Espey(ESP) - 2023 Q1 - Quarterly Report

Financial Performance - Net sales for the three months ended September 30, 2022, were $8,635,795, an increase of 14.4% compared to $7,545,432 for the same period in 2021[10] - Gross profit for the same period was $1,812,142, representing a gross margin of 20.9%, up from $1,353,098 and a gross margin of 17.9% in 2021[10] - Operating income increased significantly to $973,112, compared to $358,276 in the prior year, reflecting a growth of 171.5%[10] - Net income for the quarter was $768,266, which is a 150.5% increase from $306,061 in the same quarter of 2021[10] - The company reported a basic net income per share of $0.31 for the quarter, compared to $0.13 for the same period in 2021[10] Assets and Liabilities - Total assets as of September 30, 2022, were $41,059,907, up from $39,897,229 as of June 30, 2022, indicating a growth of 2.9%[7] - Total liabilities increased to $8,132,531 from $7,797,615, representing a rise of 4.3%[7] - Total stockholders' equity as of September 30, 2022, was $32,927,376, an increase from $32,099,614 as of June 30, 2022, reflecting a growth of 2.6%[7] Cash Flow and Operating Activities - Net cash provided by operating activities decreased to $973,212 from $1,587,693 year-over-year, reflecting a decline of about 38.7%[16] - Cash and cash equivalents at the end of the period were $7,320,001, down from $8,298,714 at the end of the previous year, a decrease of approximately 11.8%[16] - The company did not borrow any funds during the last two fiscal years and has a $3,000,000 line of credit available[89] Expenses - Selling, general, and administrative expenses decreased to $839,030 from $994,822, a reduction of 15.7% year-over-year[10] - Total stock-based compensation expense for the three-month period ended September 30, 2022, was $61,259, compared to $52,776 in 2021, indicating an increase of approximately 16.1%[27] - The company reported a decrease in other income from $19,567 in 2021 to $12,574 in 2022, primarily due to reduced scrap sales[86] Revenue Recognition - Total revenue for the three months ended September 30, 2022, was $6,959,789, an increase of 7.2% from $6,492,236 for the same period in fiscal year 2021[40] - Revenue recognized based on milestones achieved was $1,676,006, up from $1,053,196 in the same period of the previous year, reflecting a growth of 59.0%[40] - Contract liabilities decreased to $2,644,238 as of September 30, 2022, from $3,384,474 as of June 30, 2022, primarily due to revenue recognized[43] Backlog and Orders - The company's backlog at September 30, 2022, totaled approximately $81.2 million, with projected revenue recognition of 32% in 2023, 47% in 2024, 17% in 2025, and 4% thereafter[44] - New orders received in the first three months of fiscal year 2023 were approximately $13.1 million, down from $17.1 million in the same period of 2022[68] - Significant customer concentration remains, with four customers accounting for approximately 80% of total sales for the three months ended September 30, 2022[70] Market Conditions and Challenges - The company continues to face supply chain disruptions and inflationary pressures impacting raw material and production costs, which are expected to negatively affect operating income in fiscal year 2023[64] - Engineering program backlog conversion into sales is subject to technical and scheduling delays, with $7.3 million in backlog currently[61] Tax and Compliance - The effective tax rate for the three months ended September 30, 2022, was approximately 22%, up from 19% in the same period of 2021, primarily due to higher permanent differences related to incentive stock options[87] - The company is evaluating the impact of adopting ASU 2016-13 on its financial statements, which is expected to be implemented in the first quarter of fiscal year 2024[46]