Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended February 29, 2020, compared with the periods ended February 28, 2019. The request metadata says “2019 Q3,” but the filing covers fiscal 2020 Q3.
Financial performance
| Metric | Three months ended Feb. 29, 2020 | Year-over-year | Nine months ended Feb. 29, 2020 | Year-over-year |
|---|---|---|---|---|
| Net sales | $7.23 million | Down 7% | $20.65 million | Down 16% |
| Gross profit | $2.37 million | Up 20% | $6.70 million | Up 4% |
| Gross margin | 33% | 25% prior year | 32% | 26% prior year |
| Operating income | $0.93 million | From $0.52 million | $2.44 million | Up 30% |
| Net income | $0.78 million | Up 76% | $2.05 million | Up 32% |
| EPS, basic and diluted | $0.22 | From $0.13 | $0.59 | From $0.45 |
Management attributed improved gross margins mainly to better margins on domestic construction projects. Lower outside commissions partly offset higher other SG&A.
Cash, liquidity and balance sheet
- Nine-month operating cash flow was $10.06 million, versus $1.88 million a year earlier. The filing attributes much of the current-period cash generation to changes in contract assets and liabilities, including a $5.44 million decrease in costs and estimated earnings in excess of billings.
- Cash and cash equivalents were $14.14 million at February 29, 2020, up from $5.07 million at May 31, 2019. Capital expenditures were $0.99 million, compared with $0.45 million in the prior-year period; $0.20 million of additional capital expenditures were committed for the next 12 months.
- Current assets were $33.29 million and current liabilities $5.59 million. The balance sheet presents no long-term debt; the filing does not state a balance for any borrowings under the bank line of credit or quantify its availability.
- Inventory was $10.49 million, down 7% from fiscal year-end. Accounts receivable was $5.00 million; days sales outstanding increased to 62 from 53. Net contract assets (costs and estimated earnings in excess of billings, less billings in excess) fell 58% to $5.12 million.
Material changes and operating trends
- For the nine months, construction and bridge sales fell 19%, aerospace/defense sales fell 15%, and industrial sales rose 8%. U.S. sales declined 13% and Asia sales declined 45%. Asian sales faced tariffs and local competition; domestic construction sales were affected by project-start delays and lower-initial-cost competing technologies.
- For the quarter, U.S. sales increased 5%, while Asia sales decreased 51%. Aerospace/defense sales rose 9% in the quarter, following a first-quarter decline that management linked to normal delivery cycles and customer-requested early deliveries before the fiscal year.
- Backlog was $14.6 million across 139 open orders, down from $15.9 million and 120 orders a year earlier. The company reported 36 projects in process during the nine-month period versus 43 previously; $4.7 million of current backlog relates to projects already in progress.
- Revenue recognized over time accounted for 60% of nine-month revenue, compared with 54% in the prior-year period. Project accounting depends on estimates of costs to complete; expected contract losses are charged when identified.
Outlook, risks and other matters
- Management said operating cash flows and borrowing capacity under its bank line were expected to fund operations and capital improvements for the next 12 months, but provided no quantified guidance for sales or earnings.
- A subsequent-event disclosure warns that COVID-19 and government restrictions affecting the company and its supply chain were expected to disrupt production. Management expected a negative impact on operating results but could not reasonably estimate its duration or financial effect.
- Other stated risks include customer reductions in capital budgets, demand changes, competition and pricing pressure, technology shifts, and natural disasters. Management cautioned that results fluctuate and interim results are not necessarily indicative of full-year performance.
- The company reported no dividends or profit-sharing benefits for the fiscal year, no material control changes, and no legal proceedings beyond routine litigation. The interim financial statements were unaudited and reviewed by the independent accounting firm, which reported no material modifications needed.
Investor facts to verify
- Confirm the intended reporting period: the filing is for fiscal Q3 2020, not 2019 Q3.
- Monitor the duration and financial effects of COVID-related production and supply-chain disruption, which were not quantifiable in the filing.
- Track backlog conversion, construction project timing, contract cost estimates, and the decline in backlog value despite a higher order count.
- Assess receivables collection and the rise in days sales outstanding, along with the effect of project billing timing on operating cash flow.
- Confirm bank-line availability and any borrowing balance; neither is quantified in the filing.