Taylor Devices, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended November 30, 2021. The statements are unaudited; the independent accountant performed a review, not an audit.
Business context and financial performance
The company reported sharply higher sales, primarily as structural customers resumed or increased construction-related orders that had been delayed amid COVID-19 uncertainty. Its products serve industrial, structural, and aerospace/defense customers.
| Metric | Three months ended Nov. 30, 2021 | Six months ended Nov. 30, 2021 |
|---|---|---|
| Net sales | $7.76 million, up 64% | $15.07 million, up 44% |
| Gross profit / margin | $2.39 million / 31% (prior year 12%) | $3.98 million / 26% (prior year 20%) |
| Operating income (loss) | $780,000 (prior year loss $670,000) | $899,000 (prior year loss $478,000) |
| Net income | $660,000, up 2%; $0.19 per share | $842,000, up 2%; $0.24 per share |
Six-month SG&A rose 18% to $3.08 million, mainly from personnel and advertising costs and higher commissions. Net income grew modestly despite the operating turnaround, in part because prior-year other income included $1.462 million of forgiven Paycheck Protection Program (PPP) debt. No debt is reported on the November 30 balance sheet.
Cash flow, liquidity, and balance sheet
- Cash and cash equivalents were $18.65 million at November 30, down from $20.58 million at May 31; short-term investments were $1.10 million.
- Six-month operating cash flow was a use of $1.37 million, versus $562,000 provided a year earlier. The main working-capital use was a $2.39 million increase in costs and estimated earnings in excess of billings.
- Capital expenditures were $560,000; commitments for the next 12 months totaled $1.4 million. Management said operating cash flows should fund operations and capital improvements for the next 12 months.
- Current assets were $34.37 million and current liabilities $4.29 million. Accounts receivable, costs and estimated earnings in excess of billings, net of billings in excess, totaled $7.48 million, up 113% from fiscal year-end.
- Costs and estimated earnings in excess of billings rose to $3.88 million from $1.50 million. Management expects to bill the balance within 12 months. Days sales outstanding increased to 50 from 42 at May 31.
Material changes, outlook, and risks
- Structural sales increased substantially: structural customers represented 62% of six-month sales, versus 43% a year earlier. Aerospace/defense fell to 31% from 48%. U.S. sales were 73% of revenue, up from 68%.
- Long-term project revenue rose 185% for the six-month period; non-project sales declined 29%. Revenue recognized over time accounted for 67% of six-month sales, compared with 34% in the prior-year period. Contract revenue depends on estimates of completion and total costs; revisions can affect results.
- Backlog was $17.0 million at November 30, versus $15.4 million a year earlier, but below $22.0 million at May 31. The filing cautions that backlog and results fluctuate and current-period changes may not predict future performance.
- Management reported no significant supply-chain delays affecting finished products, while noting it was monitoring longer lead times. It warned that a prolonged pandemic-related economic downturn could harm operations and liquidity. Other stated risks include customer capital-budget cuts, demand and pricing changes, competition, technological advances, and natural disasters.
- No numerical earnings or sales guidance was provided. The company reported a $90,000 inventory-obsolescence provision for the six-month period, versus none a year earlier, and $126,000 of stock-option compensation. It reported no material legal proceedings beyond routine litigation and no dividends or profit-sharing benefits for the fiscal year.
Important facts for investors to verify
- Whether the rebound in structural/project demand and the $17.0 million backlog convert to billed and collected revenue.
- Whether the elevated unbilled contract asset, receivables, and 50-day DSO result in timely cash collection.
- How margins and earnings compare once the prior-year $1.462 million PPP forgiveness benefit is excluded.
- Whether cash generation can support the stated $1.4 million of planned capital expenditures amid working-capital needs and possible supply-chain or economic disruption.
- Project cost estimates, inventory obsolescence exposure, and the changing mix between structural and aerospace/defense customers.