UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File Number 1-13752
Smith-Midland Corporation |
(Exact name of Registrant as specified in its charter) |
Delaware | 54-1727060 | |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
5119 Catlett Road, P.O. Box 300
Midland, VA 22728
(Address, zip code of principal executive offices)
(540) 439-3266
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, $0.01 par value per share | SMID | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
Non-accelerated | ☐ | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value per share, outstanding as of NovemberAugust 1, 2021: 5,210,9912022: 5,230,658 shares, net of treasury shares
SMITH-MIDLAND CORPORATION
Form 10-Q Index
2 |
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| September 30, 2021 (Unaudited) |
|
| December 31, 2020 |
| |||||||||||
ASSETS | ASSETS |
| June 30, 2022 (Unaudited) |
|
| December 31, 2021 |
| |||||||||
Current assets |
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
| $ | 14,995 |
| $ | 8,764 |
|
| $ | 12,425 |
| $ | 13,492 |
| ||
Investment securities, available-for-sale, at fair value |
| 1,243 |
| 1,228 |
| |||||||||||
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
| ||||||
Trade - billed (less allowance for doubtful accounts of approximately $425 and $400, respectively), including contract retentions |
| 12,572 |
| 9,798 |
| |||||||||||
Trade - billed (less allowance for doubtful accounts of approximately $482 and $437, respectively), including contract retentions |
| 12,668 |
| 10,013 |
| |||||||||||
Trade - unbilled |
| 483 |
| 742 |
|
| 560 |
| 439 |
| ||||||
Inventories, net |
|
|
|
|
|
|
|
|
|
| ||||||
Raw materials |
| 1,697 |
| 643 |
|
| 1,907 |
| 1,143 |
| ||||||
Finished goods |
| 1,499 |
| 1,551 |
|
| 1,624 |
| 1,702 |
| ||||||
Prepaid expenses and other assets |
|
| 622 |
|
|
| 615 |
| ||||||||
Prepaid expenses |
| 472 |
| 551 |
| |||||||||||
Refundable income taxes |
|
| 234 |
|
|
| 411 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Total current assets |
| 33,111 |
| 23,341 |
|
| 29,890 |
| 27,751 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and equipment, net |
| 18,249 |
| 18,602 |
|
| 22,906 |
| 21,926 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Deferred buy-back lease asset, net |
| 3,608 |
| 4,237 |
|
| 1,964 |
| 3,390 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Other assets |
|
| 278 |
|
|
| 319 |
|
|
| 252 |
|
|
| 258 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
| $ | 55,246 |
|
| $ | 46,499 |
|
| $ | 55,012 |
|
| $ | 53,325 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
3 |
Table of Contents |
SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(continued)
| September 30, 2021 (Unaudited) |
|
| December 31, 2020 |
| |||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY |
| June 30, 2022 (Unaudited) |
|
| December 31, 2021 |
| |||||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable - trade |
| $ | 3,166 |
| $ | 1,866 |
|
| $ | 3,732 |
| $ | 2,071 |
| ||
Accrued expenses and other liabilities |
| 789 |
| 875 |
|
| 1,020 |
| 657 |
| ||||||
Deferred revenue |
| 3,056 |
| 1,774 |
|
| 1,666 |
| 2,454 |
| ||||||
Accrued compensation |
| 1,250 |
| 1,318 |
|
| 771 |
| 1,036 |
| ||||||
Accrued income taxes |
| 1,486 |
| 470 |
|
| 122 |
| 2,033 |
| ||||||
Deferred buy-back lease obligation |
| 1,090 |
| 1,203 |
|
| 2,160 |
| 3,776 |
| ||||||
Operating lease liabilities |
| 88 |
| 85 |
|
| 92 |
| 89 |
| ||||||
Current maturities of notes payable |
| 486 |
| 740 |
|
| 613 |
| 468 |
| ||||||
Customer deposits |
|
| 1,623 |
|
|
| 569 |
|
|
| 1,309 |
|
|
| 1,325 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total current liabilities |
| 13,034 |
| 8,900 |
|
| 11,485 |
| 13,909 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Deferred revenue |
| 1,277 |
| 600 |
|
| 2,598 |
| 1,865 |
| ||||||
Deferred buy-back lease obligation |
| 3,000 |
| 3,790 |
| |||||||||||
Operating lease liabilities |
| 144 |
| 211 |
|
| 75 |
| 122 |
| ||||||
Notes payable - less current maturities |
| 3,879 |
| 4,196 |
|
| 6,105 |
| 3,724 |
| ||||||
PPP loan |
| 0 |
| 2,692 |
| |||||||||||
Deferred tax liability |
|
| 2,458 |
|
|
| 2,461 |
|
|
| 1,956 |
|
|
| 1,955 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities |
|
| 23,792 |
|
|
| 22,850 |
|
|
| 22,219 |
|
|
| 21,575 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
| ||||||
Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued and outstanding |
| 0 |
| 0 |
| |||||||||||
Common stock, $.01 par value; authorized 8,000,000 shares; 5,326,595 and 5,279,411 issued and 5,202,158 and 5,202,158 outstanding, respectively |
| 53 |
| 52 |
| |||||||||||
Preferred stock, $0.01 par value; authorized 1,000,000 shares, none issued and outstanding |
| 0 |
| 0 |
| |||||||||||
Common stock, $0.01 par value; authorized 8,000,000 shares; 5,353,095 and 5,353,095 issued and 5,230,658 and 5,229,658 outstanding, respectively |
| 53 |
| 53 |
| |||||||||||
Additional paid-in capital |
| 6,663 |
| 6,405 |
|
| 7,187 |
| 6,935 |
| ||||||
Treasury stock, at cost, 40,920 shares |
| (102 | ) |
| (102 | ) |
| (102 | ) |
| (102 | ) | ||||
Retained earnings |
|
| 24,840 |
|
|
| 17,294 |
|
|
| 25,655 |
|
|
| 24,864 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total stockholders' equity |
|
| 31,454 |
|
|
| 23,649 |
|
|
| 32,793 |
|
|
| 31,750 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities and stockholders' equity |
| $ | 55,246 |
|
| $ | 46,499 |
|
| $ | 55,012 |
|
| $ | 53,325 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
4 |
Table of Contents |
SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME (LOSS)
(Unaudited)
(in thousands, except per share data)
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Product sales |
| $ | 7,205 |
| $ | 6,485 |
| $ | 21,868 |
| $ | 20,036 |
|
| $ | 6,788 |
| $ | 7,243 |
| $ | 12,638 |
| $ | 14,662 |
| ||||||
Barrier rentals |
| 1,708 |
| 3,171 |
| 8,667 |
| 4,820 |
|
| 1,962 |
| 1,182 |
| 3,447 |
| 6,958 |
| ||||||||||||||
Royalty income |
| 676 |
| 484 |
| 1,788 |
| 1,165 |
|
| 771 |
| 692 |
| 1,198 |
| 1,112 |
| ||||||||||||||
Shipping and installation revenue |
|
| 3,511 |
|
|
| 2,375 |
|
|
| 8,302 |
|
|
| 6,768 |
|
|
| 3,732 |
|
|
| 3,190 |
|
|
| 6,405 |
|
|
| 4,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total revenue |
| 13,100 |
| 12,515 |
| 40,625 |
| 32,789 |
|
| 13,253 |
| 12,307 |
| 23,688 |
| 27,523 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Cost of goods sold |
|
| 9,898 |
|
|
| 8,674 |
|
|
| 28,388 |
|
|
| 24,971 |
|
|
| 10,023 |
|
|
| 8,993 |
|
|
| 18,810 |
|
|
| 18,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Gross profit |
|
| 3,202 |
|
|
| 3,841 |
|
|
| 12,237 |
|
|
| 7,818 |
|
|
| 3,230 |
|
|
| 3,314 |
|
|
| 4,878 |
|
|
| 9,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
General and administrative expenses |
| 1,215 |
| 1,271 |
| 3,880 |
| 3,553 |
|
| 1,409 |
| 1,340 |
| 2,568 |
| 2,665 |
| ||||||||||||||
Selling expenses |
|
| 719 |
|
|
| 521 |
|
|
| 2,010 |
|
|
| 1,684 |
|
|
| 725 |
|
|
| 696 |
|
|
| 1,388 |
|
|
| 1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total operating expenses |
|
| 1,934 |
|
|
| 1,792 |
|
|
| 5,890 |
|
|
| 5,237 |
|
|
| 2,134 |
|
|
| 2,036 |
|
|
| 3,956 |
|
|
| 3,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating income (loss) |
|
| 1,268 |
|
|
| 2,049 |
|
|
| 6,347 |
|
|
| 2,581 |
|
|
| 1,096 |
|
|
| 1,278 |
|
|
| 922 |
|
|
| 5,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest expense |
| (47 | ) |
| (53 | ) |
| (145 | ) |
| (166 | ) |
| (71 | ) |
| (56 | ) |
| (118 | ) |
| (98 | ) | ||||||||
Interest income |
| 10 |
| 8 |
| 29 |
| 26 |
|
| 3 |
| 10 |
| 6 |
| 19 |
| ||||||||||||||
Gain (loss) on sale of assets |
| 205 |
| (8 | ) |
| 293 |
| 58 |
| ||||||||||||||||||||||
Gain on forgiveness of PPP loan |
| 2,692 |
| 0 |
| 2,692 |
| 0 |
| |||||||||||||||||||||||
Gain on sale of assets |
| 27 |
| 42 |
| 65 |
| 88 |
| |||||||||||||||||||||||
Other income |
|
| 8 |
|
|
| 22 |
|
|
| 41 |
|
|
| 41 |
|
|
| 162 |
|
|
| 39 |
|
|
| 183 |
|
|
| 33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total other income (expense) |
|
| 2,868 |
|
|
| (31 | ) |
|
| 2,910 |
|
|
| (41 | ) |
|
| 121 |
|
|
| 35 |
|
|
| 136 |
|
|
| 42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Income (loss) before income tax expense (benefit) |
| 4,136 |
| 2,018 |
| 9,257 |
| 2,540 |
|
| 1,217 |
| 1,313 |
| 1,058 |
| 5,121 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Income tax expense (benefit) |
|
| 442 |
|
|
| 469 |
|
|
| 1,711 |
|
|
| 588 |
|
|
| 307 |
|
|
| 328 |
|
|
| 267 |
|
|
| 1,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income (loss) |
| $ | 3,694 |
|
| $ | 1,549 |
|
| $ | 7,546 |
|
| $ | 1,952 |
|
| $ | 910 |
|
| $ | 985 |
|
| $ | 791 |
|
| $ | 3,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Basic and diluted earnings (loss) per common share |
| $ | 0.71 |
| $ | 0.30 |
| $ | 1.45 |
| $ | 0.38 |
|
| $ | 0.17 |
| $ | 0.19 |
| $ | 0.15 |
| $ | 0.74 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Basic |
| 5,202 |
| 5,184 |
| 5,202 |
| 5,184 |
|
| 5,230 |
| 5,202 |
| 5,230 |
| 5,202 |
| ||||||||||||||
Diluted |
| 5,220 |
| 5,184 |
| 5,217 |
| 5,184 |
|
| 5,266 |
| 5,218 |
| 5,262 |
| 5,214 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5 |
Table of Contents |
SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)thousands, except share data)
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Treasury Stock |
|
| Retained Earnings |
|
| Total |
| |||||
Balance at December 31, 2020 |
| $ | 52 |
|
| $ | 6,405 |
|
| $ | (102 | ) |
| $ | 17,294 |
|
| $ | 23,649 |
|
Vesting of restricted stock |
|
| 0 |
|
|
| 41 |
|
|
| 0 |
|
|
| 0 |
|
|
| 41 |
|
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,867 |
|
|
| 2,867 |
|
Balance at March 31, 2021 |
|
| 52 |
|
|
| 6,446 |
|
|
| (102 | ) |
|
| 20,161 |
|
|
| 26,557 |
|
Vesting of restricted stock |
|
| 1 |
|
|
| 130 |
|
|
| 0 |
|
|
| 0 |
|
|
| 131 |
|
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 985 |
|
|
| 985 |
|
Balance at June 30, 2021 |
|
| 53 |
|
|
| 6,576 |
|
|
| (102 | ) |
|
| 21,146 |
|
|
| 27,673 |
|
Vesting of restricted stock |
|
| 0 |
|
|
| 87 |
|
|
| 0 |
|
|
| 0 |
|
|
| 87 |
|
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,694 |
|
|
| 3,694 |
|
Balance at September 30, 2021 |
|
| 53 |
|
|
| 6,663 |
|
|
| (102 | ) |
|
| 24,840 |
|
|
| 31,454 |
|
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Treasury Stock |
|
| Retained Earnings |
|
| Total |
|
| Common Stock |
| Treasury Stock |
| Additional Paid-in |
|
| Retained |
|
|
| |||||||||||||||||||||
Balance at December 31, 2019 |
| $ | 52 |
| $ | 6,242 |
| $ | (102 | ) |
| $ | 14,629 |
| $ | 20,821 |
| |||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
| Earnings |
| Total |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Balance, December 31, 2021 |
| 5,353,095 |
| 53 |
| (40,920 | ) |
| (102 | ) |
| 6,935 |
| 24,864 |
| 31,750 |
| |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Restricted stock issued |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Vesting of restricted stock |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
|
| — |
| 0 |
| — |
| 0 |
| 126 |
| 0 |
| 126 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (38 | ) |
|
| (38 | ) |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (119 | ) |
|
| (119 | ) |
Balance at March 31, 2020 |
| 52 |
| 6,242 |
| (102 | ) |
| 14,591 |
| 20,783 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Balance, March 31, 2022 |
|
| 5,353,095 |
|
| $ | 53 |
|
|
| (40,920 | ) |
| $ | (102 | ) |
| $ | 7,061 |
|
| $ | 24,745 |
|
| $ | 31,757 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Restricted stock issued |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Vesting of restricted stock |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
|
| — |
| 0 |
| — |
| 0 |
| 126 |
| 0 |
| 126 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 441 |
|
|
| 441 |
|
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 910 |
|
|
| 910 |
|
Balance at June 30, 2020 |
| 52 |
| 6,242 |
| (102 | ) |
| 15,032 |
| 21,224 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Balance, June 30, 2022 |
|
| 5,353,095 |
|
| $ | 53 |
|
|
| (40,920 | ) |
| $ | (102 | ) |
| $ | 7,187 |
|
| $ | 25,655 |
|
| $ | 32,793 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Balance, December 31, 2020 |
| 5,279,411 |
| $ | 52 |
| (40,920 | ) |
| $ | (102 | ) |
| $ | 6,405 |
| $ | 17,294 |
| $ | 23,649 |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Restricted stock issued |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Vesting of restricted stock |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
|
| — |
| 0 |
| — |
| 0 |
| 41 |
| 0 |
| 41 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,549 |
|
|
| 1,549 |
|
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,867 |
|
|
| 2,867 |
|
Balance at September 30, 2020 |
|
| 52 |
|
|
| 6,242 |
|
|
| (102 | ) |
|
| 16,581 |
|
|
| 22,773 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Balance, March 31, 2021 |
|
| 5,279,411 |
|
| $ | 52 |
|
|
| (40,920 | ) |
| $ | (102 | ) |
| $ | 6,446 |
|
| $ | 20,161 |
|
| $ | 26,557 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Restricted stock issued |
| 47,184 |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Vesting of restricted stock |
| — |
| 1 |
| — |
| 0 |
| 130 |
| 0 |
| 131 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Net income (loss) |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 985 |
|
|
| 985 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Balance, June 30, 2021 |
|
| 5,326,595 |
|
| $ | 53 |
|
|
| (40,920 | ) |
| $ | (102 | ) |
| $ | 6,576 |
|
| $ | 21,146 |
|
| $ | 27,673 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
6 |
Table of Contents |
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | 7,546 |
| $ | 1,952 |
|
| $ | 791 |
| $ | 3,852 |
| ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| 1,976 |
| 1,791 |
|
| 1,400 |
| 1,318 |
| ||||||
Gain on forgiveness of PPP loan |
| (2,692 | ) |
| 0 |
| ||||||||||
Gain (loss) on sale of assets |
| (293 | ) |
| (58 | ) | ||||||||||
(Gain) loss on sale of property and equipment |
| (65 | ) |
| (88 | ) | ||||||||||
Unrealized (gain) loss on investment securities available for sale |
| 5 |
| (16 | ) |
| 0 |
| (11 | ) | ||||||
Allowance for doubtful accounts |
| 25 |
| 55 |
|
| 45 |
| 15 |
| ||||||
Stock compensation |
| 258 |
| 0 |
|
| 253 |
| 172 |
| ||||||
Deferred taxes |
| (3 | ) |
| (5 | ) |
| 0 |
| (4 | ) | |||||
(Increase) decrease in |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable - billed |
| (2,799 | ) |
| 2,915 |
|
| (2,700 | ) |
| (2,043 | ) | ||||
Accounts receivable - unbilled |
| 259 |
| (393 | ) |
| (121 | ) |
| 106 |
| |||||
Inventories |
| (1,002 | ) |
| 78 |
|
| (686 | ) |
| (549 | ) | ||||
Prepaid expenses and other assets |
| 10 |
| (96 | ) |
| 61 |
| 73 |
| ||||||
Refundable income taxes |
| 0 |
| 309 |
|
| 177 |
| 0 |
| ||||||
Increase (decrease) in |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable - trade |
| 1,300 |
| (681 | ) |
| 1,661 |
| 1,078 |
| ||||||
Accrued expenses and other liabilities |
| (86 | ) |
| 891 |
|
| 364 |
| (298 | ) | |||||
Deferred revenue |
| 1,959 |
| 2 |
|
| (55 | ) |
| 1,666 |
| |||||
Accrued compensation |
| (68 | ) |
| 267 |
|
| (265 | ) |
| 178 |
| ||||
Accrued income taxes |
| 1,016 |
| 305 |
|
| (1,912 | ) |
| 575 |
| |||||
Deferred buy-back lease obligation |
| (903 | ) |
| (855 | ) |
| (1,617 | ) |
| (602 | ) | ||||
Customer deposits |
|
| 1,054 |
|
|
| (483 | ) |
|
| (16 | ) |
|
| 264 |
|
Net cash provided by (used in) operating activities |
|
| 7,562 |
|
|
| 5,978 |
|
|
| (2,685 | ) |
|
| 5,702 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Purchases of investment securities available-for-sale |
| (20 | ) |
| (22 | ) |
| 0 |
| (13 | ) | |||||
Purchases of property and equipment |
| (1,210 | ) |
| (2,501 | ) |
| (1,962 | ) |
| (926 | ) | ||||
Proceeds from sale of fixed assets |
|
| 466 |
|
|
| 144 |
| ||||||||
Deferred buy-back asset |
| 988 |
| 0 |
| |||||||||||
Proceeds from the sale of property and equipment |
|
| 65 |
|
|
| 88 |
| ||||||||
Net cash provided by (used in) investing activities |
|
| (764 | ) |
|
| (2,379 | ) |
|
| (909 | ) |
|
| (851 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from long-term borrowings |
| 50 |
| 5,426 |
|
| 2,805 |
| 0 |
| ||||||
Repayments of long-term borrowings |
| (617 | ) |
| (2,658 | ) |
|
| (278 | ) |
|
| (421 | ) | ||
Dividends paid on common stock |
|
| 0 |
|
|
| (282 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| (567 | ) |
|
| 2,486 |
|
|
| 2,527 |
|
|
| (421 | ) |
Net increase (decrease) in cash |
| 6,231 |
| 6,085 |
|
| (1,067 | ) |
| 4,430 |
| |||||
Cash |
|
|
|
|
|
|
|
|
|
| ||||||
Beginning of period |
|
| 8,764 |
|
|
| 1,364 |
|
|
| 13,492 |
|
|
| 8,764 |
|
End of period |
| $ | 14,995 |
|
| $ | 7,449 |
|
| $ | 12,425 |
|
| $ | 13,194 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Cash Flow information: |
|
|
|
|
| |||||||||||
Supplemental Cash Flow Information: |
|
|
|
|
| |||||||||||
Cash payments for interest |
| $ | 145 |
| $ | 166 |
|
| $ | 118 |
| $ | 98 |
| ||
Cash payments for income taxes |
| $ | 713 |
| $ | 1 |
|
| $ | 2,179 |
| $ | 713 |
| ||
Non-cash transaction - PPP loan forgiveness |
| $ | 2,692 |
| $ | 0 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
7 |
Table of Contents |
SMITH-MIDLAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL REPORTING
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we have condensed or omitted certain information and footnote disclosures that are included in our annual consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, summary of significant accounting policies, and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. The condensed consolidated December 31, 20202021 balance sheet was derived from the audited financial statements included in the Form 10-K. Dollar amounts in the footnotes are stated in thousands, except for per share data.
In the opinion of management, these condensed consolidated financial statements reflect all adjustments (which consist of normal, recurring adjustments) necessary for a fair presentation of the financial position and results of operations and cash flows for the periods presented. The results disclosed in the condensed consolidated statements of operationsincome are not necessarily indicative of the results to be expected in any future periods.
Although the ultimate impact is uncertain at this time, a resurgence of the coronavirus outbreak may significantly affect the Company's financial condition, liquidity, and results of operations. In this respect, the Company had previously experienced the following negative impacts on its business: backlog reduction during 2020 from that of 2019, lower production volumes, employee absence, and bidding restrictions within certain key states. The Company is continuing to experience delays in receipt of materials through its supply chain.
Recently Issued Accounting Pronouncement
The FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects estimates of expected credit losses over their contractual life that are recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The pronouncement is effective for smaller reporting companies for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this standard, including subsequent amendments, on the consolidated financial statements and related disclosures.
Recent accounting pronouncements pending adoption, other than as stated above, are not expected to have a material impact on the Company.
8 |
Table of Contents |
Revenue Recognition
Product Sales - Over Time
Under Topic 606, the Company recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services provided. Revenue associated with contracts with customers for customized products is recognized over time as the Company's performance creates or enhances customer controlledcustomer-controlled assets or creates or enhances an asset with no alternative use, which the Company has an enforceable right to receive compensation as defined under the contract for performance completed. To determine the amount of revenue to recognize over time, the Company recognizes revenue over the contract terms based on the output method. The Company applied the "as-invoiced""as invoiced" practical expedient as the amount of consideration the Company has the right to invoice corresponds directly with the value of the Company's performance to date.
As the output method is driven by units produced, the Company recognizes revenues based on the value transferred to the customer relative to the remaining value to be transferred. The Company also matches the costs associated with the units produced. If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was first determined and the amount of the loss is updated in subsequent reporting periods. Revenue recognition also includes an amount related to a contract asset or contract liability. If the recognized revenue is greater than the amount billed to the customer, a contract related asset is recorded in "Accountsaccounts receivable trade - unbilled".unbilled. Conversely, if the amount billed to the customer is greater than the recognized revenue, a contract liability is recorded in "Customer deposits".customer deposits. Changes in the job performance, job conditions, and final contract settlements are factors that influence management’s assessment of total contract value and therefore, profit and revenue recognition.
A portion of the work the Company performs requires financial assurances in the form of performance and payment bonds or letters of credit at the time of execution of the contract. Some contracts include retention provisions of up to 10%, which are generally withheld from each progress payment as retainage until the contract work has been completed and approved.
Product Sales - Point in Time
For certain product sales that do not meet the over time criteria, under Topic 606 the Company recognizes revenue when the product has been shipped to the destination in accordance with the terms outlined in the contract where a present obligation to pay exists asand the customer hascustomers have gained control of the product.
Accounts Receivable and Contract Balances
The timing of when we bill our customers is generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of the work, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our Condensed Consolidated Balance Sheets as "Accounts receivable trade - unbilled" (contract assets). Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimatedestimate earnings recognized to date, are reported on our Condensed Consolidated Balance Sheets as "Customer deposits" (contract liabilities).
Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable. At Septemberreceivable trade - billed. On June 30, 20212022, and December 31, 2020,2021, accounts receivable included contract retentions (in thousands) of approximately $908$1,393 and $1,709, respectively.$1,139, respectively, which are considered contract assets.
Our billed and unbilled revenue may be exposed to potential credit risk if our customers should encounter financial difficulties, and we maintain reserves for specifically-identifiedspecifically identified potential uncollectible receivables. At SeptemberOn June 30, 20212022, and December 31, 2020,2021, our allowances for doubtful accounts (in thousands) were approximately $425$482 and $400,$437, respectively.
9 |
Table of Contents |
Sale to Customer with a Buy-Back GuaranteeAgreement
The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back productbarrier at a predetermined price at the end of the long-term project, subject to the condition of the product. Although the Company receivesreceived payment in full aswhen the product iswas produced, GAAP requireswe are required to account for these transactions to be accounted for as operating leases. The amount of sale proceeds equal to the buy-back obligation, included in "Deferred buy-back lease obligation" in the liabilities section of the consolidated balance sheet, is deferred until the buy-back is exercised or expired.executed. The remaining sale proceeds are deferred in the same account and recognized on a straight-line basis over the usage period, such usage period commencing on delivery to the job-site and ending at the time the buy-back is exercised or expired.executed. The Company capitalizes the cost of the product on the consolidated balance sheet shown in "Deferred buy-back lease asset, net", and depreciates the value, less residual value, to cost of leasing revenue in "Cost of goods sold" over the estimated useful life of the asset.
InPursuant to an amendment entered into by the caseCompany with the customer does not exercise the buy-back option and retains ownership of the product at the end of the usage period, the guaranteed buy-back liability and any deferred revenue balances related to the product are settled to revenue, and the net book value of the asset is expensed to cost of leasing revenue. If the customer exercises the buy-back guarantee option,on April 13, 2022, the Company purchases the productagreed to purchase barrier back in the amount equal to the buy-back guarantee,guarantee. Accordingly, the Company settleswill settle any remaining deferred balances, in excess of the buy-back payment, to leasing revenue, and the Company reclassifiesreclassify the net book value of the purchased product on the consolidated balance sheet to "Inventories" or "Property and equipment, net" depending on the intended use at the time.use. The revenue is being recognized in accordance with Topic 842, Leases. See Note 5. Commitments for additional information regarding the amendment.
Barrier Rentals - Lease Income
Leasing fees are paid by customers at the beginning of the lease periodagreement and are recorded as deferred revenue. The deferred revenue is then recognized each month as lease income for the duration of the lease, in accordance with Topic 842, Leases. Topic 842 is applied, as Topic 606-10-15-2 provides a scope exception for lease contracts.
Royalty Income
The Company licenses certain products to other precast companies to manufactureproduce the Company's products to engineering specifications under the licensing agreements. The agreements are typically for five yearfive-year terms and require royalty payments from 4% to 6% of total sales of licensed products, which are paid on a monthly basis.every month. The revenues from licensing agreements are recognized in the month earned, in accordance with Topic 606-10-55-65.
Shipping and Installation
Shipping and installation revenues are recognized as a distinct performance obligation in the period the shipping and installation services are provided to the customer, in accordance with Topic 606.
10 |
Table of Contents |
Disaggregation of Revenue
In the following table, revenue is disaggregated by primary sources of revenue:
Revenue by Type |
| Three Months Ended September 30 |
| Nine Months Ended September 30 |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
| 2022 |
| 2021 |
| $ Change |
| % Change |
| ||||||||||||||||||||||||
Soundwall Sales |
| $ | 2,407 |
| $ | 1,736 |
| $ | 671 |
| 39 | % |
| $ | 6,496 |
| $ | 5,824 |
| $ | 672 |
| 12 | % |
| $ | 430 |
| $ | 2,391 |
| $ | (1,961 | ) |
| (82 | )% |
| $ | 1,794 |
| $ | 4,090 |
| $ | (2,296 | ) |
| (56 | )% | ||||||||||||||
Architectural Panel Sales |
| 406 |
| 696 |
| (290 | ) |
| (42 | )% |
| 3,843 |
| 2,229 |
| 1,614 |
| 72 | % |
| 1,347 |
| 1,249 |
| 98 |
| 8 | % |
| 2,253 |
| 3,437 |
| (1,184 | ) |
| (34 | )% | ||||||||||||||||||||||||||
SlenderWall Sales |
| 1,027 |
| 26 |
| 1,001 |
| 3850 | % |
| 1,247 |
| 949 |
| 298 |
| 31 | % |
| 51 |
| 220 |
| (169 | ) |
| (77 | )% |
| 1,007 |
| 220 |
| 787 |
| 358 | % | |||||||||||||||||||||||||||
Miscellaneous Wall Sales |
| 520 |
| 963 |
| (443 | ) |
| (46 | )% |
| 1,804 |
| 2,994 |
| (1,190 | ) |
| (40 | )% |
| 637 |
| 781 |
| (144 | ) |
| (18 | )% |
| 988 |
| 1,284 |
| (296 | ) |
| (23 | )% | ||||||||||||||||||||||||
Barrier Sales |
| 1,022 |
| 1,679 |
| (657 | ) |
| (39 | )% |
| 3,578 |
| 3,949 |
| (371 | ) |
| (9 | )% |
| 2,338 |
| 1,066 |
| 1,272 |
| 119 | % |
| 3,252 |
| 2,557 |
| 695 |
| 27 | % | ||||||||||||||||||||||||||
Easi-Set and Easi-Span Building Sales |
| 676 |
| 643 |
| 33 |
| 5 | % |
| 2,278 |
| 1,971 |
| 307 |
| 16 | % | ||||||||||||||||||||||||||||||||||||||||||||||
Easi-Set Building Sales |
| 948 |
| 848 |
| 100 |
| 12 | % |
| 1,563 |
| 1,602 |
| (39 | ) |
| (2 | )% | |||||||||||||||||||||||||||||||||||||||||||||
Utility Sales |
| 891 |
| 254 |
| 637 |
| 251 | % |
| 1,628 |
| 1,043 |
| 585 |
| 56 | % |
| 666 |
| 469 |
| 197 |
| 42 | % |
| 1,132 |
| 736 |
| 396 |
| 54 | % | ||||||||||||||||||||||||||||
Miscellaneous Sales |
|
| 256 |
|
|
| 488 |
|
|
| (232 | ) |
|
| (48 | )% |
|
| 994 |
|
|
| 1,077 |
|
|
| (83 | ) |
|
| (8 | )% |
|
| 371 |
|
|
| 219 |
|
|
| 152 |
|
|
| 69 | % |
|
| 649 |
|
|
| 736 |
|
|
| (87 | ) |
|
| (12 | )% |
Total Product Sales |
|
| 7,205 |
|
|
| 6,485 |
|
|
| 720 |
|
|
| 11 | % |
|
| 21,868 |
|
|
| 20,036 |
|
|
| 1,832 |
|
|
| 9 | % |
|
| 6,788 |
|
|
| 7,243 |
|
|
| (455 | ) |
|
| (6 | )% |
|
| 12,638 |
|
|
| 14,662 |
|
|
| (2,024 | ) |
|
| (14 | )% |
Barrier Rentals |
| 1,708 |
| 3,171 |
| (1,463 | ) |
| (46 | )% |
| 8,667 |
| 4,820 |
| 3,847 |
| 80 | % |
| 1,962 |
| 1,182 |
| 780 |
| 66 | % |
| 3,447 |
| 6,958 |
| (3,511 | ) |
| (50 | )% | ||||||||||||||||||||||||||
Royalty Income |
| 676 |
| 484 |
| 192 |
| 40 | % |
| 1,788 |
| 1,165 |
| 623 |
| 53 | % |
| 771 |
| 692 |
| 79 |
| 11 | % |
| 1,198 |
| 1,112 |
| 86 |
| 8 | % | ||||||||||||||||||||||||||||
Shipping and Installation Revenue |
|
| 3,511 |
|
|
| 2,375 |
|
|
| 1,136 |
|
|
| 48 | % |
|
| 8,302 |
|
|
| 6,768 |
|
|
| 1,534 |
|
|
| 23 | % |
|
| 3,732 |
|
|
| 3,190 |
|
|
| 542 |
|
|
| 17 | % |
|
| 6,405 |
|
|
| 4,791 |
|
|
| 1,614 |
|
|
| 34 | % |
Total Service Revenue |
|
| 5,895 |
|
|
| 6,030 |
|
|
| (135 | ) |
|
| (2 | )% |
|
| 18,757 |
|
|
| 12,753 |
|
|
| 6,004 |
|
|
| 47 | % |
|
| 6,465 |
|
|
| 5,064 |
|
|
| 1,401 |
|
|
| 28 | % |
|
| 11,050 |
|
|
| 12,861 |
|
|
| (1,811 | ) |
|
| (14 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Total Revenue |
| $ | 13,100 |
|
| $ | 12,515 |
|
| $ | 585 |
|
|
| 5 | % |
| $ | 40,625 |
|
| $ | 32,789 |
|
| $ | 7,836 |
|
|
| 24 | % |
| $ | 13,253 |
|
| $ | 12,307 |
|
| $ | 946 |
|
|
| 8 | % |
| $ | 23,688 |
|
| $ | 27,523 |
|
| $ | (3,835 | ) |
|
| (14 | )% |
The revenue items: soundwall sales, architectural panel sales, SlenderWall sales, miscellaneous wall sales, miscellaneous sales, barrier rentals, and royalty income are recognized as revenue over time. The revenue items: barrier sales, Easi-Set and Easi-Span building sales, utility sales, miscellaneous sales, and shipping and installation revenue are recognized as revenue at a point in time.
Warranties
The Company'sSmith-Midland products are typically sold pursuant to an implicit warranty as to merchantability only. Warranty claims are reviewed and resolved on a case by case method. Although the Company does incur costs for these types of expense,warranty claims, historically the amount of expense issuch amounts are minimal.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Risk
Historically, various customers have comprised greater than 10% of revenue during a given quarter or year. These customers are typically not the same quarter to quarter or year to year. The Company views revenue details by jobs, and not customers. In the event a customer were to go out of business during a project, it is likely that the owner of the project would assign a new contractor to the job, and the Company would complete its scope of work. Therefore, the Company believes that it does not have a short-term vulnerability of severe impact to operations. In cases where customers are less than 10% of revenue, the Company assesses if there is a near term severe impact. The Company has determined that no customer, if lost, would result in a near term severe impact or the normal functioning of the Company’s operations.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker,decision-maker, or decision makingdecision-making group, in deciding how to allocate resources and assess performance. The Company currently operates in one operating and reportable business segment for financial reporting purposes.
Reclassifications of Certain Items Included within Comparable Prior Year Periods and Previous Current Year Interim Periods
Certain minor reclassifications have been made to prior year amounts to conform to the current yearyear’s presentation.
11 |
Table of Contents |
2. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are calculated as follows (in thousands, except earnings per share):
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Basic earnings (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income |
| $ | 3,694 |
| $ | 1,549 |
| $ | 7,546 |
| $ | 1,952 |
| |||||||||||||||||||
Net income (loss) |
| $ | 910 |
| $ | 985 |
| $ | 791 |
| $ | 3,852 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Weighted average shares outstanding |
|
| 5,202 |
|
|
| 5,184 |
|
|
| 5,202 |
|
|
| 5,184 |
|
|
| 5,230 |
|
|
| 5,202 |
|
|
| 5,230 |
|
|
| 5,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Basic earnings (loss) per common share |
| $ | 0.71 |
|
| $ | 0.30 |
|
| $ | 1.45 |
|
| $ | 0.38 |
|
| $ | 0.17 |
|
| $ | 0.19 |
|
| $ | 0.15 |
|
| $ | 0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Diluted earnings (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income |
| $ | 3,694 |
| $ | 1,549 |
| $ | 7,546 |
| $ | 1,952 |
| |||||||||||||||||||
Net income (loss) |
| $ | 910 |
| $ | 985 |
| $ | 791 |
| $ | 3,852 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Weighted average shares outstanding |
| 5,202 |
| 5,184 |
| 5,202 |
| 5,184 |
|
| 5,230 |
| 5,202 |
| 5,230 |
| 5,202 |
| ||||||||||||||
Dilutive effect of stock options and restricted stock |
|
| 18 |
|
|
| 0 |
|
|
| 15 |
|
|
| 0 |
| ||||||||||||||||
Dilutive effect of restricted stock |
|
| 36 |
|
|
| 16 |
|
|
| 32 |
|
|
| 12 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total weighted average shares outstanding |
|
| 5,220 |
|
|
| 5,184 |
|
|
| 5,217 |
|
|
| 5,184 |
|
|
| 5,266 |
|
|
| 5,218 |
|
|
| 5,262 |
|
|
| 5,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Diluted earnings (loss) per common share |
| $ | 0.71 |
|
| $ | 0.30 |
|
| $ | 1.45 |
|
| $ | 0.38 |
|
| $ | 0.17 |
|
| $ | 0.19 |
|
| $ | 0.15 |
|
| $ | 0.74 |
|
There was no restricted stock excluded from the diluted earnings per share calculation for the three and ninesix month periods ended SeptemberJune 30, 20212022 and SeptemberJune 30, 2020.2021.
12 |
Table of Contents |
3. NOTES PAYABLE
The Company has a mortgage note payable to Summit Community Bank (the “Bank”) for the construction of its North Carolina facility. The note carries a ten yearten-year term at a fixed interest rate of 3.64% annually per the Promissory Note Rate Conversion Agreement, with monthly payments of $22, and is secured by all of the assets of Smith-Carolina and a guarantee by the Company. The loan matures on October 10, 2029. The balance of the note payable at Septemberon June 30, 20212022 was $1,862.$1,712.
On March 27, 2020, the Company completed the refinancing of existing loans with a note payable to the Bank in the amount of $2,701. A portion of the funds, in the amount of $678, werewas secured for improvements to an existing five acrefive-acre parcel for additional storage at the Midland, Virginia plant. The loan is collateralized by a first lien position on the Virginia property, building, and assets. The refinance also released the lien on the Smith-Columbiamanufacturing plant in Hopkins, South Carolina (Columbia). The interest rate per the Promissory Note is fixed at 3.99% per annum, with principal and interest payments payable monthly over 120 months in the amount offor $27. The loan matures on March 27, 2030. The balance of the note payable on June 30, 2022 was $2,185.
On February 10, 2022, the Company completed the financing for its prior acquisition of certain real property in Midland, VA totaling approximately 29.8 acres with a note payable to the Bank in the amount of $2,805. The loan is collateralized by a first lien position on the related real property. The interest rate is fixed at September4.09% per annum, with principal and interest payments payable monthly over 180 months for $21. The loan matures on February 10, 2037. The balance of the note payable on June 30, 20212022 was $2,363.$2,760.
The Company additionally has 42 smaller installment loans with annual interest rates betweenof 2.90% and 6.84%3.99%, maturing between 2021 andin 2025, with varying balances totaling $140.$61.
Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500 and must maintain tangible net worth of $10,000. The Company received a special exception to the capital expenditure covenant from the Bank to purchase barrier during 2022 for $5,000 (see Note 5 Commitments). The Company is in compliance with all covenants pursuant to the loan agreements as of SeptemberJune 30, 2021.2022.
In addition to the notes payable discussed above, on April 16, 2020, the Company obtained a loan, evidenced by a promissory note, under the Paycheck Protection Program (the "PPP") from the Bank in the amount of $2,692. The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness. The interest rate per the promissory note, dated April 16, 2020 and executed by the Company in favor of the Bank, was fixed at 1.00% per annum, with principal and interest payments starting thirty (30) days after the amount of forgiveness is determined under section 1106 of the CARES Act. The proceeds of the loan were required to be utilized pursuant to the requirements of the PPP, and all or a portion of the loan could be forgiven in accordance with the PPP applicable rules, regulations, and guidelines. On July 9, 2021, the Company received loan forgiveness for the full amount of the loan of $2,692.
Also in addition to the notes payable discussed above, the Company has a $4,000 line of credit with the Bank with no balance outstanding as of SeptemberJune 30, 2021.2022. The line of credit is evidenced by a commercial revolving promissory note, which carries a variable interest rate of prime, with a floor of 3.50%, and matures on October 1, 2022. The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company (i) to obtain bank approval for capital expenditures in excess of $3,500 during the term of the loan;loan and (ii) to obtain bank approval prior to its funding of any acquisition. On October 21, 2021, the Company received a Commitment Letter from the Bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $1,500. The commitment provides for the purchase of equipment for which a note payable will be executed with a term not to exceed five years with an interest rate at the Wall Street Journal prime rate plus 0.50% with a floor of 3.50% per annum. The loan is collateralized by a first lien position on all equipment purchased under the line. The commitment for the guidance line of credit matures on October 21, 2022. As of SeptemberJune 30, 2021,2022, the Company had not purchased any equipment pursuant to the $1,500 commitment.
4. STOCK COMPENSATION
The fair value of restricted stock awards is estimated to be the market price of the Company's common stock at the close of the date of grant. Restricted stock activity during the ninesix months ended SeptemberJune 30, 20212022, is as follows:
|
| Performance-Based |
|
| Service-Based |
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value per Share |
|
| Performance-Based |
|
| Service-Based |
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value per Share |
| ||||||||
Non-vested, December 31, 2020 |
| 0 |
| 36,336 |
| 36,336 |
| $ | 8.98 |
| ||||||||||||||||||||||
Non-vested, December 31, 2021 |
| 42,466 |
| 40,054 |
| 82,520 |
| $ | 12.45 |
| ||||||||||||||||||||||
Granted |
| 42,466 |
| 4,718 |
| 47,184 |
| 11.72 |
|
| 0 |
| 0 |
| 0 |
| 0 |
| ||||||||||||||
Vested |
| 0 |
| 0 |
| 0 |
| 0 |
|
| 0 |
| 1,000 |
| 1,000 |
| 13.44 |
| ||||||||||||||
Forfeited |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Non-vested, end of period |
|
| 46,466 |
|
|
| 41,054 |
|
|
| 83,520 |
|
| $ | 10.53 | �� | ||||||||||||||||
Non-vested, June 30, 2022 |
|
| 42,466 |
|
|
| 39,054 |
|
|
| 81,520 |
|
| $ | 12.44 |
|
The actual number of performance-based shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) margin, revenue growth, and free cash flow for the grant in April 2021.flow. The EBITDA margin and revenue growth performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount achievedreceived is determined by the Compensation Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Compensation Committee.occurrence. A smaller portion is also earned based on Board discretion and continued service. The stock compensation cost is recognized over the requisite performance/service period using the straight-line method and can be periodically adjusted for the probable number of shares to be awarded.
Stock compensation (in thousands) for the three and ninesix month periods ended SeptemberJune 30, 20212022 was approximately $87$126 and $258,$253, respectively, based upon the value at the date of grant. Stock compensation for the three and ninesix month periods ended SeptemberJune 30, 20202021 was less than $1,approximately $131 and $172, respectively, based upon the value at the date of grant. There was $620$569 of unrecognized compensation cost related to the non-vested restricted stock as of SeptemberJune 30, 2021.2022 to be recognized through 2023.
5. SUBSEQUENT EVENTSCOMMITMENTS
On October 26, 2021,April 13, 2022, the Compensation CommitteeCompany and Board of Directors approved a service-based restricted stock grant with unrecognized compensation cost of approximately $475. The restricted shares vestits customer entered into an amendment to the extent of one-thirdbuy-back agreement described in Note 1. ‘Revenue Recognition Sale to Customer with a Buy-Back Guarantee’. Pursuant to the amendment, the Company agreed to purchase all of the sharesbarrier subject to the buy-back agreement as well as approximately an additional 115,000 linear feet. The total estimated purchase price is $5,000, representing the barrier, associated loading, freight, and yarding. In accordance with ASC 842 Lease Accounting, a portion of the total $5,000 buy-back was previously recorded as a deferred buy-back obligation on eachthe Condensed Consolidated Balance Sheets. Costs in excess of October 26, 2021, October 26, 2022, and October 26, 2023. The stock compensation costthe original deferred buy-back obligation will be accounted for as incurred. It is recognized overanticipated that the requisite service period usingtotal barrier buy-back will be completed by the straight-line method and can be periodically adjusted for the probable numberend of shares to be awarded.fiscal year 2022.
13 |
Table of Contents |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report and related documents include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act 1934. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the Company’s actual results, performance (financial or operating), or achievements expressed or implied by such forward looking statements not to occur or be realized. Such forward looking statements generally are based upon the Company’s best estimates of future results, performance or achievement, based upon current conditions and the most recent results of operations. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “continue,” or similar terms, variations of those terms or the negative of those terms. Potential risks and uncertainties include, among other things, such factors as:
● |
|
● | while we have expended significant funds in recent years to increase manufacturing and barrier rental capacity, and plan to continue to do so, there is no assurance that we will achieve significantly greater revenues, |
● | although the ultimate impact is uncertain at this time, resurgence of the coronavirus outbreak may significantly affect the Company's financial condition, liquidity, and results of operations. In this respect, the Company had previously experienced the following negative impacts on its business: backlog reduction during 2020 from that in 2019, lower production volumes, employee |
|
|
● | our debt level increased significantly in |
● | our ability to collect accounts receivable may be adversely affected by the coronavirus outbreak, |
● | the continued availability of financing in the amounts, at the times, and on the terms required, to support our future business and capital projects, |
● |
|
| the extent to which we are successful in developing, acquiring, licensing, or securing patents for proprietary products, |
● | changes in economic conditions specific to any one or more of our markets (including the availability of public funds and grants for construction), |
● | the Company’s operations in the first six months of 2022 and for the full year 2021 were adversely impacted by inflation in the purchase of raw materials such as cement and aggregates, steel, and also with labor costs, and expects such inflationary factors to continue throughout 2022, |
● | changes in general economic conditions in our primary service areas, |
● | adverse weather, which inhibits the demand for our products, or the installation or completion of projects, |
● | our compliance with governmental regulations, |
● | the outcome of future litigation, if any, |
● | potential decreases in our year to year contract backlog, |
● | cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations, |
● | our ability to produce and install product on material construction projects that conforms to contract specifications and in a time frame that meets the contract requirements, |
● | the cyclical nature of the construction industry, |
● | our exposure to increased interest expense payments should interest rates change, and |
● | the other factors and information disclosed and discussed in other sections of this |
Investors and shareholders should carefully consider such risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause actual results to differ materially from those provided in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
14 |
Table of Contents |
Overview; Potential Effect of the COVID-19 Outbreak
The Company invents, develops, manufactures, markets, leases, licenses, sells, and installs a broad array of precast concrete products and systems for use primarily in the construction, highway, utilities, and farming industries. The Company's customers are primarily general contractors and federal, state, and local transportation authorities located in the Mid-Atlantic, Northeastern, Midwestern regions and parts of the Southeastern region of the United States. The Company's operating strategy has involved producing innovative and proprietary products, including SlenderWall™, a patented, lightweight, energy efficientenergy-efficient concrete and steel exterior insulated wall panel for use in building construction; J-J Hooks® Highway Safety Barrier, a positive-connected highway safety barrier; Sierra Wall, a sound barrier primarily for roadside use; and Easi-Set® transportable concrete buildings, also patented. In addition, the Company produces custom order precast concrete products with various architectural surfaces, as well as generic highway sound barriers, utility vaults, and farm products such as cattleguards.
The Company was incorporated in Delaware on August 2, 1994. Prior to a corporate reorganization completed in October 1994, the Company conducted its business primarily through Smith-Midland Virginia, which was incorporated in 1960 as Smith Cattleguard Company, a Virginia corporation, and subsequently changed its name to Smith-Midland Corporation in 1985. The Company’s principal offices are located at 5119 Catlett Road, Midland, Virginia 22728 and its telephone number is (540) 439-3266. As used in this report, unless the context otherwise requires, the term the “Company” refers to Smith-Midland Corporation and its subsidiaries.
As a part of the construction industry, the Company's sales and net income may vary greatly from quarter to quarter over a given year. Because of the cyclical nature of the construction industry, many factors not under our control, such as weather and project delays, affect the Company's production schedule, possibly causing momentary slowdowns in sales and net income. As a result of these factors, the Company is not always able to earn a profit for each period, therefore, please read Management's Discussion and Analysis of Financial Condition and Results of Operations and the accompanying financial statements with these factors in mind.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
The full impact of the COVID-19 outbreak, including a recent resurgence in the United States, continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic willmay have on the Company’s financial condition, liquidity, and future results of operations. The Company had previously experienced an adverse impact to its business by a reduction in revenues in 2020 from that of 2019, a reduction in backlog during 2020 from that in 2019, lower production volumes, employee absence, and bidding restrictions within certain key states such as Maryland and North Carolina. The Company is currently experiencing delays in receipt of materials through its supply chain. The Company may be further negatively impacted in the following respects:
a) by the potential inability of customers of the Company to pay amounts owed to the Company for products or services already provided should their businesses suffer setbacks; this risk is heightened by the relatively long lag time experienced by the Company in collecting accounts receivable (see "Liquidity and Capital Resources" below);
b) by potential supply side issues should our vendors experience hardships, and have to reduce or terminate operations, due to the COVID-19 outbreak, impacting the Company's sourcing of materials;
c) by increased adverse effects on our workforce due to contracting or taking care of a relative who has contracted COVID-19, or have been quarantined by a medical professional; in this respect, our workforce had previously been impacted as of this date with an effect on operations at all locations, but this impact has substantially diminished as of the filing date, but no assurance can be provided as to future impacts, particularly in view of new coronavirus outbreaks;
d) in the event that any of the three states in which we have facilities provide for the quarantine of our manufacturing employees, our production manufacturing will be significantly affected;
e) in the event that any of the states in which we sell our products and services may eliminate, cancel, or delay projects due to monetary limitations resulting from the COVID-19 outbreak; in this respect, the Company had previously seen a reduction in bidding activity;
f) the reduction of state infrastructure budgets due to the reduction in funding through the gas tax, or other funding sources;
g) in the event of an increase in the overall loan defaults, which in turn impacts the banking sector's ability to fund projects in which the Company's products may be utilized; and
h) in the event that economic hardships force the Company to default on loan payments, our loans may be called and our ability to borrow under our bank line of credit could cease;
Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Although the Company experienced a loss in the first quarter of 2020 and reduced revenues for the year 2020 as compared to 2019, as well as experiencing factors described above, givenGiven the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to ultimately estimate the ultimate effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for the remainder of 20212022 or future years.
The discussions below, including without limitation with respect to liquidity, are subject to the future effects of the COVID-19 outbreak. In this respect, should the outbreak cause serious economic harm in our areas of operation, our revenue expectations are unlikely to be fulfilled.
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The Company had (in thousands) a net incomeloss of $2,867$119 for the first quarter 2021,2022 and net income of $985$910 for the second quarter 2021, and net income of $3,694 for the third quarter 2021,2022, resulting in net income of $7,546$791 for the ninesix months ended SeptemberJune 30, 2021. Profitability for the three and nine months ended September 30, 2021 was positively impacted by the forgiveness of the PPP loan (described below in Liquidity and Capital Resources) in the amount of $2,692.2022. The cost of goods sold as a percent of revenue, not including royalties, for the three and ninesix months ended SeptemberJune 30, 2021 was2022, were 80% and 73%84%, respectively, as compared to 72%77% and 79%70% for the three and ninesix months ended SeptemberJune 30, 2020.2021. The increase in cost of goods sold as a percentage of revenue, not including royalties, for the three month and six months ended SeptemberJune 30, 2021,2022, compared to the three and six months ended SeptemberJune 30, 2020,2021, is due in partmainly to impacts of COVID-19 at the Virginia plant which reduced production volumes and increased labor costs. In addition, during the third quarter 2020, there were one-time special barrier projects, which typically have slightly higher margins due to risk and complexity, which improved the margin compared to the third quarter 2021. The decrease in cost of goods sold as a percentage of revenue, not including royalties, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, is mainly due to the increase in barrier rental revenues, which typically have higher margins than product sales, and the increase in short-term special barrier rental projects that occurred in the first quarter of 2021, which typically carry slightly higher margins duethan product sales. Additionally, reduced production volume during the first six months of 2022 resulted in reduced absorption of overhead costs. Increased material and labor costs also impacted margins for the three and six month periods ended June 30, 2022 as compared to the complexity and risk of the projects.same periods in 2021. Total revenues for the three and ninesix month periods ended SeptemberJune 30, 20212022 were $13,100$13,253 and $40,625,$23,688 compared to $12,515$12,307 and $32,789$27,523 for the three and ninesix month periods ended SeptemberJune 30, 2020.2021. The increasedecrease in total revenue for the more recent ninesix month period wasended June 30, 2022 from June 30, 2021 is mainly from the barrier rentals, which the prior period included multiplesignificant revenues from short-term special barrier rental projectsprojects. Additionally, the Company continued to experience delays in approvals of customer drawings and to a lesser extent, a continuedtherefore delaying production on certain projects. The increase in linear feet rented overtotal revenue for the prior yearthree month period ended June 30, 2022 from June 30, 2021 is mainly from increased barrier sales for one specific job produced in North Carolina and increased barrier rentals. As of August 1, 2022, the core rental fleet. Future barrier rental revenues are not expectedCompany’s sales backlog was approximately $35.7 million, as compared to continue to trendapproximately $26.0 million at the same rate astime in the first quarter of 2021 due to the nature and frequency of the short-term special barrier projects, although the Company anticipates continued growth of core rental revenues.2021.
Results of Operations (dollar amounts in thousands, except per share data)
Three and ninesix months ended SeptemberJune 30, 20212022, compared to the three and ninesix months ended SeptemberJune 30, 20202021
Revenue includes product sales, barrier rentals, royalty income, and shipping and installation revenues. Product sales are further divided into soundwall, architectural and SlenderWall™ panels, miscellaneous wall panels, highway barrier, Easi-Set® and Easi-Span® buildings, utility products, and miscellaneous precast products. The following table summarizes the sales by product type and comparison for the three and ninesix month periods ended SeptemberJune 30, 20212022, and 2020.2021. As indicated in "Overview; Potential Effect of COVID-19 Outbreak" above, should a resurgence of the COVID-19 outbreak cause serious economic harm in our area of operations, our revenue expectations are unlikely to be fulfilled.
Revenue by Type (Disaggregated Revenue) |
| Three Months Ended September 30 |
| Nine Months Ended September 30 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Type |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
| 2022 |
| 2021 |
| $ Change |
| % Change |
| |||||||||||||||||||||||
Soundwall Sales |
| $ | 2,407 |
| $ | 1,736 |
| $ | 671 |
| 39 | % |
| $ | 6,496 |
| $ | 5,824 |
| $ | 672 |
| 12 | % |
| $ | 430 |
| $ | 2,391 |
| $ | (1,961 | ) |
| (82 | )% |
| $ | 1,794 |
| $ | 4,090 |
| $ | (2,296 | ) |
| (56 | )% | ||||||||||||||
Architectural Panel Sales |
| 406 |
| 696 |
| (290 | ) |
| (42 | )% |
| 3,843 |
| 2,229 |
| 1,614 |
| 72 | % |
| 1,347 |
| 1,249 |
| 98 |
| 8 | % |
| 2,253 |
| 3,437 |
| (1,184 | ) |
| (34 | )% | ||||||||||||||||||||||||||
SlenderWall Sales |
| 1,027 |
| 26 |
| 1,001 |
| 3,850 | % |
| 1,247 |
| 949 |
| 298 |
| 31 | % |
| 51 |
| 220 |
| (169 | ) |
| (77 | )% |
| 1,007 |
| 220 |
| 787 |
| 358 | % | |||||||||||||||||||||||||||
Miscellaneous Wall Sales |
| 520 |
| 963 |
| (443 | ) |
| 46 | )% |
| 1,804 |
| 2,994 |
| (1,190 | ) |
| (40 | )% |
| 637 |
| 781 |
| (144 | ) |
| (18 | )% |
| 988 |
| 1,284 |
| (296 | ) |
| (23 | )% | ||||||||||||||||||||||||
Barrier Sales |
| 1,022 |
| 1,679 |
| (657 | ) |
| (39 | )% |
| 3,578 |
| 3,949 |
| (371 | ) |
| (9 | )% |
| 2,338 |
| 1,066 |
| 1,272 |
| 119 | % |
| 3,252 |
| 2,557 |
| 695 |
| 27 | % | ||||||||||||||||||||||||||
Easi-Set and Easi-Span Building Sales |
| 676 |
| 643 |
| 33 |
| 5 | % |
| 2,278 |
| 1,971 |
| 307 |
| 16 | % | ||||||||||||||||||||||||||||||||||||||||||||||
Easi-Set Building Sales |
| 948 |
| 848 |
| 100 |
| 12 | % |
| 1,563 |
| 1,602 |
| (39 | ) |
| (2 | )% | |||||||||||||||||||||||||||||||||||||||||||||
Utility Sales |
| 891 |
| 254 |
| 637 |
| 251 | % |
| 1,628 |
| 1,043 |
| 585 |
| 56 | % |
| 666 |
| 469 |
| 197 |
| 42 | % |
| 1,132 |
| 736 |
| 396 |
| 54 | % | ||||||||||||||||||||||||||||
Miscellaneous Sales |
|
| 256 |
|
|
| 488 |
|
|
| (232 | ) |
|
| (48 | )% |
|
| 994 |
|
|
| 1,077 |
|
|
| (83 | ) |
|
| (8 | )% |
|
| 371 |
|
|
| 219 |
|
|
| 152 |
|
|
| 69 | % |
|
| 649 |
|
|
| 736 |
|
|
| (87 | ) |
|
| (12 | )% |
Total Product Sales |
|
| 7,205 |
|
|
| 6,485 |
|
|
| 720 |
|
|
| 11 | % |
|
| 21,868 |
|
|
| 20,036 |
|
|
| 1,832 |
|
|
| 9 | % |
|
| 6,788 |
|
|
| 7,243 |
|
|
| (455 | ) |
|
| (6 | )% |
|
| 12,638 |
|
|
| 14,662 |
|
|
| (2,024 | ) |
|
| (14 | )% |
Barrier Rentals |
| 1,708 |
| 3,171 |
| (1,463 | ) |
| (46 | )% |
| 8,667 |
| 4,820 |
| 3,847 |
| 80 | % |
| 1,962 |
| 1,182 |
| 780 |
| 66 | % |
| 3,447 |
| 6,958 |
| (3,511 | ) |
| (50 | )% | ||||||||||||||||||||||||||
Royalty Income |
| 676 |
| 484 |
| 192 |
| 40 | % |
| 1,788 |
| 1,165 |
| 623 |
| 53 | % |
| 771 |
| 692 |
| 79 |
| 11 | % |
| 1,198 |
| 1,112 |
| 86 |
| 8 | % | ||||||||||||||||||||||||||||
Shipping and Installation Revenue |
|
| 3,511 |
|
|
| 2,375 |
|
|
| 1,136 |
|
|
| 48 | % |
|
| 8,302 |
|
|
| 6,768 |
|
|
| 1,534 |
|
|
| 23 | % |
|
| 3,732 |
|
|
| 3,190 |
|
|
| 542 |
|
|
| 17 | % |
|
| 6,405 |
|
|
| 4,791 |
|
|
| 1,614 |
|
|
| 34 | % |
Total Service Revenue |
|
| 5,895 |
|
|
| 6,030 |
|
|
| (135 | ) |
|
| (2 | )% |
|
| 18,757 |
|
|
| 12,753 |
|
|
| 6,004 |
|
|
| 47 | % |
|
| 6,465 |
|
|
| 5,064 |
|
|
| 1,401 |
|
|
| 28 | % |
|
| 11,050 |
|
|
| 12,861 |
|
|
| (1,811 | ) |
|
| (14 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Total Revenue |
| $ | 13,100 |
|
| $ | 12,515 |
|
| $ | 586 |
|
|
| 5 | % |
| $ | 40,625 |
|
| $ | 32,789 |
|
| $ | 7,836 |
|
|
| 24 | % |
| $ | 13,253 |
|
| $ | 12,307 |
|
| $ | 946 |
|
|
| 8 | % |
| $ | 23,688 |
|
| $ | 27,523 |
|
| $ | (3,835 | ) |
|
| (14 | )% |
The revenue items: soundwall sales, architectural panel sales, SlenderWall sales, miscellaneous wall sales, miscellaneous sales, barrier rentals, and royalty income are recognized as revenue over time. The revenue items: barrier sales, Easi-Set and Easi-Span building sales, utility sales, miscellaneous sales, and shipping and installation revenue are recognized as revenue at a point in time.
Soundwall Sales - Soundwall sales were highersignificantly lower for the three and ninesix month periods ended SeptemberJune 30, 20212022, compared to the same periods in 2020.2021. The increasedecrease is mainly due to lower production, atas the Virginia plant for the largest soundwall contractCompany has temporarily experienced delays in Company history, which was initially awarded during 2018, and for which production is expected through 2021.customer drawing approvals. Soundwall sales are expected to trend slightly lower duringhigher throughout the last quarterremainder of 2021.2022 as compared to the first half of 2022, although no assurance can be given.
Architectural Panel Sales - Architectural panel sales decreasedincreased for the three months ended SeptemberJune 30, 20212022, compared to the same period in 2020,2021. The increase is from a small architectural project that began production in the second quarter of 2022 and significantly increasedis expected to continue through the third quarter of 2022. Architectural sales decreased for the nine monthssix month period ended SeptemberJune 30, 20212022 compared to the same period in 2020. The Company was awarded2021. This decrease is related to production of a large architectural project whichthat began production the fourth quarter 2020 and continued production duringin the first and second quarters 2021. With the large architectural project finishing up in the second quarter 2021, a decrease occurred inand concluded during the third quarter 2021, but an overall increase was experienced for the nine month period ended September 30, 2021 compared to the same period in 2020.2021. Architectural sales are expected to decrease in the last quarter of 2021,trend slightly lower throughout 2022, as compared to the last quarter of 2020, with a projected shift to more SlenderWall sales.2021.
SlenderWall Sales - SlenderWall sales increaseddecreased for the three and nine month periodsperiod ended SeptemberJune 30, 20212022, as compared to the same periodsperiod in 2020.2021. A large SlenderWall project wrapped up production during the second quarter of 2022. SlenderWall sales increased for the six month period ended June 30, 2022 as compared to the same period in 2021. The Company was recently awarded a large SlenderWall project, which began production atin 2021 and continued through the endfirst quarter of the second quarter 2021.2022. The Company continues to focus sales initiatives on SlenderWall, with multiple bids awaiting awards, but no assurance can be given as to the success of this endeavor.
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Miscellaneous Wall Sales - Miscellaneous wall sales decreased for the three and ninesix month periods ended SeptemberJune 30, 20212022 compared to the same periods in 20202021 due to the decreased amount of retaining wall projects in production. Miscellaneous wall sales are expected to trend similar tosimilarly for the third quarter 2021 during the fourth quarter 2021,remainder of 2022, although no assurance can be provided.
Barrier Sales - Barrier sales decreased duringincreased for the three and ninesix month periods ended SeptemberJune 30, 20212022, compared to the same periods in 2020.2021. The main reason for the decreaseincrease is duerelated to reduced barrier production demanda large project produced in North Carolina and South Carolina, combined withduring the increase in the core fleetsecond quarter of barrier rentals. Aligning with the Company's strategy to shift to barrier rentals versus barrier sales in the Delaware to Virginia region, barrier2022. Barrier sales are expected to trend lower throughout the remainder of 2022 than in previous periods.years, in line with the Company’s strategic shift to barrier rentals.
Easi-Set® and Easi-Span® Building Sales - Building and restroom sales increased for the three and nine month periodsperiod ended SeptemberJune 30, 20212022, compared to the same periodsperiod in 20202021 mainly due to increased building sales at all three manufacturing facilities during the first nine months of 2021 as compared toVirginia plant. Building and restroom sales decreased slightly for the prior year.six month period ended June 30, 2022. Building and restroom sales are expected to continue to trend similarsimilarly to the third quarter 2021 duringsix months ended June 30, 2022 for the fourth quarterremainder of 2022 as compared to 2021, although no assurance can be provided.
Utility Sales - Utility sales increased for the three and ninesix month periods ended SeptemberJune 30, 20212022, compared to the same periods in 2020.2021. The Company continues to competitively bid on utility projects to gain market share and has recently won multiple data center projects increasing the sales volume of dry utility vaults. Utility sales are expected to increase for the fourth quarterfull year 2022 as compared to 2021, from the comparable prior year period, although no assurance can be provided.
Miscellaneous Product Sales - Miscellaneous products are products that are produced or sold that do not meet the criteria defined for other revenue categories. Examples would include precast concrete slabs, concrete blocks, or small add-on items. Miscellaneous product sales decreasedincreased for the three month and nine month periodsperiod ended SeptemberJune 30, 20212022, compared to the same periodsperiod in 2020.2021. The changeincrease is mainly from the South Carolina facility that began production on a few smaller jobs. Miscellaneous product sales decreased for the six month period ended June 30, 2022 as compared to the same period for 2021. The decrease is mainly attributed to specialty concrete blocks produced at the North Carolina plant which began in 2020 and significantly decreased during the thirdfirst quarter of 2021. Miscellaneous product sales are expected to remain lower during the fourth quarter 2021.throughout 2022, although no assurance can be provided.
Barrier Rentals -– Barrier rentals increased for the three month period ended June 30, 2022 compared to the same period in 2021. This increase is mainly attributed to a smaller short-term special project that occurred during the second quarter of 2022 and from certain barrier rental jobs that completed earlier than projected and resulted in the acceleration of revenue recognition. Barrier rentals decreased significantly for the threesix month period ended SeptemberJune 30, 20212022, compared to the same period in 20202021. The decrease is mainly due to multiplethe significant revenues generated from a few short-term special projects that occurred during the thirdfirst quarter 2020, compared to one smaller special project duringof 2021. Revenue from the third quarter 2021. The Company continued to increase itsCompany’s core rental barrier fleet year over year. Barrier rentals increased significantlyby 29% for the ninesix month period ended SeptemberJune 30, 20212022 compared to the same period in 2020 due2021. Due to the higher quantityinfrequent nature of linear feet rented than the previous year and, to a greater extent, a few short-term special projects, during 2021. A substantial portion of the total revenue from these special projects was earned in the first quarter 2021. As indicated above, the Company is shifting its focus tofull year 2022 barrier rentals comparedare expect to be lower than full year 2021 barrier sales with the significant increase in the rental fleet beginning in late 2019, and continued plans to increase the fleet during the remainder of 2021 and upcoming years. Future barrier rental revenues are not expected to continue trending at the same rate as in the first three months of 2021 due to the nature and frequency of the short-term special barrier projects in that period, however therentals. The Company generally expects increased barrier rentals of the core rental fleet for future periods,throughout 2022 with the expansion of the rental fleet, although no assurance can be given.provided.
Royalty Income -– Royalties significantlyslightly increased for the three and ninesix month periods ended SeptemberJune 30, 20212022, compared to the same periods in 2020. The increase in royalties is mainly due to the increase in barrier royalties during the first nine months of 2021 compared to the same period in 2020.2021. Infrastructure spending continues to drive royalties, and the Company anticipates fourth quarter 2021expects royalties to be slightly lowerincrease for 2022 compared to the first three quarters of the year,2021, although no assurance can be given.
Shipping and Installation - Shipping revenue results from shipping our products to the customers' final destination and is recognized when the shipping services take place. Installation activities include the installation of our products at the customers’ construction sites. Installation revenue is recognized when attaching architectural and SlenderWall panels to a building, installing an Easi-Set® building at customers' sites, or setting any of our other precast products at a site, specific to the requirements of the owner. Shipping and installation revenue increased for the three and ninesix month periods ended SeptemberJune 30, 2021,2022, compared to the same periods in 2020.2021. The increase is mainly attributed to the increase in shipping setting, and offloading associated with barrier rentalsinstallation of SlenderWall and architectural panels during the first ninesix months of 20212022 as compared to the prior year.first six months of 2021.
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Cost of Goods Sold - Total cost of goods sold as a percent of revenue, not including royalties, for the three and ninesix months ended SeptemberJune 30, 20212022, was 80% and 73%84%, respectively, as compared to 72%77% and 79%70% for the three and ninesix months ended SeptemberJune 30, 2020.2021. The increase in cost of goods sold as a percentage of revenue, not including royalties, for the three months ended SeptemberJune 30, 2021,2022, compared to the three months ended SeptemberJune 30, 2020,2021, is due in part to impacts of COVID-19 at the Virginia plant which reduced production volumes and increased labor costs. In addition, during the third quarter 2020, there were one-time special barrier projects, which typically have slightly higher marginsmainly due to risk and complexity, that improved margins comparedthe reduced absorption of fixed overhead due to the third quarter 2021.lower production volume. The decreaseincrease in cost of goods sold as a percentage of revenue, not including royalties, for the ninesix months ended SeptemberJune 30, 2021,2022, compared to the ninesix months ended SeptemberJune 30, 2020,2021, is mainly due to the increase inshort-term barrier rental revenues,special projects that occurred in the first quarter of 2021, which typically havecarry higher margins than product sales, and to a lesser extent, the increase in short-term special barrier rental projects, which carry slightly higher marginsreduced absorption of fixed overhead due to lower production volume. The margins for both the complexitythree and risk ofsix month periods ended June 30, 2022 were negatively impacted due to increased material and labor costs as compared to the projects.same periods in 2021.
General and Administrative Expenses - For the three months ended SeptemberJune 30, 20212022, the Company's general and administrative expenses decreasedincreased by $56$69 to $1,215$1,409 from $1,271$1,340 during the same period in 2020, and for2021. The minor increase is mainly attributed to additional administrative costs that occurred during the ninesecond quarter of 2022. For the six months ended SeptemberJune 30, 20212022 the Company’s general and administrative expenses increaseddecreased by $327$97 to $3,880$2,568 from $3,553.$2,665 during the same period in 2021. The increaseddecrease in general and administrative expenses for the ninesix month period ended SeptemberJune 30, 20212022, is mainly attributed to stock compensation and an increasea decrease in salaries and wages.wages, as management continues to assess and monitor total general and administrative expenses. General and administrative expense as a percentage of total revenue was 9% and 10%11% for the three month periods ended SeptemberJune 30, 2022 and 2021, and 2020, respectively,11% and 10% and 11% for the ninesix month periods ended SeptemberJune 30, 20212022 and 2020,2021, respectively.
Selling Expenses - Selling expenses for the three months ended SeptemberJune 30, 20212022 increased to $719$725 from $521$696 for the same period in 2020,2021, and selling expenses for the ninesix months ended SeptemberJune 30, 20212022 increased to $2,010$1,388 from $1,684$1,291 for the same period in 2020.2021. Selling expenses increased duringfor the three and six month periods ended June 30, 2022 compared to the three and six month periods ended June 30, 2021 due to additional sales personssalespersons hired and increased marketing expenses. The Company expects selling expenses to increase in future periods with the plan for additional sales associates and increased advertising spending aligning with the strategy to increase SlenderWall sales and barrier rentals.
Operating Income (Loss) - The Company had operating income for the three month period ended SeptemberJune 30, 20212022 of $1,268$1,096 compared to operating income of $2,049$1,278 for the same period in 2020.2021. The decrease in operating income for the three month period ended September 30, 2021 compared to the same period in 2020, wasis mainly due to a higherthe increase in cost of goods sold not including royalties, as a percent of revenues for the most recent period.revenue. The Company had operating income for the ninesix month period ended SeptemberJune 30, 20212022 of $6,347$922 compared to operating income of $2,581$5,079 for the same period in 2020.2021. The increasedecrease in operating income for the nine month period ended September 30, 2021 compared to the same period in 2020, was mainlyis due to the increasea decrease in gross profit associated with lower product sales, and to a greater extent, a few short-term special barrier rental projects that occurred during the increase in total sales, mainly deriving from royalties and barrier rentals. Operating results for the 2020 periods were also adversely affected due to COVID-19 related factors.first quarter of 2021.
Interest Expense - Interest expense was $47$71 and $53$56 for the three month periods ended SeptemberJune 30, 20212022 and 2020,2021, respectively. Interest expense was $145$118 and $166$98 for the ninesix month periods ended SeptemberJune 30, 20212022 and 2020,2021, respectively. The Company expects interest expense for 2022 to continue to decrease for the full year 2021, asbe higher compared to the full year 2020 withof 2021 due to the refinancingincreased level of debt in March 2020 and the payoff of two long-term notes during 2021.indebtedness.
Income Tax Expense (Benefit) - The Company had income tax expense of $442$307 with an effective rate of 11%25% for the three months ended SeptemberJune 30, 20212022, compared to income tax expense of $469$328 with an effective rate of 23%25% for the same period in 2020.2021. The Company had income tax expense of $1,711$267 with an effective rate of 18%25% for the ninesix months ended SeptemberJune 30, 20212022 compared to income tax expense of $588$1,269 with an effective rate of 23%25% for the same period in 2020. The decrease in the effective tax rate is due to the exclusion of $2,692 from federal taxable income related to PPP loan forgiveness under section 1106(i) of the CARES Act.2021.
Net Income (Loss) - The Company had net income of $3,694$910 for the three months ended SeptemberJune 30, 2021,2022, compared to net income of $1,549$985 for the same period in 2020.2021. The basic and diluted earnings per share was $0.71$0.17 for the three months ended SeptemberJune 30, 2021,2022, and the basic and diluted earnings per share was $0.30$0.19 for the three months ended SeptemberJune 30, 2020.2021. The Company had net income of $7,546$791 for the ninesix months ended SeptemberJune 30, 2021,2022, compared to net income of $1,952$3,852 for the same period in 2020.2021. The basic and diluted earnings per share was $1.45$0.15 for the ninesix months ended SeptemberJune 30, 2021,2022 and the basic and diluted earnings per share was $0.38$0.74 for the ninesix months ended SeptemberJune 30, 2020. Profitability for the three and nine months ended September 30, 2021 was positively impacted by the forgiveness of the PPP loan (described below in Liquidity and Capital Resources) in the amount of $2,692.2021.
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Liquidity and Capital Resources (dollar amounts in thousands)
Reference is made to "Overview; Potential Effect of the COVID-19 Outbreak" above in the context of the discussion below.
The Company has a mortgage note payable to Summit Community Bank (the “Bank”) for the construction of its North Carolina facility. The note carries a ten yearten-year term at a fixed interest rate of 3.64% annually per the Promissory Note Rate Conversion Agreement, with monthly payments of $22, and is secured by all of the assets of Smith-Carolina and a guarantee by the Company. The loan matures on October 10, 2029. The balance of the note payable at Septemberon June 30, 20212022 was $1,862.$1,712.
On March 27, 2020, the Company completed the refinancing of existing loans with a note payable to the Bank in the amount of $2,701. A portion of the funds, in the amount of $678, werewas secured for improvements to an existing five acrefive-acre parcel for additional storage at the Midland, Virginia plant. The loan is collateralized by a first lien position on the Virginia property, building, and assets. The refinance also released the lien on the Smith-Columbiamanufacturing plant in Hopkins, South Carolina (Columbia). The interest rate per the Promissory Note is fixed at 3.99% per annum, with principal and interest payments payable monthly over 120 months in the amount offor $27. The loan matures on March 27, 2030. The balance of the note payable on June 30, 2022 was $2,185.
On February 10, 2022, the Company completed the financing for its prior acquisition of certain real property in Midland, VA totaling approximately 29.8 acres with a note payable to the Bank in the amount of $2,805. The loan is collateralized by a first lien position on the related real property. The interest rate is fixed at September4.09% per annum, with principal and interest payments payable monthly over 180 months for $21. The loan matures on February 10, 2037. The balance of the note payable on June 30, 20212022 was $2,363.$2,760.
The Company additionally has 42 smaller installment loans with annual interest rates betweenof 2.90% and 6.84%3.99%, maturing between 2021 andin 2025, with varying balances totaling $140.$61.
Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500 and must maintain tangible net worth of $10,000. The Company received a special exception to the capital expenditure covenant from the Bank to purchase barrier during 2022 for $5,000 (see Note 5 Commitments under Item 1 of the Financial Statements). The Company is in compliance with all covenants pursuant to the loan agreements as of SeptemberJune 30, 2021.2022.
In addition to the notes payable discussed above, on April 16, 2020, the Company obtained a loan, evidenced by a promissory note, under the Paycheck Protection Program (the "PPP") from the Bank in the amount of $2,692. The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness. The interest rate per the promissory note, dated April 16, 2020 and executed by the Company in favor of the Bank, was fixed at 1.00% per annum, with principal and interest payments starting thirty (30) days after the amount of forgiveness is determined under section 1106 of the CARES Act. The proceeds of the loan were required to be utilized pursuant to the requirements of the PPP, and all or a portion of the loan could be forgiven in accordance with the PPP applicable rules, regulations, and guidelines. On July 9, 2021, the Company received loan forgiveness for the full amount of the loan of $2,692.
Also in addition to the notes payable discussed above, the Company has a $4,000 line of credit with the Bank with no balance outstanding as of SeptemberJune 30, 2021.2022. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime, with a floor of 3.50% per annum, and matures on October 1, 2022. The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company (i) to obtain bank approval for capital expenditures in excess of $3,500 during the term of the loan;loan and (ii) to obtain bank approval prior to its funding of any acquisition. On October 21, 2021, the Company received a Commitment Letter from the Bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $1,500. The commitment provides for the purchase of equipment for which a note payable will be executed with a term not to exceed five years with an interest rate at the Wall Street Journal prime rate plus 0.50% with a floor of 3.50% per annum. The loan is collateralized by a first lien position on all equipment purchased under the line. The commitment for the guidance line of credit matures on October 21, 2022. As of SeptemberJune 30, 2021,2022, the Company had not purchased any equipment pursuant to the $1,500 commitment.
At SeptemberOn June 30, 2021,2022, the Company had cash totaling $14,995 and investment securities totaling $1,243,$12,425 compared to cash totaling $8,764 and investment securities totaling $1,228 at$13,492 on December 31, 2020. Investment securities at September 30, 2021 consist of shares of USVAX (a Virginia Bond Fund).2021. The increasedecrease in cash is primarily the result of positive operating resultscash absorbed by operations during the first nine months of 2021.six month period ended June 30, 2022. More specifically, the Company’s accounts receivable position increased and significant income tax payments were remitted related to the 2021 tax year during the six month period ended June 30, 2022. The Company’s cash position will likely be further reduced related to the significant capital expenditures described in the following paragraph.
Capital spending for the ninesix months ended SeptemberJune 30, 20212022, totaled $1,210,$1,962, as compared to $2,501$926 for the same period in 2020.2021. The 20212022 expenditures were mainlyprimarily for the purchasebuy-back of barrier for the barrier rental barrier, miscellaneous manufacturing equipment, and a vehicle.fleet. The Company intends to continue capital spending on maintenance capital expenditures as needed overinvest approximately $8,000 for the remainder offull year 2022, which includes a significant expansion in the year, which is expected to be approximately $1,000. With the increase in barrier rental biddingfleet with approximate costs of $5,000, and activity, the Company plans to purchase used barrierapproximately $1,500 for yard development, and manufacture barrier to increase the rental fleet capacity, which is expected to cost an additional $1,000.$1,500 for miscellaneous manufacturing equipment, excluding acquisitions and plant expansions (which none are anticipated at this time), although no assurance can be provided.
The Company's three mortgageoutstanding notes payable are financed at fixed rates of interest. This leaves the Company almost impervious to fluctuating interest rates. Increases in such rates will only slightly affect the interest paid by the Company on an annual basis. Approximately 99% of the Company's debt obligations are financed at a fixed interest rate, after consideration of the Promissory Note Rate Conversion Agreement, so that each 1% increase in the interest rates of the Company’s outstanding debt will reduce income by approximately $1 annually, excluding the impact of fair value changes in the Promissory Note Rate Conversion Agreement.
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The Company’s cash flow from operations is affected by production schedules set by contractors, which generally provide for payment 3530 to 90 days after the products are produced, and with some architectural contracts, retainage may be held until the entire project is completed. This payment schedule may result in liquidity problemschallenges for the Company because it must bear a portion of the cost of production before it receives payment from its customers. The Company’s average days sales outstanding (DSO), excluding the effect of unbilled revenue, was 8796 days for the ninesix months ended SeptemberJune 30, 20212022, compared to 8991 days for the year ended December 31, 2020. The decrease in DSO is mainly due to collection of retainage and the collection of amounts due under multiple large projects occurring in the first quarter 2021.
If actual results regarding the Company's production, sales, and subsequent collections on customer receivables are materially inconsistent with management's expectations, the Company may in the future encounter cash flow and liquidity issues. If the Company's operational performance deteriorates significantly, it may be unable to comply with existing financial covenants and could cause defaults and acceleration under its loan agreements and lose access to the credit facility. Although no assurances can be given, the Company believes that its current cash resources, anticipated cash flow from operations, and the availability under the line of credit will be sufficient to finance the Company’s operations for at least the next 12 months.
The Company’s inventory was $3,196 at September$3,531 on June 30, 20212022, and $2,194 at$2,845 on December 31, 2020,2021, or an increase of $1,002.$686. The increase in inventory is mainly due to the increase of raw materials inventory on-hand compared to the prior year duerelated to strategic measures to purchase certain materials, when available, that may be more susceptible to supply chain issues.large utility projects in Virginia and large barrier projects in North Carolina. Inventory turnover was 16.3,13.1, annualized for the ninesix months ended SeptemberJune 30, 2021,2022, compared to 14.9,15.4, annualized for the same period in 2020.2021.
Critical Accounting Policies and Estimates
The Company’s critical accounting policies are more fully described in its Summary of Accounting Policies to the Company’s consolidated financial statements on Form 10-K for the year ended December 31, 2020.2021. There have been no changes as of SeptemberJune 30, 2021.2022.
Seasonality
The Company services the construction industry primarily in areas of the United States where construction activity may be inhibited by adverse weather during the winter. As a result, the Company may experience reduced revenues from December through February and realize a more significant part of its revenues during the other months of the year. The Company may experience lower profits, or losses, during the winter months, and as such, must have sufficient working capital to fund its operations at a reduced level until the spring construction season. The failure to generate or obtain sufficient working capital during the winter may have a material adverse effect on the Company.
Inflation
Raw material costsManagement believes that the Company’s operations were affected by inflation during the three and six month periods ended June 30, 2022 and for the Company,full year 2021, particularly in the purchases of certain raw materials such as cement and aggregates, steel, aggregates, and other direct materials used in production have increased for the first nine months of 2021.also with labor costs. The Company anticipatesbelieves that raw material pricespricing and labor costs will continue to slightly increase for the remainder of 2021,in 2022, although no assurance can be given regarding future pricing.pricing or costs.
Sales Backlog
As of NovemberAugust 1, 2021,2022, the Company’s sales backlog was approximately $28.5$35.7 million, as compared to approximately $20.6$26.0 million at the same time in 2020.2021. It is estimated that the majority of the projects in the sales backlog will be produced within 12 months, with a portion extending several years.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
ITEM 4. Controls and Procedures
(a) Disclosure controls and procedures
The Company carried out our evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at SeptemberJune 30, 2021.2022.
(b) Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the three months ended SeptemberJune 30, 20212022, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not presently involved in any litigation of a material nature.
ITEM 1A. Risk Factors
Not required
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Mine Safety Disclosures
Not applicable
ITEM 5. Other Information
None
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ITEM 6. Exhibits
Exhibit No. |
| Exhibit Description |
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101.INS |
| XBRL Instance Document. |
101.SCH |
| XBRL Taxonomy Extension Schema Document. |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| SMITH-MIDLAND CORPORATION (Registrant) |
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Date: |
| By: | /s/ Ashley B. Smith |
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| Ashley B. Smith, Chief Executive Officer |
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| (Principal Executive Officer) |
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Date: |
| By: | /s/ Adam J. Krick |
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| Adam J. Krick, Chief Financial Officer |
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| (Principal Financial Officer) |
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