0.854 / 1.7% |
| Net income / net margin | $0.795 / 1.3% | $0.800 / 1.6% |
| Diluted EPS | $0.15 | $0.15 |
| Cash from operations | $7.732 | $(6.334) |
| Capital expenditures | $5.010 | $2.749 |
| Cash and cash equivalents at year-end | $9.175 | $6.726 |
Revenue rose 19%, led by product sales, which increased 39% to $38.748 million. Product sales growth included SlenderWall (+257%), soundwall (+86%) and miscellaneous wall sales (+85%). Architectural sales fell 74%; shipping and installation revenue fell 11%; barrier rentals declined 3%. Net income was essentially flat despite higher revenue: increased gross profit and operating income were offset in part by higher operating expenses and income tax expense. Gross margin declined, with management citing approximately $0.4 million of rework on a project, lower rental mix, and higher material and labor costs.
Operating expenses were approximately $9.5 million, versus approximately $8.6 million in 2022. Interest expense was $0.255 million. Income tax expense increased to $0.528 million from $0.145 million; the effective rate rose to 40.0% from 15.4%, mainly due to a state-tax true-up.
Cash from operations improved substantially, supported in part by higher customer deposits and deferred revenue. Investing activities used $4.664 million, mainly for a barrier storage lot and a South Carolina batch plant; financing activities used $0.619 million for debt repayments. Derived operating cash flow less capital expenditures was approximately $2.722 million.
At year-end, current assets were $33.325 million and current liabilities were $16.018 million. Accounts receivable, net, was $17.209 million, including an $0.806 million allowance for credit losses; inventory was $5.150 million. Days sales outstanding increased to 113 from 99. Notes payable were $5.728 million in the financial statements, including $0.636 million due within 12 months. The company had no balance drawn on its $5.0 million revolving credit line, which matures October 1, 2024, and was in compliance with loan covenants. Management believes available cash, operating cash flow and credit availability should fund operations for at least 12 months, but provides no assurance.
Material changes and outlook
- Fourth-quarter revenue was $16.389 million, versus $14.487 million in Q4 2022, mainly reflecting higher barrier rental and soundwall sales. The filing text does not provide clear fourth-quarter profit or cash-flow values.
- Sales backlog was approximately $60.8 million as of March 12, 2024, up from approximately $52.4 million around the same date in 2023. Most backlog is expected to be produced within 12 months, though some projects span multiple years.
- Management anticipates greater sales volume in 2024 and expects infrastructure funding to support highway-related demand, while noting there is no assurance. Soundwall sales are expected to be similar; SlenderWall and miscellaneous product sales lower; architectural sales higher; and barrier sales lower as the company shifts toward rentals. These are expectations, not guarantees.
- Planned 2024 capital spending is approximately $5.0 million, including North Carolina facility expansion, soundwall forms and manufacturing equipment. The company expects raw-material and labor costs to increase in 2024.
- The North Carolina facility expansion is expected to be completed in the second half of 2024. The company paid no dividend in 2023 and says future dividends depend on financial needs, earnings, covenants and other factors.
Risks, contingencies and unusual items
- Financial reporting controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end because of material weaknesses in review of the credit-loss allowance and review, approval and segregation of duties for journal entries. Remediation is underway but not yet established as effective. The auditor did not attest to internal-control effectiveness.
- Credit and working capital: Receivables are historically high, DSO increased, and collection of balances is not assured. Customer payment commonly follows production by 45–75 days, and retainage may be held until project completion. One customer accounted for 14% of FY2023 revenue; two customers each represented 10% of year-end receivables.
- Cybersecurity and fraud: The company reported a wire-fraud incident in Q2 2023 and additional recovery in Q4; the net loss for the year was $25,000. It says additional safeguards were implemented.
- Project execution and costs: Rework on one project cost approximately $0.4 million. Delays, contract specifications, inspection and approval, weather, inflation, and construction cyclicality may affect results. Litigation is not presently material, and the company reports no material legal proceedings.
- Debt and investment: Debt increased significantly in 2022. A variable-rate credit line could raise interest costs if drawn; most outstanding notes are fixed-rate. Continued expansion depends on cash generation and financing availability.
- Accounting and filing item: The filing’s cover page indicates the financial statements reflect correction of an error, but the supplied filing text does not clearly identify its nature or amount. The auditor identified the allowance for credit losses as a critical audit matter.
Most important facts for investors to verify
- Whether the credit-loss and journal-entry control weaknesses are remediated, and what testing supports that conclusion.
- The nature and financial impact of the prior-period error correction indicated on the cover page.
- Receivable aging, subsequent collections, customer concentration and adequacy of the $0.806 million credit-loss allowance.
- Backlog conversion, 2024 rental utilization, infrastructure funding timing and progress on the North Carolina expansion.
- Reconciliation of the MD&A statement of $5.789 million of debt obligations to the financial-statement notes-payable balance of $5.728 million.