Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended August 31, 2021; comparisons are with the three months ended August 31, 2020 unless noted. The interim financial statements were reviewed, not audited.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $7.31 million | $5.76 million | +27% |
| Gross profit | $1.59 million | $1.55 million | +2% |
| Gross margin | 21.8% | 27.0% | Down 5.2 percentage points |
| Operating income | $118,140 | $191,365 | −38% |
| Net income | $181,877 | $176,011 | +3% |
| Diluted EPS | $0.05 | $0.05 | Unchanged |
| Cash from operations | $29,200 | $507,127 | Lower |
Cash and cash equivalents were $20.15 million at August 31, 2021, and short-term investments were $1.10 million. Current assets were $33.67 million and current liabilities $4.64 million. The balance sheet reports no borrowings or long-term debt. Cash declined $434,768 during the quarter; capital expenditures were $461,953. Management said operating cash flows should fund operations and capital improvements for the next 12 months.
Material changes and operating context
- Project revenue increased 132% year over year, with 26 projects in process versus 19 a year earlier; non-project revenue declined 33%. Sales rose 34% in the U.S. and declined 9% in Asia.
- Structural customers represented 60% of sales, aerospace/defense 33%, and industrial customers 7%.
- Gross margin pressure reflected increased R&D, materials and labor costs, cost overruns on one North American project, and low margins on several Asian projects. Some projects were priced before recent material-cost increases.
- Backlog was $19.4 million across 165 open orders at August 31, versus $10.3 million and 110 orders a year earlier. Backlog was down from $22.0 million at May 31; $9.8 million related to projects already underway.
- Operating cash flow was affected in part by a $1.79 million increase in costs and estimated earnings in excess of billings. That contract asset was $3.29 million at quarter-end, and the company expected to bill it within 12 months.
Outlook, risks and unusual items
- No quantitative earnings or revenue guidance was provided. Management cautioned that quarterly results and backlog can fluctuate and are not necessarily indicative of future results.
- Management reported no significant supply-chain delays to date and said it had taken steps to mitigate longer lead times. It warned that a prolonged pandemic-related global downturn could hurt operations and liquidity.
- Other income included $54,000 of federal Employee Retention Credit assistance. Management said research tax credits were expected to offset federal income taxes accrued for the quarter; the income statement reports no tax provision.
- Forward-looking risks include customer capital-budget reductions, demand and capacity changes, competition and pricing pressure, technology changes, and natural disasters. The filing reports only routine litigation incidental to the business.
- The filing states there was no provision for profit sharing, dividends, or other benefits during the fiscal year.
Investor verification points
- Assess whether project mix, material and labor inflation, and identified project cost overruns continue to constrain gross margins.
- Monitor conversion of backlog and contract assets into billings, receivables, and operating cash flow.
- Reconcile the inventory detail: the notes show finished goods of $201,147, while the MD&A inventory table shows $101,000.
- Confirm the timing and accounting treatment of Employee Retention Credit assistance and research tax credits.
- Consider the quarter’s unusually low operating cash flow relative to net income and capital spending.