Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended February 28, 2021 and the nine months ended February 28, 2021. Although the request labels this “2020 Q3,” the filing is for Taylor Devices’ fiscal third quarter of 2021.
Financial performance
| Metric | Three months ended Feb. 28, 2021 | Three months ended Feb. 29, 2020 | Nine months ended Feb. 28, 2021 | Nine months ended Feb. 29, 2020 |
|---|---|---|---|---|
| Net sales | $4.77 million | $7.23 million | $15.25 million | $20.65 million |
| Gross profit / margin | $0.40 million / 8% | $2.37 million / 33% | $2.53 million / 17% | $6.70 million / 32% |
| Operating income (loss) | ($0.82 million) | $0.93 million | ($1.30 million) | $2.44 million |
| Net income | $0.18 million | $0.78 million | $1.00 million | $2.05 million |
| Diluted earnings per share | $0.05 | $0.22 | $0.29 | $0.59 |
- Quarterly sales declined 34% year over year and nine-month sales declined 26%. Nine-month net income fell 51%.
- Nine-month operating cash flow was $2.02 million, compared with $10.06 million a year earlier. Capital expenditures were $1.09 million, versus $0.99 million; cash increased $0.92 million to $16.08 million.
- At February 28, 2021, cash and cash equivalents were $16.08 million, short-term investments $1.09 million, current assets $32.69 million, and current liabilities $3.26 million. There were no short-term borrowings; the $1.46 million PPP loan had been forgiven. Total stockholders’ equity was $40.60 million.
- Management expects $260,000 of capital expenditure commitments over the next 12 months. It says operating cash flow should fund operations and capital improvements over that period.
Material changes and business trends
- Management attributed weaker results primarily to lower domestic construction demand amid COVID-19 uncertainty. Nine-month project revenue fell 53%; U.S. sales fell 43%. In the quarter, U.S. sales fell 55%, and construction sales fell 44%.
- Quarterly gross margin dropped to 8%, with management citing lower construction and aerospace/defense sales and excess production capacity. Nine-month gross margin was 17%, versus 32%.
- Nine-month sales to Asia rose 78%; Asia represented 24% of revenue versus 10% in the prior-year period. Aerospace/defense accounted for 46% of nine-month sales, construction 44%, and industrial 10%.
- Backlog was $18.8 million across 146 open orders at February 28, 2021, compared with $14.6 million across 139 orders a year earlier and $9.8 million at May 31, 2020. $7.3 million of current backlog related to projects already in progress.
- Accounts receivable days sales outstanding rose to 84 days from 68 at May 31, 2020. Inventory declined 15% from year-end to $8.55 million.
Outlook, risks and unusual items
- Management reported some recovery in domestic order activity heading into the fiscal fourth quarter and said these orders may provide a stronger base for the next fiscal year, while expecting only a small current-year impact. No quantified financial guidance was provided.
- The company recorded $2.096 million of federal assistance as other income for the nine months: $1.462 million from PPP loan forgiveness and $634,000 from the Employee Retention Credit. This materially supported reported earnings; the quarter included $634,000 of credit income.
- Management described liquidity as strong and reported no significant supply-chain delays to date, but noted longer lead times for some materials and possible increases in global demand for steel. It remains concerned about the pandemic’s duration and customers’ purchasing plans.
- Other cited risks include customer capital-budget cuts, changing demand, competition and pricing pressure, technological changes, and natural disasters. Routine litigation was reported; no other legal proceedings were disclosed. The company reported no dividends or profit-sharing benefits for the fiscal year.
- The interim financial statements were reviewed, not audited; the auditor reported no material modifications needed for GAAP conformity. Management said disclosure controls were effective and reported no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether the reported backlog converts to revenue on schedule and at acceptable margins.
- Whether domestic construction demand and production utilization recover, given the sharp sales and gross-margin declines.
- How much reported earnings depended on federal assistance, and whether operating performance improves without that support.
- Whether receivable collection times and material lead times worsen or affect cash generation.
- Confirm the period designation: the filing itself reports the quarter ended February 28, 2021, notwithstanding the request’s “2020 Q3” label.