Smith-Midland Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted. Smith-Midland manufactures, sells, leases, installs, and licenses precast concrete products, primarily for construction, transportation, utilities, and farming markets.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $4.20 million | $5.64 million; down 25% |
| Gross profit | $530,000 | $730,000; gross margin 12.6% vs. 13.0% |
| Operating loss | $833,000 | $536,000 |
| Net loss | $524,000; $0.11 per share | $329,000; $0.07 per share |
| Cash used in operations | $1.04 million | $67,000 |
| Capital expenditures | $194,000 | $140,000 |
Cash and cash equivalents were $2.27 million at March 31, down from $3.57 million at year-end 2014. Available-for-sale securities were $1.02 million. Current assets were $11.68 million and current liabilities $3.36 million, or approximately 3.5 times current-liability coverage. Total debt was $2.50 million, including $364,000 due within 12 months; the company repaid $92,000 of debt during the quarter. Its $2 million revolving credit line had no balance outstanding. The company reported compliance with its loan covenants.
Material changes and operating drivers
- Product sales declined 20%; service revenue, including shipping, installation, and barrier rentals, declined 38%; royalties fell 27%.
- Wall sales increased 40%, including higher architectural panel and Slenderwall sales. These gains were outweighed by declines in barrier sales (60%), Easi-Set/Easi-Span building sales (57%), and shipping and installation revenue (46%).
- Management attributed weak results mainly to unusually cold winter weather that constrained production, shipments, and installation, and to project delays and a limited number of jobs ready for production. General and administrative expense rose 14%, principally due to higher bad-debt expense.
- Accounts receivable—billed rose to $4.63 million from $4.09 million at year-end; average days sales outstanding increased to 105 from 88 at year-end. Inventory increased to $1.91 million from $1.73 million.
Outlook, risks, and contingencies
Management expected revenue to improve significantly after winter, as stored projects shipped and installation resumed. The March 31 sales backlog was approximately $17.7 million, compared with $10.0 million a year earlier; substantially all was expected to be produced within 12 months. Management cited awarded Soundwall projects of approximately $2.9 million, Slenderwall projects of $3.7 million, and miscellaneous slab projects of $1.3 million, among other work. It also planned approximately $500,000 of additional capital spending during the remainder of 2015. These expectations are not guarantees; the filing cautions that interim results may not indicate future results.
Key risks include construction-industry cyclicality and seasonality, adverse weather, project delays, customer payment timing and retainage, availability of financing, contract execution, and the possibility of continued losses. The company said cash flow and available credit were expected to fund operations for at least 12 months, but gave no assurance. The $2 million revolving line matured September 12, 2015. The principal bank note carried a fixed 3.99% rate; management estimated a 1% rate increase on outstanding debt would reduce annual income by about $7,000. No material litigation or significant subsequent events were reported.
Investor verification priorities
- Whether the backlog converted to production, shipments, revenue, and cash collections as management expected.
- Whether winter-related delays eased and the sharp Q1 declines in barriers, buildings, and installation recovered.
- Whether operating cash use, receivable aging, and the increased doubtful-account allowance remained manageable.
- Whether the company maintained covenant compliance, adequate liquidity, and access to credit, including the status of the revolving line at maturity.
- Whether production and sales rose enough to improve margins and return the business above its stated break-even level.