Smith-Midland Corporation 10-K Review

In its 2024 Form 10-K, Smith-Midland Corporation (NASDAQ: SMID) reported a strong rebound in profitability and continued progress in executing its strategic initiatives. This review highlights the company’s business, key financial metrics, risk factors, and outlook to help investors make an informed decision.

Warren.AI 💰 7.2 / 10

1. Business Overview

Smith-Midland is a designer, manufacturer, and marketer of precast concrete products for the building construction, highway, utilities, and agricultural markets. Its core offerings include:

• SlenderWall®: Lightweight, energy-efficient, prefabricated exterior cladding panels that speed construction and reduce costs.
• J-J Hooks®: Patented, positively connected highway safety barriers for work-zone traffic control or lane separation.
• Sierra Wall™: Sound and sight barrier panels with decorative, customizable finishes used along highways or perimeters.
• Easi-Set®/ Easi-Span®: Transportable precast buildings and modular expansions for communications huts, restrooms, and more.
• Utility Vaults & Cattle Guards: Standard and custom underground structures for power, water, or farm use.
• Barrier Rental Fleet: Large inventory of J-J Hooks barriers rented to contractors and transportation authorities.

Smith-Midland sells products and services primarily to general contractors, federal, state, and local transportation agencies in the Mid-Atlantic, Northeast, Midwest, and Southeast U.S., and licenses proprietary designs to other manufacturers globally.

2. Revenue Streams & Recognition

Revenue in 2024 reached $78.5 million, up 32% from 2023’s $59.6 million. Major components include:

• Product Sales: $45.6 million (up 18%), led by soundwall (+54%), architectural panels (+272%), and utility vaults (+171%).
• Barrier Rentals: $12.0 million (up 90%) as the company shifts emphasis from barrier sales to rentals.
• Shipping & Installation: $17.6 million (up 48%), reflecting increased architectural and SlenderWall projects.
• Royalties: $3.3 million (up 24%) from licensing proprietary designs.

Smith-Midland recognizes certain product contracts (e.g., high-custom panels, SlenderWall) over time using an output method tied to production units, while other product sales and rentals are point-in-time.

3. Cost Structure & Margins

• Cost of sales totaled $58.5 million, up 20%. As a percentage of revenue (excluding royalties), cost of sales improved to 78% from 86% in 2023, reflecting higher production volume and overhead absorption.
• Gross profit: $20.0 million (up from $10.7 million), margin of 25.5%.
• Operating expenses: $10.1 million (G&A 8% of revenue, selling 5%).
• Operating income: $9.9 million vs. $1.1 million in 2023.

4. Profit & Earnings

• Net income rose to $7.68 million (EPS $1.45) vs. $0.8 million (EPS $0.15) in 2023.
• Effective tax rate: 21.7% in 2024 vs. 40.0% in 2023 (2023 was burdened by state tax true-ups).

5. Balance Sheet Strength

• Cash: $7.55 million vs. $9.18 million.
• Accounts Receivable, net: $19.4 million (DSO improved to 88 days from 113 days in 2023).
• Inventory: $6.68 million, turns slowed as backlog shifts.
• Backlog: $59.5 million (vs. $60.8 million a year ago), primarily to be produced within 12 months.
• Debt: $5.09 million total, $0.66 million current, at fixed rates (3.64–4.09%), with a $5 million line of credit undrawn at year-end. Covenants (tangible net worth $25 million, capex limit $5 million) were met.

6. Cash Flow & Capital Allocation

• Operating cash flow: $5.2 million provided vs. $7.7 million in 2023.
• Capital expenditures: $6.6 million (facility expansions and equipment), up from $5.0 million.
• Net debt paydown: $0.6 million.
• Planned 2025 capex ~$5 million for production capacity.

7. Risk Factors (Item 1A Highlights)

• Cyclicality & Seasonality: Construction slows in winter; weather and project delays can impact quarterly results.
• Concentration: No single customer >10% in 2024; contractors bid based on project level.
• Credit & Collectibility: Accounts receivable reserve rose to $1.13 million from $0.81 million.
• Backlog: Dependent on U.S. infrastructure spending and federal funding policies (IIJA impact uncertain under new administration).
• Debt Covenants: Annual capex and tangible net worth limits; risk of waivers if violated.
• Internal Controls: Material weaknesses identified in financial reporting controls; remediation ongoing.
• Regulatory & Litigation: Dependence on FHWA and state approvals for barriers and soundwall finishes; product recalls deemed minimal.

8. Governance & Management

• CEO & President: Ashley B. Smith (appointed CEO in 2018; Board Chair in 2023).
• Leadership: Long-time founding family involvement; independent Board majority with sector experience.
• CFO: Position vacant since July 2024; strengthened finance team hiring underway.
• Audit Committee: Independent directors oversee audit and control remediation.
• Equity Plan: 2016 Equity Incentive Plan, 89 k shares remaining; performance awards vesting through 2024.

9. Outlook & Analyst Takeaway

Positives:

• Robust rebound in net income and cash flow after ramp-up investments.
• Continued diversification toward rentals, licensing, and high-margin architectural panels.
• Backlog near $60 million supports stable 2025 production.
• Decreasing debt levels at fixed rates cushioned from rate volatility.
• Tax rate normalized under 25%, boosting after-tax returns.

Watch Points:

• Ability to collect rising receivables and manage DSO.
• Successful remediation of internal control weaknesses to prevent misstatements.
• Impact of macroeconomic headwinds on infrastructure budgets and materials costs (steel, cement).
• Execution on SlenderWall sales and licensing to expand geographic reach.
• Need for effective finance leadership to maintain momentum.

Investment Score: 7.2 / 10
Smith-Midland offers steady growth potential from rentals, licensing, and broad product range. Improving profitability and backlog support a positive near-term view, offset by cyclicality risks and control remediation.

Net Profit: $7.68 million for FY 2024.

---