Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2023; comparisons are to the corresponding 2022 periods. Taylor Devices manufactures products for industrial, structural, and aerospace/defense markets.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $10.34 million, down 1% | $20.26 million, up 3% |
| Gross profit / margin | $4.81 million / 47%, versus $4.37 million / 42% | $9.20 million / 45%, versus $7.86 million / 40% |
| Operating income | $2.05 million, versus $1.76 million | $3.97 million, up 35% |
| Net income | $1.98 million, versus $1.56 million; diluted EPS $0.56 versus $0.45 | $3.83 million, up 49%; diluted EPS $1.09 versus $0.73 |
- Cash flow: Six-month operating cash flow was $7.36 million, versus use of $0.15 million a year earlier. Capital expenditures were $0.54 million, compared with $1.39 million.
- Liquidity: At November 30, cash was $3.16 million and short-term investments were $31.75 million, totaling $34.91 million. Current assets were $47.96 million and current liabilities $7.21 million. The company reported no debt on the balance sheet.
- Working capital items: Inventory was $6.86 million, up 15% from May 31; work-in-process was about 84% of inventory. Accounts receivable was $4.07 million, and days sales outstanding fell to 35 from 47 at fiscal year-end.
Material changes and management commentary
- Six-month sales growth reflected a 14% increase in non-project sales; long-term project revenue declined 1%. Aerospace/defense sales rose 77%, while structural and industrial sales fell 36% and 30%, respectively. Aerospace/defense represented 59% of six-month sales, up from 35%.
- Gross margin improved five percentage points in both the quarter and six-month period. Management cited improved pricing recovery for material and labor costs, continuous-improvement initiatives, supplier visibility, and increased volume.
- R&D expense fell 69% for the six months, primarily because the Taylor Damped Moment Frame project was completed. SG&A rose 18%, primarily due to employee compensation and incentive compensation.
- Other income increased to $0.76 million for the six months from $0.19 million; the filing does not clearly explain the increase.
Outlook, risks, and unusual items
- Backlog was $35.5 million at November 30, 2023, versus $18.1 million a year earlier; the company expects to recognize most of it in fiscal 2024 and 2025. Management said operating cash flows should fund operations and capital improvements for the next 12 months. No specific earnings or revenue guidance was provided.
- The board was evaluating additional capacity-related capital expenditures. The company had $225,000 of capital expenditure commitments for the next 12 months.
- Subsequent share redemption: On January 4, 2024, the company agreed to buy 459,015 shares, approximately 13% of outstanding shares, from non-affiliates for $19.92 per share. The transaction closed January 8; the filing reports 3,062,574 shares outstanding as of January 10, assuming completion.
- Litigation: Taylor Devices is a third-party defendant in litigation concerning alleged defects at 432 Park Avenue, related to 16 viscous damping devices it supplied for a tuned mass damper system. Management disputes the allegations and says the devices met specifications. The underlying plaintiff seeks $125 million plus punitive damages from the sponsor; the filing says the company’s potential damages cannot currently be quantified.
- Forward-looking risks include customer capital-budget reductions, changing demand, competition and pricing pressure, technological advances, and natural disasters. Management cautions that interim results may not indicate full-year results.
Investor facts to verify
- Whether backlog converts to revenue on the expected fiscal 2024–2025 schedule and at anticipated margins.
- Whether the improved gross margin is sustainable as project mix and material, labor, and supplier conditions change.
- Progress and potential financial exposure in the 432 Park litigation as discovery proceeds.
- Completion, funding, and effect on share count and liquidity of the January 2024 share redemption.
- How the company deploys its short-term investments and whether planned capacity spending increases.
The interim financial statements were reviewed by the independent accounting firm, not audited.