Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2015. Taylor Devices designs and manufactures products for industrial, construction, and aerospace/defense customers, including seismic-protection applications. Financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial performance
| Metric | Three months ended Nov. 30, 2015 | Three months ended Nov. 30, 2014 | Six months ended Nov. 30, 2015 | Six months ended Nov. 30, 2014 |
|---|---|---|---|---|
| Sales | $8.820 million | $6.705 million | $18.293 million | $13.256 million |
| Gross profit | $2.995 million | $1.988 million | $6.370 million | $3.673 million |
| Gross margin | 34% | 30% | 35% | 28% |
| Operating income | $1.419 million | $0.771 million | $2.967 million | $1.370 million |
| Net income | $0.925 million | $0.504 million | $1.934 million | $0.897 million |
| Diluted earnings per share | $0.27 | $0.15 | $0.57 | $0.27 |
For the six months, sales increased 38%, gross profit 73%, operating income 117%, and net income 116% year over year. Quarterly sales rose 32% and net income 83%. SG&A increased 48% for the six months to $3.403 million, including higher outside commissions, freight, and estimated incentive compensation.
Cash flow, balance sheet, and liquidity
- Six-month operating cash flow was $194,000, down from $647,000 a year earlier. Working-capital uses included increases in receivables and inventory.
- Capital expenditures were $855,000 versus $290,000 in the prior-year period. Cash and cash equivalents decreased $398,000 during the six months, ending at $4.498 million.
- At November 30, 2015, current assets were $26.997 million and current liabilities $7.908 million; reported working capital was $19.090 million. Total assets were $36.248 million and stockholders’ equity $27.712 million.
- No line-of-credit borrowing was outstanding. The company had a $6.0 million bank demand facility, subject to annual renewal and lender terms, and reported compliance with covenants. No long-term debt balance is presented in the filing’s balance-sheet figures; long-term liabilities were $629,000.
- Management said operating cash flow and borrowing capacity should fund operations, capital improvements, and any share repurchases for the next 12 months. The company committed to $950,000 of capital expenditures over that period, primarily for a building expansion.
Business changes and management commentary
- Six-month construction-project revenue increased 45%; the company had 49 projects in process versus 42 a year earlier. Non-project sales rose 23%. U.S. sales increased 64%, while sales to Asia declined 2%.
- Higher six-month gross margin reflected better pricing on certain larger construction projects, strong margins on smaller aerospace/defense projects, and greater volume spreading fixed manufacturing costs.
- Backlog at November 30 was $23.6 million across 131 open orders, 10% more orders but 13% lower value than a year earlier ($27.1 million). Compared with fiscal year-end, backlog was down 6% from $25.2 million; $12.8 million was associated with projects already in progress.
- Receivables rose 40% from fiscal year-end to $6.638 million, and days sales outstanding increased from 40 to 68. Management attributed the receivable increase mainly to amounts billed to one customer early in a large project and expected collection within 12 months.
- Inventory was $9.743 million, up 12% from fiscal year-end; approximately 91% was work in process. Management noted that maintenance inventory is susceptible to technological obsolescence and described ongoing efforts to rework slow-moving items.
Outlook, risks, and other items
The filing gives no specific revenue or earnings guidance and cautions that interim results and period-to-period fluctuations are not necessarily indicative of full-year results. Forward-looking statements identify risks including customer capital-budget reductions, changing demand and industry capacity, competition and pricing pressure, technology changes, and natural disasters affecting demand. The company had not determined the effects of adopting the new revenue-recognition standard, effective for its fiscal 2019. It reported routine litigation only, effective disclosure controls, and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether receivables and contract balances convert to cash as expected, particularly given 68 days sales outstanding and project-related billing terms.
- Whether the $23.6 million backlog converts to revenue on schedule and at margins consistent with the recent period; backlog value is lower year over year.
- Execution, cost, and funding of the planned building expansion and other capital commitments, alongside relatively low operating cash flow.
- Renewal and availability terms of the demand line of credit, which is not an unconditional lending commitment.
- Potential inventory obsolescence and the eventual financial-statement impact of the forthcoming revenue-recognition standard.