TAYLOR DEVICES INC

Previous wording

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this 10-Q and its Exhibits that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements and, as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, reductions in capital budgets by our customers and potential customers; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products; the kind, frequency and intensity of natural disasters that affect demand for the Company’s products; and other factors, many or all of which are beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.

Current wording

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements and, as such, are not a guarantee of future performance. These statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others: reductions in capital budgets by our customers and potential customers; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products; the kind, frequency and intensity of natural disasters that affect demand for the Company’s products; and other factors, many or all of which are beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. Except as may be required by law, the Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.

Previous wording

The Company's consolidated results of operations showed a 10% increase in net revenues and an increase in net income of 55%. Revenues recorded in the current period for long-term projects (“Project(s)”) were 5% more than the level recorded in the prior year. The Company had 34 Projects in process during the current period as compared to 45 during the same period last year. Revenues recorded in the current period for other-than long-term projects (non-projects) were 19% more than the level recorded in the prior year. Total sales within the U.S. increased 21% from the same period last year. Total sales to Asia decreased 53% from the same period of the prior year. Sales increases were recorded over the same period last year to customers in aerospace / defense (88%) with decreases to customers involved in construction of buildings and bridges (-35%) and to industrial customers (-18%). The increase in aerospace / defense sales is due, in part, to a combination of providing production hardware on several legacy programs and new development programs.

Current wording

The Company's consolidated results of operations showed a 17% increase in net revenues and $0.8 million increase in net income. Revenues recorded in the quarter ended August 31, 2024 for Projects were 30% higher than the level recorded in the prior year. The Company had 23 Projects in process during the quarter ended August 31, 2024 as compared to 22 during the same period last year. Revenues recorded in the quarter ended August 31, 2024 for other-than long-term projects (non-projects) were 2% higher than the level recorded in the prior year. Total sales within the U.S. during the quarter ended August 31, 2024 increased 10% from the same period last year. Total sales to Asia during the quarter ended August 31, 2024 increased 38% from the same period of the prior year. Sales increases were recorded over the same period last year to customers in aerospace / defense (20%) and industrial customers (111%) with a decrease to customers involved in construction of buildings and bridges (-5%). The increase in aerospace / defense sales is due, in part, to a combination of providing production hardware on several legacy programs and new development programs.

Previous wording

The gross profit as a percentage of net revenue of 47% in the current period is four percentage points higher than the same period of the prior year (43%). The Company has been able to increase sales prices to recover more of the increased costs for materials and labor that were incurred over the past year. Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets. These actions combined with benefits from the Company’s continuous improvement initiatives and increased volume have helped to improve the gross margin as a percentage of revenue over the prior year.

Current wording

The gross profit as a percentage of net revenue of 47% in the quarter ended August 31, 2024 is three percentage points higher than the same period of the prior year (44%). The Company has been able to increase sales prices to recover more of the increased costs for materials and labor that were incurred over the past year. Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets. These actions combined with benefits from the Company’s continuous improvement initiatives and increased volume have helped to improve the gross margin as a percentage of revenue over the prior year.

Previous wording

At February 28, 2023, the Company had 125 open sales orders in our backlog with a total sales value of $27.8 million. At February 29, 2024, the Company has 131 open sales orders in our backlog, and the total sales value is $30.2 million. The Company expects to recognize revenue for the majority of the backlog during the 2024 and 2025 fiscal years.

Current wording

At August 31, 2023, the Company had 131 open sales orders in our backlog with a total sales value of $28.3 million. At August 31, 2024, the Company has 118 open sales orders in our backlog, and the total sales value is $28.4 million. The Company expects to recognize revenue for the majority of the backlog during the current fiscal year.

Previous wording

The Company's backlog, revenues, gross profits, and net income fluctuate from period to period. The changes in the current period, compared to the prior period, are not necessarily representative of future results.

Current wording

The Company's backlog, revenues, gross profits, and net income fluctuate from period to period. The changes in the quarter ended August 31, 2024 compared to the same period in the prior year are not necessarily representative of future results.

Previous wording

Selling, general and administrative expenses increased 17% from the prior year. This change is primarily due to increased employee compensation costs including incentive compensation.

Current wording

Selling, general and administrative expenses during the quarter ended August 31, 2024 increased 8% from the same period in the prior year. This change is primarily due to increased employee compensation costs including incentive compensation.

Previous wording

The above factors resulted in an operating income of $2,993,000 for the three months ended February 29, 2024, better than the $1,805,000 in the same period of the prior year.

Current wording

Operating income was $2,905,000 for the three months ended August 31, 2024, better than the $1,920,000 in the same period of the prior year. The increase in Operating income was attributed to increased gross margin from higher levels of sales.

Previous wording

The Company's primary liquidity is dependent upon its working capital needs. These are primarily short-term investments, inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued expenses and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been operations.

Current wording

The Company's primary liquidity requirements depend on its working capital needs. Working capital consists primarily of cash and short-term investments, inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued expenses and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been excess cash flow from operations.

Previous wording

Capital expenditures for the nine months ended February 29, 2024 were $755,000 compared to $2,383,000 in the same period of the prior year. In addition, the Company acquired Pumpkin™ Mounts intellectual property during the quarter for $300,000. As of February 29, 2024, the Company has commitments for capital expenditures totaling $337,000 during the next twelve months. The Board of Directors is evaluating additional capital expenditures to expand capacity.

Current wording

Capital expenditures for the three months ended August 31, 2024 were $247,000 compared to $428,000 in the same period of the prior year. As of August 31, 2024, the Company has commitments for capital expenditures totaling $1,264,000 during the next twelve months. The Board of Directors is evaluating additional capital expenditures to expand capacity.

Previous wording

NOTE: Inventory turnover is annualized for the nine-month period ended February 29, 2024.

Current wording

NOTE: Inventory turnover is annualized for the three-month period ended August 31, 2024.

Previous wording

Inventory, at $6,678,000 as of February 29, 2024, is $737,000 more than the prior year-end level of $5,941,000. Approximately 85% of the current inventory is work in process, 3% is finished goods, and 12% is raw materials.

Current wording

Inventory, at $8,154,000 as of August 31, 2024, is $642,000 more than the prior year-end level of $7,512,000. Approximately 86% of the inventory as of August 31, 2024 was work in process, 3% was finished goods, and 11% was raw materials.

Previous wording

Maintenance and other inventory represent stock that is estimated to have a product life cycle in excess of twelve months. This stock represents certain items the Company is required to maintain for service of products sold and items that are generally subject to spontaneous ordering. This inventory is particularly sensitive to technological obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances and product obsolescence. Management of the Company has recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was $369,000 and $68,000 for the nine-month periods ended February 29, 2024 and February 28, 2023.

Current wording

Maintenance and other inventory represent stock that is estimated to have a product life cycle in excess of twelve months. This stock represents certain items the Company is required to maintain for service of products sold and items that are generally subject to spontaneous ordering. This inventory is particularly sensitive to technological obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances and product obsolescence. Management of the Company has recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was $0 and $144,000 for the three-month periods ended August 31, 2024 and 2023, respectively.

Previous wording

Accounts receivable of $4,887,000 as of February 29, 2024 includes $29,000 of an allowance for doubtful accounts (“Allowance”). The accounts receivable balance as of May 31, 2023 of $5,554,000 included an Allowance of $29,000. The number of an average day's sales outstanding in accounts receivable (“DSO”) decreased from 47 days at May 31, 2023 to 36 at February 29, 2024. The DSO is a function of 1.) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and 2.) the level of accounts receivable at the balance sheet date. The Company expects to collect the net accounts receivable balance during the next twelve months.

Current wording

Accounts receivable of $6,780,000 as of August 31, 2024 includes $29,000 of an allowance for doubtful accounts (“Allowance”). The accounts receivable balance as of May 31, 2024 of $5,212,000 included an Allowance of $29,000. The number of an average day's sales outstanding in accounts receivable (“DSO”) increased from 39 days at May 31, 2024 to 53 days at August 31, 2024. The DSO is a function of (1) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and (2) the level of accounts receivable at the balance sheet date. The Company expects to collect the net accounts receivable balance during the next twelve months.

Previous wording

As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. Unfortunately, such provisions are often not possible. The $4,534,000 balance in this account at February 29, 2024 is 10% more than the prior year-end balance. This increase is the result of normal flow of the Projects through production with billings to the customers as permitted in the related contracts. The Company expects to bill the entire amount during the next twelve months. 13% of the CIEB balance as of the end of the last fiscal quarter, November 30, 2023, was billed to those customers in the current fiscal quarter ended February 29, 2024. The remainder will be billed as the Projects progress, in accordance with the terms specified in the various contracts.

Current wording

As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. Unfortunately, such provisions are often not possible. The $4,333,000 balance in this account at August 31, 2024 is 1% lower than the prior year-end balance. This decrease is the result of normal flow of the Projects through production with billings to the customers as permitted in the related contracts. 34% of the CIEB balance as of the end of the last fiscal quarter, May 31, 2024, was billed to those customers in the quarter ended August 31, 2024. The remainder will be billed as the Projects progress, in accordance with the terms specified in the various contracts.

Previous wording

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $1,960,000 balance in this account at February 29, 2024 is down 2% from the $1,992,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the CIEB, discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

Current wording

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $2,984,000 balance in this account at August 31, 2024 is down 47% from the $5,601,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the CIEB, discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

Previous wording

The Company's backlog of sales orders at February 29, 2024 is $30.2 million, down from $32.5 million at the end of the prior year. $16.1 million of the current backlog is on Projects already in progress.

Current wording

The Company's backlog of sales orders at August 31, 2024 is $28.4 million, down from $33.1 million at the end of the prior year. $17.6 million of the Company’s backlog as of August 31, 2024 was on Projects already in progress.

Previous wording

Accounts payable, at $956,000 as of February 29, 2024, is 44% less than the prior year-end. Accrued expenses decreased 1% from the prior year-end, to $4,040,000. The Company expects the current accrued amounts to be paid or applied during the next twelve months.

Current wording

Accounts payable, at $1,848,000 as of August 31, 2024, is 28% higher than the prior year-end. Accrued expenses decreased 49% from the prior year-end, to $2,396,000, due to the payout of fiscal year 2024 incentive compensation. The Company expects the accrued amounts to be paid or applied during the next twelve months.