Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended August 31, 2023; comparisons are with the three months ended August 31, 2022 unless otherwise noted. Taylor Devices designs and manufactures products for industrial, structural, and aerospace/defense customers. The filing reports consolidated results for the company and its subsidiary.
Financial performance and position
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $9.924 million | $9.091 million | +9% |
| Gross profit / margin | $4.385 million / 44% | $3.492 million / 38% | +26%; margin +6 percentage points |
| Operating income | $1.920 million | $1.178 million | +63% |
| Other income, net | $361,000 | $40,000 | +$321,000 |
| Net income | $1.848 million | $1.002 million | +84% |
| Diluted earnings per share | $0.52 | $0.29 | +$0.23 |
| Operating cash flow | $3.038 million | $(31,000) | Improved |
- At August 31, 2023, cash and cash equivalents were $2.889 million and short-term investments were $27.813 million, together about $30.7 million. Cash fell from $3.575 million at May 31, while investments rose from $24.515 million.
- Current assets were $46.764 million and current liabilities $8.327 million, implying working capital of about $38.4 million. Total assets were $60.271 million and stockholders’ equity $51.943 million. The balance sheet reports no debt.
- Capital expenditures were $428,000, versus $833,000 a year earlier. The company purchased $3.298 million of short-term investments during the quarter.
Material changes and operating trends
- Long-term project revenue was 1% lower year over year, while revenue from other sales rose 26%. There were 22 projects in process versus 33 in the prior-year quarter.
- Aerospace/defense sales increased 75%; structural sales decreased 31%, and industrial sales decreased 6%. Customer mix shifted to 58% aerospace/defense, 35% structural, and 7% industrial, compared with 36%, 56%, and 8%, respectively, a year earlier.
- Management attributed improved gross margin to supplier-related efforts, continuous improvement initiatives, and higher volume. Research and development expense fell 66% to $129,000 following completion of the Taylor Damped Moment Frame project. SG&A rose 21% to $2.336 million, primarily due to employee compensation, including incentive compensation.
- Backlog was $28.3 million across 131 open orders at August 31, compared with $23.0 million and 146 orders a year earlier. The filing also reports backlog of $32.5 million at May 31, 2023; $13.8 million of current backlog relates to projects already in progress.
- Inventory increased 15% from fiscal year-end to $6.830 million, with work-in-process of $5.750 million. Inventory turnover was 3.0, versus 3.5 at May 31. Accounts receivable days sales outstanding increased from 47 to 49 days.
Outlook, risks, and contingencies
- Management expects to recognize revenue from most of the August 31 backlog during the current fiscal year, with the remainder during the fiscal year ending May 31, 2025. It believes operating cash flows can fund operations and capital improvements for the next 12 months. The board is evaluating additional capital spending to expand capacity; $30,000 of capital expenditure commitments were outstanding for the next 12 months.
- Management cautions that quarterly backlog, revenue, gross profit, and net income fluctuate and the quarter is not necessarily indicative of full-year results. Risks cited include changes in customer capital budgets and product demand, competition and pricing pressure, technological advances, and natural disasters.
- The company is a third-party defendant in litigation relating to alleged construction and design defects at 432 Park Avenue. The underlying owner’s complaint demands $125 million plus punitive damages; claims against the company seek potential indemnification, but the company’s potential exposure cannot presently be quantified. Management disputes the allegations and says the supplied damping devices met contractual and technical requirements. Discovery and other proceedings remain ongoing.
- No provision for profit sharing, dividends, or other benefits is planned for the fiscal year. The independent accountant’s interim review found no material modifications needed for GAAP conformity; this was a review, not an audit.
Important facts for investors to verify
- Whether margin improvement and stronger operating cash flow persist, given quarterly variability and changing customer mix.
- Backlog conversion, project execution, and the difference between backlog at May 31 and August 31; assess associated costs, billing timing, and project estimates.
- Inventory growth and obsolescence exposure, including the reported $144,000 provision for potential obsolescence in the quarter.
- Developments in the 432 Park Avenue litigation, including any change in the company’s ability to estimate potential liability.
- Returns, maturities, and fair-value risks for the $27.8 million portfolio of short-term investments.