Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended November 30, 2022 (fiscal 2023). Comparative periods ended November 30, 2021. The company’s interim financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $10.50 million, up 35% | $19.59 million, up 30% |
| Gross profit / margin | $4.09 million / 39%, versus 33% | $7.48 million / 38%, versus 30% |
| Operating income | $1.76 million, up 125% | $2.93 million, up 227% |
| Net income | $1.56 million, up 136% | $2.56 million, up 204% |
| Basic and diluted EPS | $0.45, versus $0.19 | $0.73, versus $0.24 |
For the six months, R&D expense was $691,000, up 43%; SG&A was $3.85 million, up 25%, primarily due to employee compensation and incentive costs. Other income was $193,000, versus $71,000 a year earlier.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was negative $148,000, compared with negative $1.37 million a year earlier. Capital expenditures were $1.39 million, versus $560,000; cash and equivalents declined $1.50 million to $21.01 million.
- At November 30, cash and equivalents plus short-term investments totaled $22.11 million. Current assets were $39.83 million and current liabilities $5.71 million. The balance sheet reports no borrowings or debt line item.
- Total assets were $51.70 million and stockholders’ equity $45.98 million. Capital expenditure commitments for the next 12 months were $1.80 million.
- Receivables rose 33% from May 31 to $5.94 million; days sales outstanding increased from 42 to 51. Costs and estimated earnings in excess of billings rose 59% to $5.30 million. Management expects to collect receivables and bill the full contract asset within 12 months.
Material changes and management commentary
- Management said first-half revenue was the highest for any half-year in company history. Growth reflected increases in both long-term projects and other sales, higher volume, and improved pricing recovery for higher material and labor costs.
- First-half sales increased in the U.S. by 43%; Asia sales decreased 4%. By customer group, aerospace/defense sales rose 47% and industrial sales rose 93%; structural/building-and-bridge sales rose 13%. Aerospace/defense growth included production and development programs and naval-platform refurbishment contracts.
- Backlog was $18.1 million across 139 open orders, versus $17.0 million a year earlier and $23.7 million at May 31, 2022. The company recorded $8.2 million of additional bookings in the first half of December, after quarter-end.
- R&D was presented separately below gross profit beginning in fiscal 2023; prior-period presentation was reclassified. This affects comparison with older filings.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management believes operating cash flows are sufficient for operations and capital improvements over the next 12 months, while noting results and backlog fluctuate and current-period performance may not predict future results.
- Risks identified include customer capital-budget reductions, changing demand and industry capacity, competition and pricing pressure, technological advances that could reduce demand, and natural disasters. Project revenue depends on estimated costs and completion; changes in estimates and expected contract losses can affect results.
- Inventory obsolescence is a risk, particularly for maintenance and other inventory exposed to technological change. The company recorded no obsolescence provision in the first half, compared with $90,000 in the prior-year period.
- The filing reports routine litigation incidental to the business, no other legal proceedings, and no changes in internal controls that materially affected or were reasonably likely to materially affect financial reporting.
Important facts for investors to verify
- Whether the improved gross margins and pricing recovery are sustainable as input costs and project mix change.
- Conversion of backlog and December bookings into shipments, revenue, billings and cash collection; monitor receivables, contract assets and DSO.
- Project cost estimates, completion timing and potential losses, given revenue recognition over time on qualifying contracts.
- Execution and funding of the $1.80 million capital expenditure commitments alongside negative first-half operating cash flow.
- Customer and geographic mix, including the increased contribution from aerospace/defense and industrial customers and the reduced first-half sales to Asia.