07/10/2025 | Press release | Distributed by Public on 07/10/2025 14:41
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:
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while the Company had net income for the quarter ended March 31, 2025 and the years ended December 31, 2024 and 2023 there are no assurances that the Company can remain profitable in future periods; in line with this risk, the Company incurred a loss from operations for the quarter ended June 30, 2023, |
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while we have expended significant funds in recent years to increase manufacturing capacity and the barrier rental fleet, and plan to continue to increase manufacturing capacity, there is no assurance that we will achieve significantly greater revenues, |
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we have a substantial amount of debt and our ability to satisfy and meet our debt obligations cannot be assured, |
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while our cash increased during the first quarter of 2025 from December 31, 2024 reflecting the increase in cash collections from higher operating revenues in the quarter, there can be no assurance that the Company's cash will not be reduced in the future, |
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we have a significant amount of accounts receivables which has increased during the first quarter of 2025 as compared to the ending balance as of 2024, and our ability to fully collect these balances cannot be assured, |
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we identified material weaknesses in internal controls over financial reports related to (i) design and maintenance of effective controls over the financial reporting process; and (ii) certain business processes and the information control environment. The Company is currently studying and taking remedial actions with respect to these weaknesses, |
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there are uncertainties arising from the policies of the new Administration and DOGE, including without limitation, government spending cuts and tariffs, and there can be no assurance that infrastructure spending will not be adversely affected or that the Company will not otherwise be adversely affected, |
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the Company had a gap in hiring a Chief Financial Officer from July 17, 2024 to April 16, 2025 and is otherwise in need of additional accounting personnel, |
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our future revenue growth depends in part on future government spending on infrastructure, and there can be no assurance that such spending will occur or be in significant amounts, |
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the continued availability of financing in the amounts, at the times, and on the terms required, to support our future business and capital projects, |
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cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations; in this respect, we experienced a ransomware incident in the first quarter of 2025 which was successfully addressed with network security changes and for which no ransomware payment was made, |
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the extent to which we are successful in developing, acquiring, licensing, or securing patents for proprietary products, |
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changes in economic conditions specific to any one or more of our markets (including tariffs, the availability of public funds and grants for construction), |
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the Company's operations in 2025 and 2024 were adversely impacted by inflation in the purchase of raw materials such as cement and aggregates, steel, and also with labor costs, |
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changes in general economic conditions in our primary service areas, |
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adverse weather, which inhibits the demand for our products, or the installation or completion of projects, |
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our compliance with governmental regulations, |
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the outcome of future litigation, if any, |
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potential decreases in our contract backlog; in this respect, the Company's backlog at May 7, 2025 was approximately $52.4 million as opposed to $64.6 million at around the same time a year ago. |
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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, |
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the cyclical nature of the construction industry, |
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our exposure to increased interest expense payments should interest rates change, and |
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the other factors and information disclosed and discussed in other sections of this report, in our Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. |
Investors and shareholders should carefully consider such risks, uncertainties and other information, disclosures and discussions that 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.
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Overview
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 and Northeastern regions and in parts of the Midwestern and Southeastern regions of the United States. The Company's operating strategy has involved producing innovative and proprietary products, including SlenderWall™, a patented, lightweight, energy-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; 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. In addition, revenues are affected by the number, size, and timing of significant projects to which the Company is contracted. 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.
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Results of Operations (dollar amounts in thousands, except per share data)
Overall, the Company's financial bottom line performance was higher for the first quarter of 2025 when compared to the first quarter of 2024. The Company had net income for the three months ended March 31, 2025 of $3,327 compared to net income of $1,147 for the three months ended March 31, 2024. Total revenue increased by $5,942 to $22,698 for the three months ended March 31, 2025 from $16,756 for the three months ended March 31, 2024. The increase in revenue is mainly from an increase in barrier rental, soundwall sales and Easi-Set and Easi-Span building sales. The significant increase in barrier rental was due to a special project undertaken and performed in the first quarter of 2025.
Cost of sales as a percentage of revenue, not including royalties, decreased to 72% for the three months ended March 31, 2025 compared to 79% for the three months ended March 31, 2024. The decrease is mainly due to the increase in special project barrier rental revenue in the quarter, which have a higher margin and lower cost of sales as a percent of revenue when compared to product margins and product cost of sales as a percent of revenue.
Operating income was $4,387 for the three month period ended March 31, 2025, as compared to $1,509 for the three month period ended March 31, 2024. Operating expenses for the first quarter of 2025 were $2,588 compared to $2,402 for the first quarter of 2024. The increase is due to increased selling expenses as it relates to additional sales staff costs and commissions.
Income tax expense for the three month period ended March 31, 2025 was $1,020, or an effective tax rate of 24%, as compared to $357, or an effective tax rate of 24% for the three month period ended March 31, 2024.
As of May 7, 2025, the Company's sales backlog was approximately $52.4 million, as compared to approximately $64.6 million around the same time in the prior year. It is estimated that most of the projects in the current sales backlog will be produced within 12 months, but a few will be produced over multiple years. The Company anticipates funding related to the Infrastructure Investment and Jobs Act to come through the state and local governments in 2025 and beyond to further promote growth in the revenue related to the highway, transportation, and infrastructure markets, although no assurance can be provided. The Company continues to increase marketing and sales efforts towards SlenderWall sales and barrier rentals, in line with long-term strategic objectives.
Three months ended March 31, 2025, compared to the three months ended March 31, 2024
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® buildings, utility products, and miscellaneous precast products. The following table summarizes the sales by product type and comparison for the three month period ended March 31, 2025 and 2024.
Revenue by Type |
Three Months Ended March 31, |
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2025 |
2024 |
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% Change |
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Soundwall Sales |
$ | 3,779 | $ | 2,980 | $ | 799 | 27 | % | ||||||||
Architectural Panel Sales |
- | 321 | (321 | ) | (100 | )% | ||||||||||
SlenderWall Sales |
- | - | - | - | ||||||||||||
Miscellaneous Wall Sales |
601 | 1,751 | (1,150 | ) | (66 | )% | ||||||||||
Barrier Sales |
1,305 | 1,734 | (429 | ) | (25 | )% | ||||||||||
Easi-Set and Easi-Span Building Sales |
2,060 | 1,039 | 1,021 | 98 | % | |||||||||||
Utility Sales |
1,014 | 1,679 | (665 | ) | (40 | )% | ||||||||||
Miscellaneous Product Sales |
353 | 1,248 | (895 | ) | (72 | )% | ||||||||||
Total Product Sales |
9,112 | 10,752 | (1,640 | ) | (15 | )% | ||||||||||
Barrier Rentals |
8,425 | 893 | 7,532 | 843 | % | |||||||||||
Royalty Income |
890 | 575 | 315 | 55 | % | |||||||||||
Shipping and Installation Revenue |
4,271 | 4,536 | (265 | ) | (6 | )% | ||||||||||
Total Service Revenue |
13,586 | 6,004 | 7,582 | 126 | % | |||||||||||
Total Revenue |
$ | 22,698 | $ | 16,756 | $ | 5,942 | 35 | % |
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, and shipping and installation revenue are recognized as revenue at a point in time.
Soundwall Sales - Soundwall sales were higher for the three month period ended March 31, 2025, compared to the same period in 2024. The increase is due to higher production volumes at all three plants, as the Company begins increasing production output to execute and deliver on the Company's increased Soundwall backlog. Soundwall sales are expected to trend similarly throughout the remainder 2025 as compared to the first quarter of 2025, although no assurance can be given.
Architectural Panel Sales - The Company did not have Architectural panel projects during the first quarter of 2025. Architectural sales are expected to occur throughout 2025 as compared to the first quarter of 2025, although no assurance can be given.
SlenderWall Sales - The Company did not have SlenderWall projects in production during the first quarters of 2025 and 2024. The Company continues to focus sales initiatives on SlenderWall, but no assurance can be given as to the success of this endeavor. SlenderWall sales are expected to increase in 2025 compared to 2024, as several SlenderWall projects are anticipated to start production in the second half of 2025.
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Miscellaneous Wall Sales - Miscellaneous wall sales decreased for the three month period ended March 31, 2025, compared to the same period in 2024. Based on the Company's backlog for these products, miscellaneous wall sales are expected to trend higher throughout 2025 as compared to the first quarter of 2025, although no assurance can be provided.
Barrier Sales - Barrier sales decreased for the three month period ended March 31, 2025, compared to the same period in 2024. Barrier sales are expected to trend similarly throughout 2025 as compared to the first quarter of 2025, although no assurance can be given. The Company continues to shift marketing efforts from barrier sales to barrier rentals in the Delaware to Virginia region.
Easi-Set® and Easi-Span Building Sales - Building and restroom sales increased significantly for the three month period ended March 31, 2025, compared to the same period in 2024, due to increased building sales at all manufacturing plants. Building and restroom sales are expected to continue to trend similarly throughout the remainder of 2025 compared to the first quarter of 2025 due to increased demand from sales and marketing, although no assurances can be given.
Utility Sales - Utility sales decreased for the three month period ended March 31, 2025, compared to the same period in 2024, reflecting general product sales fluctuations. The Company has seen a surge in demand for utility vaults in the Northern Virginia market to support data center growth. Utility sales are expected to trend higher for the remainder of 2025 as compared to the first quarter of 2025, 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 decreased for the three month period ended March 31, 2025, compared to the same period in 2024. The decrease is mainly from the Virginia plant that started production on one large project for the production of precast beams and platforms in the first quarter of 2024 which was not a factor in the first quarter of 2025. Miscellaneous product sales are expected to trend higher throughout 2025 as compared to the first quarter of 2025, although no assurance can be provided.
Barrier Rentals - Barrier rentals increased significantly for the three month period ended March 31, 2025 compared to the same period in 2024. This increase is mainly attributed to a large special barrier project undertaken and performed in the first quarter of 2025. Barrier rental revenue, excluding revenue from special barrier projects, is expected to trend higher throughout 2025 as compared to barrier rental revenue, excluding revenue from special barrier projects, in the first quarter of 2025, although no assurance can be given. Subsequent to the first quarter of 2025, the company has undertaken and performed a large special project in the second quarter of 2025.
Royalty Income - Royalties increased for the three month period ended March 31, 2025, compared to the same period in 2024. The increase is related to higher barrier production volumes experienced by the Company's licensees. It is expected that infrastructure spending and the start of production by licensees of a new, low profile barrier that utilizes the J-J Hook system, will continue to drive royalties. The Company expects royalties for 2025 to exceed royalty income for the full year 2024, 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 installation of our products at the customers' construction site. Installation revenue results when attaching architectural wall panels to a building, installing an Easi-Set® or Easi-Span building at a customers' site, setting highway barrier, or setting any of our other precast products at a site specific to the requirements of the owner. Shipping and installation revenues slightly decreased for the three month period ended March 31, 2025 compared to the same period in 2024. The decrease is mainly attributed to the decrease in shipping and installation of SlenderWall, architectural panels and other products which are expected to trend higher in 2025, which are directly correlated to shipping and installation revenue.
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Cost of Sales - Total cost of sales as a percent of revenue, excluding royalties, for the three months ended March 31, 2025, was 72%, as compared to 79% for the three months ended March 31, 2024. The decrease in cost of sales as a percentage of revenue, not including royalties, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, is primarily due to the increase in special project barrier rentals, which have a higher margin and lower cost of sales as a percent of revenue when compared to product margins and product cost of sales as a percent of revenue.
General and Administrative Expenses - For the three months ended March 31, 2025, the Company's general and administrative expenses increased by $35 to $1,584 from $1,549 during the same period in 2024. This represents a nominal increase of 2% and is attributable to inflationary factors across multiple general and administrative expense categories. General and administrative expense as a percentage of total revenue was 7% and 9% for the three month periods ended March 31, 2025 and 2024, respectively.
Selling Expenses - Selling expenses for the three months ended March 31, 2025 increased to $1,003 from $853 for the same period in 2024. The increase in selling expenses for the three month period ended March 31, 2025, compared to the same period in 2024, is due to increased general selling cost and commissions. 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 March 31, 2025 of $4,387 compared to $1,509 for the same period in 2024. The increase is mainly due to the increase in revenue and decrease in cost of sales as a percent of revenue.
Interest Expense - Interest expense was $55 and $60 for the three month periods ended March 31, 2025 and 2024, respectively. The Company expects interest expense for the full year of 2025 to be lower compared to the full year of 2024 due to the decrease in level of indebtedness on all notes which are fixed interest rates.
Income Tax Expense (Benefit) - The Company had an income tax expense of $1,020, or an effective tax rate of 24%, for the three months ended March 31, 2025, compared to income tax expense of $357, or an effective tax rate of 24% for the same period in 2024.
Net Income (Loss) - The Company had net income of $3,327 for the three months ended March 31, 2025, compared to net income of $1,147 for the same period in 2024. The basic and diluted earnings per share was $0.63 and $0.62, respectively for the three months ended March 31, 2025, and the basic and diluted earnings per share was $0.22 and $0.21 for the three months ended March 31, 2024.
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Liquidity and Capital Resources (dollar amounts in thousands)
The Company has a mortgage note payable to Burke & Herbert Bank & Trust Company, formerly Summit Community Bank (the "Bank") for the construction of its North Carolina facility. The note carries a ten-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 balance of the note payable at March 31, 2025 and December 31, 2024 was $1,122 and $1,166 respectively.
The Company also has a note payable to the Bank in the amount of $1,489 and $1,536 as of March 31, 2025 and December 31, 2024 respectively. The loan is collateralized by a first lien position on the Midland, VA plant, building, and assets. The interest rate per the Promissory Note is fixed at 3.99% per annum, with principal and interest payments payable monthly in the amount of $27. The loan matures on March 27, 2030.
On February 10, 2022, the Company completed the financing for its acquisition of certain real property in Midland, VA from the fourth quarter of 2021, totaling approximately 29.8 acres, with a note payable to the Bank. The loan is collateralized by a first lien position on the related real property. The interest rate is fixed at 4.09% 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 March 31, 2025 and December 31, 2024 was $2,361 and $2,379 respectively.
The Company additionally has one smaller installment loan with an annual interest rates of 2.90% maturing in 2025, with a balance at March 31, 2025 and December 31, 2024 totaling $10 and $13 respectively.
Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $5,000 and must maintain tangible net worth of $25,000. The Company has received waivers from the Bank pursuant to the loan agreements as of March 31, 2025 and December 31, 2024.
In addition to the notes payable discussed above, the Company has a revolving line of credit evidenced by promissory note with the Bank, with the available amount of $5,000 with no balance outstanding as of Marh 31, 2025 and December 31, 2024. The line of credit is evidenced by a commercial revolving promissory note, which carries a variable interest rate of prime, with a floor of 4.99%. The line of credit was renewed on January 1, 2025 and matures January 1, 2026. The amount available is based on the lower of the maximum $5,000 or 50% of eligible cash, inventory, and accounts receivable balances at the financial statement date. Key provisions of the line of credit require the Company (i) to obtain bank approval for capital expenditures in excess of $5,000 during the term of the loan and (ii) to obtain bank approval prior to its funding of any acquisition. The line of credit is collateralized by a first lien position on the Company's accounts receivable,
inventory, and equipment.
The Company's outstanding notes payable are financed at fixed rates of interest. This leaves the Company protected from fluctuating interest rates. Increases in such rates will only affect the interest paid by the Company if new debt is obtained, or the available line of credit is drawn upon, with a variable interest rate.
On March 31, 2025, the Company had cash totaling $9,006 compared to cash totaling $7,548 on December 31, 2024. The increase in cash is primarily the result of cash provided by operating activities including special project barrier income. The Company expects its cash position to be favorably affected to the extent that it is successful in collecting outstanding accounts receivable balances.
The Company's accounts receivable balances, net of allowance, at March 31, 2025 was $22,879, compared to $19,420 at December 31, 2024. The increase is primarily the result of increased sales volumes.
Capital spending for the three months ended March 31, 2025 totaled $595 as compared to $1,795 for the same period in 2024. The 2025 expenditures were primarily for investment in the ramp up in barrier production. The 2024 expenditures were primarily related to expenditures for the expansion of the North Carolina production facility and new manufacturing equipment. The Company intends to invest approximately $5,000, for the full year 2025, which includes expansion of the Virginia and North Carolina manufacturing facilities, soundwall forms for increased production capacity, and miscellaneous manufacturing equipment. Anticipated capital expenditures excludes possible acquisitions.
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The Company's cash flow from operations is affected by production schedules set by contractors, which generally provide for payment 30 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 challenges 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 87 days for the three months ended March 31, 2025, compared to 109 days for the three months ended March 31, 2024.
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 $5,210 on March 31, 2025, and $4,599 on December 31, 2024, or an increase of $610. The increase in inventory is mainly due to the increase of finished goods inventory compared to the prior year. The increase is related to inventory needed on-hand for backlog production and anticipated barrier rentals. Inventory turnover was 7.5, annualized for the three months ended March 31, 2025, compared to 9.7, annualized for the same period in 2024.
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, 2024.
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 costs used in production have slightly increased for the first three months of 2025. The Company anticipates raw material prices to slightly increase for the remainder of 2025, although no assurance can be given regarding future pricing.
Sales Backlog
As of May 7, 2025, the Company's sales backlog was approximately $52.4 million, as compared to approximately $64.6 million at the same time in 2024. 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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