Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended November 30, 2020; fiscal year ending May 31. The filing presents unaudited consolidated interim results.
Business context and financial results
The company sells products to industrial, construction, and aerospace/defense customers. Results weakened as construction customers delayed orders amid COVID-19 uncertainty. A $1.462 million SBA Paycheck Protection Program loan forgiveness benefit materially supported reported net income.
| Metric | Three months ended Nov. 30, 2020 | Three months ended Nov. 30, 2019 | Six months ended Nov. 30, 2020 | Six months ended Nov. 30, 2019 |
|---|---|---|---|---|
| Sales | $4.718 million | $7.702 million | $10.477 million | $13.411 million |
| Gross profit | $576,000 | $2.642 million | $2.131 million | $4.325 million |
| Gross margin | 12% | 34% | 20% | 32% |
| Operating income (loss) | $(670,000) | $1.115 million | $(478,000) | $1.508 million |
| Net income | $645,000 | $917,000 | $821,000 | $1.272 million |
| Basic and diluted EPS | $0.19 | $0.26 | $0.24 | $0.37 |
Liquidity, cash flow, and balance sheet
- At November 30, cash and cash equivalents were $14.994 million and short-term investments were $1.084 million. Current assets were $31.843 million versus current liabilities of $2.463 million; working capital was approximately $29.381 million.
- Short-term borrowings were zero, down from $1.462 million at May 31, 2020, following forgiveness of the PPP loan. Total stockholders’ equity was $40.416 million.
- For the six months, operating cash flow was $562,000, compared with $7.367 million a year earlier. Investing cash outflow was $736,000, including $721,000 of capital expenditures; cash declined $166,000 to $14.994 million.
- Management reported $200,000 of capital expenditure commitments over the next 12 months and believes operating cash flows can fund operations and capital improvements over that period.
- Accounts receivable were $4.822 million; days sales outstanding rose to 92 from 68 at fiscal year-end. Inventory was $8.868 million, of which approximately 88% was work in process.
Material changes and management commentary
- Sales fell 22% for the six-month period and 39% for the quarter year over year. Construction-project revenue declined 56% for six months and 69% for the quarter; management attributed the decline mainly to domestic construction customers postponing orders.
- For six months, U.S. sales declined 37% and Asia sales increased 106%. Customer mix shifted: aerospace/defense represented 48% of sales versus 32% a year earlier, while construction represented 43% versus 60%.
- Lower volume and the reduced contribution from construction customers drove gross margin down. SG&A decreased 7% for six months, but increased as a share of revenue to 25% from 21%.
- Other income included $1.462 million from PPP loan forgiveness. Excluding the operating loss and this material non-operating benefit, the reported net income should not be viewed as a measure of underlying operating profitability.
- Backlog was $15.4 million at November 30, 2020, compared with $17.1 million at November 30, 2019; the filing also reports $9.8 million at May 31, 2020. It had 107 open orders versus 132 a year earlier.
- Management said COVID-19 had not materially disrupted its ability to process orders or receive supplies to date, but warned that a prolonged downturn could hurt operations and liquidity. The duration of customer purchasing uncertainty remained unclear.
- No quantitative earnings or revenue guidance was provided. The filing cautions that interim results are not necessarily indicative of full-year results and cites risks including customer capital-budget reductions, demand shifts, competition, pricing pressure, technology changes, and natural disasters.
Investor facts to verify
- Confirm the final PPP forgiveness approval and accounting treatment for the $1.462 million benefit.
- Track construction demand, order delays, backlog conversion, and the difference between the prior-year and prior-fiscal-year-end backlog comparisons.
- Monitor gross margins, work-in-process inventory, and project cost estimates as sales volumes and project mix change.
- Assess collections and cash conversion given the increase in DSO and the sharp decline in six-month operating cash flow.
- Note that the interim financial statements received an accountant’s review, not an audit; the reviewer reported no material modifications identified.