Taylor Devices, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the fiscal quarter and nine months ended February 28, 2019. Although the request labels the period “2018 Q3,” the filing is for fiscal 2019 Q3. Taylor Devices supplies products to industrial, construction, and aerospace/defense customers. The unaudited interim statements were reviewed by the independent accountant, not audited.
Financial performance and liquidity
| Metric | Three months ended Feb. 28, 2019 | Nine months ended Feb. 28, 2019 |
|---|---|---|
| Net sales | $7.81 million; up 19% | $24.61 million; up 37% |
| Gross profit / margin | $1.98 million / 25%, versus $1.46 million / 22% | $6.43 million / 26%, versus $4.33 million / 24% |
| Operating income | $521,000, versus $137,000 | $1.88 million, versus $582,000 |
| Net income (loss) | $446,000, versus a $23,000 loss | $1.56 million, versus $330,000 |
| Basic and diluted EPS | $0.13, versus a $0.01 loss | $0.45, versus $0.09 |
For the nine months, operating cash flow was $1.88 million, compared with cash used of $1.39 million a year earlier. Capital spending was $451,000, versus $750,000. Cash and cash equivalents were $4.29 million at February 28, 2019; short-term investments were $1.05 million. The company had no outstanding bank borrowings and had a $10 million unsecured demand credit line available, subject to annual renewal and the bank’s lending discretion. Total current liabilities were $4.99 million and stockholders’ equity was $35.26 million.
Material changes and drivers
- Nine-month revenue growth reflected increases in long-term project revenue of 22% and non-project revenue of 61%. Construction/buildings-and-bridges sales rose 62%; aerospace/defense sales rose 14%. U.S. sales increased 51%, while Asia sales declined 5%.
- Construction represented 60% of nine-month sales, up from 51%; aerospace/defense represented 34%, down from 41%. Management attributed construction growth partly to domestic seismic-protection infrastructure spending and building retrofits.
- SG&A rose 21% for the nine months, including a 42% increase in outside commissions. Management cited higher commissionable sales, freight costs, and incentive compensation; SG&A declined as a share of revenue, from 21% to 18%.
- Accounts receivable declined 23% from May 31, 2018, and days sales outstanding fell from 88 to 56. Inventory rose 7% to $12.09 million, primarily reflecting work in process.
- Backlog was $15.9 million at February 28, 2019, down 31% from $23.1 million at May 31, 2018, and below the $18.8 million reported at February 28, 2018. The filing says $8.7 million of current backlog related to projects already in progress.
Outlook, risks, and unusual items
Management said operating cash flow and borrowing capacity should be sufficient for operations and capital improvements over the next 12 months; no capital-expenditure commitments were outstanding for that period. No quantitative earnings or revenue guidance was provided. Management cautioned that results and backlog fluctuate and that the reported interim results do not necessarily indicate full-year performance.
The company adopted the new revenue-recognition standard on June 1, 2018 using the modified retrospective method. Adoption increased nine-month reported revenue by $1.10 million and reduced reported net income by $4,999; it had no effect on third-quarter revenue or net income. Prior-period results were not restated. The prior-year nine-month tax provision included a $164,000 noncash deferred-tax-asset write-down following the federal tax-rate change, materially affecting the comparison of net income and effective tax rates.
Forward-looking risks identified include reduced customer capital budgets, changing demand and industry capacity, competition and pricing pressure, technology advances that could reduce product demand, and natural-disaster effects on demand. The company reported only routine litigation incidental to its business, no material control changes during the quarter, and no dividends or profit-sharing provision for the fiscal year.
Important facts for investors to verify
- Confirm the fiscal-period label: this is the quarter ended February 28, 2019, not 2018 Q3.
- Assess how much reported nine-month revenue growth reflects adoption of the new revenue standard and the timing of project revenue recognition.
- Monitor backlog conversion, project cost estimates, and the substantial work-in-process balance; contract progress and margins depend on estimates.
- Review the durability of the sales mix and growth, particularly the concentration in construction and the reduction in aerospace/defense share.
- Consider the credit line’s demand and renewal terms, despite the company’s current cash position and absence of borrowings.