Taylor Devices, Inc. — Form 10-Q Summary
Business context and reporting period
Reports the three months ended August 31, 2019, the first quarter of fiscal 2020, with comparison to the three months ended August 31, 2018. Taylor Devices serves industrial, construction, and aerospace/defense customers. Interim financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | $5.709 million | $7.314 million | -22% |
| Gross profit | $1.683 million | $2.306 million | -27% |
| Gross margin | 29% | 32% | -3 percentage points |
| Operating income | $392,346 | $931,646 | -58% |
| Net income | $354,577 | $740,832 | -52% |
| Diluted EPS | $0.10 | $0.21 | Down $0.11 |
| Cash from operations | $1.734 million | $4.357 million | Down $2.623 million |
| Capital expenditures | $72,919 | $100,402 | Down $27,483 |
At August 31, cash and cash equivalents were $6.731 million and short-term investments were $1.060 million. Current assets were $30.904 million and current liabilities $4.409 million. Total assets were $41.141 million; stockholders’ equity was $36.732 million. The balance sheet does not show debt. Management says operating cash flows and borrowing capacity under its bank line are expected to fund operations and capital improvements for the next 12 months; the filing does not state the line’s size or availability. Planned capital expenditure commitments for the next 12 months were $180,000.
Material changes and management commentary
Sales to non-project customers fell 36% year over year; revenue from long-term projects declined 6%. Aerospace/defense sales declined 47%, which management attributed to prior-year sales being unusually high and the natural delivery cycle, including customer requests for earlier deliveries. Management said recent aerospace/defense orders in backlog were expected to support sales later in the fiscal year. Industrial sales increased 20%; construction/building and bridge sales declined 5%. Domestic sales fell 27%, while sales to Asia rose 3%.
Management attributed the lower gross margin primarily to product and customer mix: domestic and aerospace/defense sales generally carry higher margins than exports and construction sales. SG&A decreased 6%, mainly as outside commissions fell 28%; SG&A rose to 23% of revenue from 19% as revenue declined.
Backlog was $18.3 million across 124 orders at August 31, compared with $22.6 million and 118 orders a year earlier. It had increased from $13.3 million at May 31, 2019; $4.6 million of current backlog related to projects already in progress. Revenue recognized over time represented 58% of quarterly revenue, versus 48% a year earlier.
Cash from operations was lower year over year, with working-capital movements including a $1.567 million increase in receivables offset in part by a $3.073 million reduction in costs and estimated earnings in excess of billings. Accounts receivable rose 30% from May 31 to $6.847 million, and days sales outstanding increased from 53 to 108. Management attributed the DSO increase to higher quarter-end receivables and lower average daily sales, and expects to collect net receivables, including retainage, within 12 months. Costs and estimated earnings in excess of billings declined 41% to $4.499 million; management expects to bill the balance within 12 months.
Outlook, risks, and other items
The filing provides no formal financial guidance. Management cautions that quarterly results and backlog fluctuate and are not necessarily indicative of full-year results. Disclosed risks include reduced customer capital budgets, changing demand and industry capacity, competition and pricing pressure, technology advances that could reduce demand, and natural disasters affecting demand. The company reported no legal proceedings other than routine litigation incidental to its business, no defaults on senior securities, and no material change in internal controls. It stated there would be no profit sharing, dividends, or other benefits for the fiscal year.
Important facts for investors to verify
- Whether the aerospace/defense orders cited by management convert to revenue as expected, and how backlog and customer mix affect future margins.
- Whether receivables and customer retainage are collected on schedule, given the 108-day DSO, and whether contract assets are billed as expected.
- Inventory composition, turnover, and obsolescence exposure. The filing’s MD&A inventory table reports finished goods of approximately $622,000 at August 31, while the financial statements and inventory note report approximately $722,000; the discrepancy should be clarified.
- The availability and terms of the bank line of credit, which the filing references but does not quantify.