smid_10q.htm

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 September 30, 2023

☐	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 filer

☒

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 November 1, 2023: 5,257,413 shares, net of treasury shares

SMITH-MIDLAND CORPORATION

Form 10-Q Index

PART I. FINANCIAL INFORMATION		Page

Item 1. Financial Statements (Unaudited)		3

Condensed Consolidated Balance Sheets		3

Condensed Consolidated Statements of Income (Loss)		5

Condensed Consolidated Statements of Stockholders’ Equity		6

Condensed Consolidated Statements of Cash Flows		7

Notes to Condensed Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3. Quantitative and Qualitative Disclosures About Market Risk		21

Item 4. Controls and Procedures		21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		22

Item 1A. Risk Factors		22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22

Item 3. Defaults Upon Senior Securities		22

Item 4. Mine Safety Disclosures		22

Item 5. Other Information		22

Item 6. Exhibits		23

Signatures		24

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

ASSETS	September 30, 2023 (Unaudited)		December 31, 2022
Current assets
Cash	$	5,849	$	6,726
Accounts receivable, net
Trade - billed (less allowance for credit losses of approximately $792 and $781, respectively), including contract retentions		16,842		16,223
Trade - unbilled		1,244		990
Inventories, net
Raw materials		1,965		1,776
Finished goods		2,243		2,042
Prepaid expenses		1,274		706
Refundable income taxes		476		477

Total current assets		29,893		28,940

Property and equipment, net		27,412		25,124

Other assets		349		249

Total assets	$	57,654	$	54,313

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY	September 30, 2023 (Unaudited)			December 31, 2022
Current liabilities
Accounts payable - trade	$	5,476		$	5,816
Accrued expenses and other liabilities		1,182			799
Deferred revenues		2,153			2,243
Accrued compensation		774			788
Accrued income taxes		235			146
Operating lease liabilitiess		42			77
Current maturities of notes payable		627			618
Customer deposits		2,436			737

Total current liabilities		12,925			11,224

Deferred revenue		3,552			2,174
Operating lease liabilities		13			45
Notes payable - less current maturities		5,260			5,730
Deferred tax liability		2,086			2,085

Total liabilities		23,836			21,258

Stockholders’ equity
Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued and outstanding		—			—
Common stock, $.01 par value; authorized 8,000,000 shares; 5,348,189 and 5,345,189 issued and 5,257,413 and 5,256,413 outstanding, respectively		54			53
Additional paid-in capital		7,701			7,440
Treasury stock, at cost, 40,920 shares		(102	)		(102	)
Retained earnings		26,165			25,664

Total stockholders’ equity		33,818			33,055

Total liabilities and stockholders’ equity	$	57,654		$	54,313

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine months Ended September 30,
	2023			2022			2023			2022
Revenue
Product sales	$	10,898		$	7,076		$	29,842		$	19,714
Barrier rentals		784			1,369			2,604			4,816
Royalty income		822			833			1,827			2,031
Shipping and installation revenue		3,147			2,678			8,918			9,083

Total revenue		15,651			11,956			43,191			35,644

Cost of goods sold		12,074			9,874			35,662			28,683

Gross profit		3,577			2,082			7,529			6,961

Operating expenses
General and administrative expenses		1,187			1,229			4,420			3,797
Selling expenses		888			849			2,533			2,236

Total operating expenses		2,075			2,078			6,953			6,033

Operating income (loss)		1,502			4			576			928

Other income (expense)
Interest expense		(64	)		(69	)		(192	)		(187	)
Interest income		6			3			17			9
Gain on sale of assets		53			29			252			94
Other income		16			26			72			208

Total other income (expense)		11			(11	)		149			124

Income (loss) before income tax expense (benefit)		1,513			(7	)		725			1,052

Income tax expense (benefit)		247			(12	)		160			256

Net income (loss)	$	1,266		$	5		$	565		$	796

Basic and diluted earnings (loss) per common share	$	0.24		$	0.00		$	0.11		$	0.15

Weighted average number of common shares outstanding:
Basic		5,256			5,231			5,256			5,230
Diluted		5,298			5,286			5,293			5,281

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share data)

	Common Stock				Treasury Stock						Additional Paid-in		Retained
	Shares		Amount		Shares			Amount			Capital		Earnings			Total

Balance, December 31, 2022		5,345,189		53		(40,920	)		(102	)		7,440		25,664			33,055

Stock-Based Compensation Expense		—		—		—			—			85		—			85

Adoption of ASU 2016-13		—		—		—			—			—		(63	)		(63	)

Net income (loss)		—		—		—			—			—		80			80

Balance, March 31, 2023		5,345,189	$	53		(40,920	)	$	(102	)	$	7,525	$	25,681		$	33,157

Stock-Based Compensation Expense		—		—		—			—			86		—			86

Net income (loss)		—		—		—			—			—		(782	)		(782	)

Balance, June 30, 2023		5,345,189	$	53		(40,920	)	$	(102	)	$	7,611	$	24,899		$	32,461

Restricted Stock Issued		3,000
Stock-Based Compensation Expense		—		1		—			—			90		—			91

Net income (loss)		—		—		—			—			—		1,266			1,266

Balance, September 30, 2023		5,348,189	$	54		(40,920	)	$	(102	)	$	7,701	$	26,165		$	33,818

Balance, December 31, 2021		5,353,095	$	53		(40,920	)	$	(102	)	$	6,935	$	24,864		$	31,750

Stock-Based Compensation Expense		—		—		—			—			126		—			126

Net income (loss)		—		—		—			—			—		(119	)		(119	)

Balance, March 31, 2022		5,353,095	$	53		(40,920	)	$	(102	)	$	7,061	$	24,745		$	31,757

Stock-Based Compensation Expense		—		—		—			—			126		—			126

Net income (loss)		—		—		—			—			—		910			910

Balance, June 30, 2022		5,353,095	$	53		(40,920	)	$	(102	)	$	7,187	$	25,655		$	32,793

Stock-Based Compensation Expense		—		—		—			—			126		—			126

Net income (loss)		—		—		—			—			—		5			5

Balance, September 30, 2022		5,353,095	$	53		(40,920	)	$	(102	)	$	7,313	$	25,660		$	32,924

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net income (loss)	$	565		$	796
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		1,795			2,127
(Gain) loss on sale of assets		(252	)		(94	)
Allowance for credit losses		(53	)		—
Stock-based compensation expense		261			379
Deferred taxes		—			(5	)
(Increase) decrease in
Accounts receivable - billed		(630	)		(3,163	)
Accounts receivable - unbilled		(254	)		161
Inventories, net		(390	)		(1,139	)
Prepaid expenses and other assets		(685	)		(104	)
Refundable income taxes		1			235
Increase (decrease) in
Accounts payable - trade		(340	)		2,506
Accrued expenses and other liabilities		383			(230	)
Deferred revenue		1,288			227
Accrued compensation		(14	)		(444	)
Accrued income taxes		89			(1,918	)
Deferred buy-back lease obligation		—			(2,851	)
Customer deposits		1,699			184
Net cash provided by (used in) operating activities		3,463			(3,333	)
Cash flows from investing activities:
Purchases of property and equipment		(4,131	)		(3,739	)
Deferred buy-back asset		—			1,909
Proceeds from the sale of property and equipment		252			103
Net cash provided by (used in) investing activities		(3,879	)		(1,727	)
Cash flows from financing activities:
Proceeds from long-term borrowings		—			2,805
Repayments of long-term borrowings		(461	)		(429	)
Net cash provided by (used in) financing activities		(461	)		2,376
Net increase (decrease) in cash		(877	)		(2,684	)
Cash
Beginning of period		6,726			13,492
End of period	$	5,849		$	10,808

Supplemental Cash Flow Information:
Cash payments for interest	$	192		$	187
Cash payments for income taxes	$	6		$	2,179
Capital expenditures included in accounts payable	$	2,625		$	1,340

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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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, 2022. The condensed consolidated December 31, 2022 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 income are not necessarily indicative of the results to be expected in any future periods.

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 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. We adopted this standard, and all related amendments, effective January 1, 2023, on a modified retrospective basis. The cumulative effect of the adoption resulted in an increase of $64 in the allowance and a corresponding decrease in retained earnings as of January 1, 2023.

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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-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” 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 asset is recorded in accounts receivable trade - unbilled. Conversely, if the amount billed to the customer is greater than the recognized revenue, a contract liability is recorded in 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 and the customers 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 estimated 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 trade – billed”. On September 30, 2023, and December 31, 2022, accounts receivable included contract retentions of approximately $608 and $932, 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 an allowance for estimated expected credit losses. A considerable amount of judgment is required when determining expected credit losses. Estimates of such expected losses are recorded based on historical losses experienced by the Company, current macro- and micro-economic conditions, and expected macro- and micro-economic conditions. Additionally, additional reserves are accumulated when we believe a specific customer may not be able to meet its financial obligations due to deterioration in financial condition or credit rating. Factors relevant to our assessment include our prior collection history with our customers, the related aging of past due balances, projections of credit losses based on historical trends or past events, and forecasts of future economic conditions. On September 30, 2023, and December 31, 2022, the allowance was $792 and $781, respectively.

The change in the allowance for the nine months ended September 30, 2023 was as follows:

Balance at December 31, 2022	$	781
Cumulative Effect of Adoption of ASU 2016-13		64
Provision for Expected Credit Losses		(53	)
Balance at September 30, 2023	$	792

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Sale to Customer with a Buy-Back Agreement

The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back barrier at a predetermined price at the end of the long-term project, subject to the condition of the product. Although the Company received payment in full when the product was produced, we were required to account for these transactions as operating leases. The amount of sale proceeds equal to the buy-back obligation was deferred until the buy-back was executed. The remaining sale proceeds were 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 was executed. The Company capitalized the cost of the product on the Condensed Consolidated Balance Sheet, and depreciated the value, less residual value, to cost of leasing revenue in “Cost of goods sold” over the estimated useful life of the asset. The deferred revenue and deferred costs related to the buy-back agreement were fully amortized as of December 31, 2022 and, therefore, the accounting as described has no impact on the nine month period ended September 30, 2023.

Pursuant to an amendment entered into by the Company with the customer on April 13, 2022, the Company agreed to purchase barrier back in the amount equal to the buy-back guarantee. Accordingly, the Company settled any remaining deferred balances, in excess of the buy-back payment, to leasing revenue, and reclassified the net book value of the purchased product to “Property and equipment, net”. The revenue was 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 agreement 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.

Royalty Income

The Company licenses certain products to other precast companies to produce the Company’s products to engineering specifications under the licensing agreements. The agreements are typically for five-year terms and require royalty payments from 4% to 6% of total sales of licensed products, which are paid 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.

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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,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Soundwall Sales	$	2,361	$	833	$	1,528			183	%	$	5,085	$	2,626	$	2,459			94	%
Architectural Panel Sales		315		1,223		(908	)		(74	)%		1,044		3,476		(2,432	)		(70	)%
SlenderWall Sales		2,299		11		2,288			20,800	%		5,066		1,018		4,048			398	%
Miscellaneous Wall Sales		1,442		1,396		45			3	%		5,580		2,384		3,196			134	%
Barrier Sales		1,417		847		570			67	%		6,000		4,099		1,901			46	%
Easi-Set Building Sales		1,226		1,523		(297	)		(20	)%		3,675		3,086		589			19	%
Utility Sales		891		523		368			70	%		1,787		1,655		132			8	%
Miscellaneous Sales		947		720		227			32	%		1,605		1,370		235			17	%
Total Product Sales		10,898		7,076		3,822			54	%		29,842		19,714		10,128			51	%
Barrier Rentals		784		1,369		(585	)		(

SEC Form 10-Q filed by Smith-Midland Corporation