Taylor Devices, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Fiscal third quarter and nine months ended February 28, 2023; comparisons are with the corresponding 2022 periods. Taylor Devices manufactures products for industrial, structural, and aerospace/defense customers. The interim financial statements were reviewed by the independent accountant, not audited.
Financial performance
| Metric | Three months ended Feb. 28 | Nine months ended Feb. 28 |
|---|---|---|
| Net sales, 2023 (2022) | $9.89 million ($6.14 million), +61% | $29.48 million ($21.21 million), +39% |
| Gross profit; gross margin | $4.02 million; 41% (22% in 2022) | $11.50 million; 39% (28% in 2022) |
| Operating income (loss) | $1.80 million ($(0.19) million) | $4.74 million ($0.71 million) |
| Net income (loss) | $1.66 million ($(0.12) million) | $4.22 million ($0.72 million) |
| Diluted earnings per share | $0.47 ($(0.03)) | $1.20 ($0.21) |
For the nine-month period, cost of goods sold rose 17%, less than sales growth. R&D expense increased 29% to $881,000, and selling, general and administrative expense rose 32% to $5.88 million, primarily due to employee compensation and incentive compensation. Other income was $433,000, compared with $76,000 a year earlier.
Cash, liquidity, and capital
- Cash and cash equivalents were $3.38 million at February 28, 2023, down from $22.52 million at May 31, 2022. Short-term investments rose to $19.28 million from $1.10 million; together, cash and short-term investments were approximately $22.66 million.
- Nine-month operating cash flow was $1.34 million, versus $388,000. Receivables increased $4.10 million and were a significant use of operating cash.
- Investing cash outflow was $20.57 million, including $18.18 million of short-term investment purchases and $2.38 million of property and equipment purchases. Capital expenditure commitments totaled $900,000 for the next 12 months.
- Current assets were $41.50 million and current liabilities $6.18 million; working capital was approximately $35.31 million. The balance sheet reports no debt.
- Management said operating cash flows should be sufficient for operations and capital improvements over the next 12 months. The filing states there are no provisions for profit sharing, dividends, or other benefits for the current fiscal year.
Material developments and outlook
- Management attributed higher sales to growth in long-term projects and other sales, increased U.S. demand, and gains across customer groups. Nine-month U.S. sales increased 58%; Asia sales decreased 10%. Aerospace/defense sales benefited in part from legacy and new programs and naval hardware refurbishment contracts; industrial sales benefited from new domestic manufacturing facilities.
- Backlog was $27.8 million at February 28, 2023, up from $17.4 million a year earlier and $23.7 million at May 31, 2022. The company reported 125 open sales orders, compared with 140 a year earlier. It had 45 projects in process during the nine-month period, versus 34 in the prior-year period.
- Management said improved gross margins reflected price increases that recovered more material and labor cost increases, higher volume, and continuous-improvement efforts. It also said it continues working with suppliers for better visibility into market conditions.
- No specific earnings or revenue guidance was provided. Management cautioned that backlog, revenue, commission expense, gross profit, and net income fluctuate, and interim results are not necessarily indicative of full-year results.
- Risks identified include customer capital-budget reductions, changing demand and industry capacity, competition and pricing pressure, technology advances that could reduce product demand, and natural disasters. Maintenance and other inventory is exposed to technological obsolescence; the company recorded a $68,000 obsolescence provision for the nine months.
- Accounts receivable days sales outstanding increased to 78 days from 42 at fiscal year-end. Management expects to collect receivables and bill contract assets within 12 months. Revenue on certain qualifying contracts is recognized over time using cost-to-cost estimates, which depend on estimated costs to complete.
- The filing reports no material changes to internal control over financial reporting, no defaults on senior securities, and no legal proceedings other than routine litigation incidental to the business.
Investor facts to verify
- Whether the elevated receivables and 78-day DSO convert to cash as management expects.
- Whether backlog converts to revenue on schedule and project cost estimates and margins remain reliable.
- Whether pricing, volume, and productivity continue to offset material, labor, and compensation cost increases.
- How the short-term investment portfolio, planned capital spending, and project working-capital needs affect liquidity.