Smith-Midland Corporation — Q1 2024 10-Q
Business context and period: The company manufactures, sells, leases, licenses, and installs precast concrete products, primarily for construction, highway, utility, and farming markets. This unaudited report covers the three months ended March 31, 2024; amounts below are in millions unless stated otherwise. Results can vary with construction seasonality, project timing, and weather.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $16.756 | $12.842 |
| Gross profit / margin | $3.911 / 23.3% | $2.166 / 16.9% |
| Operating income / margin | $1.509 / 9.0% | $0.054 / 0.4% |
| Net income | $1.147 | $0.080 |
| Diluted EPS | $0.21 | $0.02 |
| Net cash used in operating activities | $0.777 | $1.555 |
| Capital expenditures | $1.795 | $1.164 |
Revenue rose 30%, driven mainly by soundwall, utility, and miscellaneous product sales and shipping and installation revenue. Product sales increased 30%; service revenue increased 31%. Soundwall sales rose 185%, utility sales 511%, and miscellaneous product sales 380%. SlenderWall sales were nil versus $1.281 million a year earlier, and barrier sales fell 37%. Management attributed improved profitability chiefly to higher production volumes and better overhead absorption; cost of sales excluding royalties declined to 79% of revenue from 86%. Operating expenses increased to $2.402 million from $2.112 million, partly because of higher credit-loss allowance expense and selling costs. The effective tax rate was 24%, versus 22%.
Liquidity, balance sheet, and debt
- Cash was $6.801 million at March 31, down from $9.175 million at December 31, 2023. Operating cash use was $0.777 million; investing cash use was $1.440 million, including $1.795 million of property and equipment purchases; financing cash use was $0.157 million.
- Accounts receivable, net, increased to $20.055 million from $17.209 million; inventory increased to $6.951 million from $5.150 million. Management cited higher sales and inventory held for expected utility-vault deliveries. Average DSO, excluding unbilled revenue, was 109 days versus 122 days a year earlier.
- Total assets were $64.853 million, total liabilities $29.540 million, and stockholders’ equity $35.313 million. Notes payable totaled approximately $5.571 million, including current maturities. Outstanding notes carry fixed rates; the company reported covenant compliance.
- A $5.0 million revolving credit line had no balance outstanding and matures October 1, 2024. The company also had an unused equipment-financing commitment of up to $1.5 million. Management believes available cash, expected operating cash flow, and credit availability will fund operations for at least 12 months, but cautioned that collections and operating performance could affect liquidity.
Outlook, risks, and notable matters
- Sales backlog was approximately $64.6 million as of May 7, 2024, versus $51.4 million around the same time in 2023. Most is expected to be produced within 12 months, with some projects spanning multiple years. This is backlog, not guaranteed revenue.
- Management planned approximately $5.0 million of 2024 capital spending, including North Carolina facility expansion and production equipment. It expected 2024 interest expense to be lower than in 2023 as indebtedness declined.
- Management expected Infrastructure Investment and Jobs Act funding to begin flowing through state and local governments in the second half of 2024 and beyond, and expected full-year 2024 royalties to exceed 2023. These expectations are not assured. Raw material prices had increased slightly in Q1, with further slight increases anticipated.
- Risks include construction cyclicality, weather and project delays, inflation and labor costs, dependence on infrastructure spending, receivable collection and cash needs, debt and financing availability, and customer/project concentration. One customer represented 10% of Q1 revenue; one customer accounted for 12% of receivables at quarter-end.
- Disclosure controls were deemed ineffective at March 31, 2024 because of continuing material weaknesses in review of the allowance for credit losses and review, approval, and segregation of duties for journal entries. Remediation efforts were underway but not yet established as effective.
- The company reported no material litigation. It also cited a wire-fraud incident in Q2 2023 as a cybersecurity risk.
Key facts for investors to verify
- Whether the increased backlog converts to production, revenue, and collections on expected schedules.
- Whether receivables, DSO, credit-loss reserves, and operating cash flow improve as sales expand.
- Progress and funding for planned capital spending, and renewal or replacement of the revolving credit line before its October 2024 maturity.
- Whether improved gross margins persist as production volumes, product mix, and raw-material costs change.
- Remediation and testing of the two disclosed internal-control material weaknesses.
- Execution of the conditional outlook for infrastructure funding, royalties, and product-category sales; the filing provides no quantified earnings or revenue guidance.