Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended February 29, 2016, for the fiscal year ending May 31, 2016. This differs from the request metadata’s “2015 Q3.” The interim statements are unaudited and were reviewed by the independent accountant.
Financial performance
| Metric | Three months ended Feb. 29, 2016 | Year-over-year | Nine months ended Feb. 29, 2016 | Year-over-year |
|---|---|---|---|---|
| Net sales | $8.33 million | +27% | $26.62 million | +34% |
| Gross profit / margin | $3.32 million / 40% | $1.73 million / 26% | $9.69 million / 36% | $5.41 million / 27% |
| Operating income | $1.67 million | +261% | $4.64 million | +153% |
| Net income | $1.18 million | +202% | $3.12 million | +142% |
| Diluted EPS | $0.35 | Prior year: $0.12 | $0.92 | Prior year: $0.39 |
Management attributed stronger gross margins to higher-than-usual pricing on certain large construction projects, higher-margin aerospace/defense projects, and greater volume absorbing fixed manufacturing costs. SG&A rose 29% in the quarter and 41% for the nine-month period, reflecting commissions, freight, and incentive compensation.
Cash flow, balance sheet, and liquidity
- Nine-month operating cash flow was $2.70 million, versus negative $4,000 in the prior-year period. Cash increased to $6.79 million from $4.90 million at May 31, 2015.
- Capital expenditures were $1.07 million; management cited $1.48 million of capital spending commitments over the next 12 months, primarily for a building expansion to assemble and test larger seismic-protection units.
- Current assets were $27.46 million and current liabilities $7.10 million, representing working capital of approximately $20.36 million. The company reported no outstanding balance on its $6.0 million demand line of credit; the full unused amount was available under its covenants. Long-term liabilities were $628,785; the filing does not identify this balance as borrowing.
- Inventory increased 19% from fiscal year-end to $10.28 million, mainly due to a 21% rise in work in process. Accounts receivable days outstanding increased from 40 to 51 days.
Material changes, outlook, and risks
- For the nine months, construction-project revenue increased 35%; the company had 58 projects in process versus 53 a year earlier. U.S. sales rose 52%, while sales to Asia increased 1%. Construction accounted for 59% of revenue and aerospace/defense 34%.
- Backlog was $19.5 million at February 29, 2016, down 36% from $30.3 million a year earlier and 23% from $25.2 million at May 31, 2015. Open orders were 129 versus 150 a year earlier.
- No specific earnings or revenue guidance was provided. Management said operating cash flows and borrowing capacity should fund operations and planned capital improvements for the next 12 months, while cautioning that results fluctuate and current-period performance may not predict full-year results.
- Forward-looking risks cited include reduced customer capital budgets, demand and industry-capacity changes, competition and pricing pressure, technology advances, and natural-disaster patterns. Project revenue and margins depend partly on percentage-of-completion estimates and contract costs.
- The filing reports routine litigation only. Management stated disclosure controls were effective and there were no material changes in internal control over financial reporting. The company had not determined the effects of adopting the new revenue-recognition standard.
Most important facts for investors to verify
- Whether the reporting period intended by the request is the fiscal third quarter ended February 29, 2016, rather than 2015 Q3.
- Whether the elevated gross margins and earnings are sustainable given their stated dependence on project mix, pricing, and production volume.
- How the lower backlog, higher work-in-process inventory, and increased receivables days affect future revenue conversion and cash collection.
- Timing and funding of the planned building expansion and $1.48 million of capital commitments.
- Project cost estimates, contract billing terms, and the eventual adoption effects of the new revenue-recognition standard.