10-K: Smith-Midland Reports Soaring 2024 Profits Amidst Revenue Surge and Strategic Shifts, Addresses Internal Control Weaknesses

Sentiment:

Annual Report 27 May 2025 4:52 PM

Smith-Midland Corporation announced a significant financial turnaround in 2024 with net income increasing nearly tenfold and total revenue up 32%, driven by strong barrier rentals and utility product sales, despite acknowledging material weaknesses in internal financial controls.

Better than expectedNet income increased nearly tenfold from $795,000 in 2023 to $7,675,000 in 2024.Total revenue grew by 32% to $78,508,000 in 2024.Operating income surged by 785% to $9,899,000 in 2024.Cost of sales as a percentage of revenue decreased from 86% to 78%, indicating improved margins.Basic and diluted earnings per share increased significantly from $0.15 to $1.45.

Summary

Smith-Midland Corporation reported a net income of $7,675,000 for the fiscal year ended December 31, 2024, a substantial increase from $795,000 in 2023.
Total revenue grew by 32% to $78,508,000 in 2024, up from $59,580,000 in 2023, primarily fueled by barrier rentals, shipping and installation services, and utility product sales.
Operating income saw a dramatic increase of 785%, reaching $9,899,000 in 2024 compared to $1,118,000 in 2023.
The company's cost of sales as a percentage of revenue (excluding royalties) decreased to 78% in 2024 from 86% in 2023, indicating improved margins due to higher revenue levels and absorption of fixed overhead costs.
Basic and diluted earnings per share rose significantly to $1.45 in 2024 from $0.15 in 2023.
Sales backlog as of March 3, 2025, was approximately $59,500,000, a slight decrease from $60,800,000 in the prior year, with most projects expected to be produced within 12 months.
Cash balances decreased to $7,548,000 at year-end 2024 from $9,175,000 in 2023, mainly due to increased capital expenditures.
The company identified material weaknesses in internal controls over financial reporting related to control environment, risk assessment, monitoring, control activities, information and communication, and IT general controls, but management believes financial statements are fairly presented.
Remedial actions for internal control weaknesses are underway, including hiring a Chief Financial Officer and additional accounting personnel, and implementing new entity-level controls and training programs.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance in 2024 with significant increases in revenue, net income, and operating income, alongside improved gross margins and DSO. Strategic shifts towards barrier rentals and growth in utility sales are positive. However, the identified material weaknesses in internal controls over financial reporting, the absence of a named CFO for part of the year, and the slight decrease in backlog temper the overall positive sentiment, indicating areas requiring diligent remediation and monitoring.

Positives

Net income increased nearly tenfold to $7,675,000 in 2024 from $795,000 in 2023, demonstrating strong profitability growth.
Total revenue surged by 32% to $78,508,000 in 2024, indicating robust demand for the company's products and services.
Gross profit improved significantly to $20,010,000 in 2024 from $10,652,000 in 2023, with cost of sales as a percentage of revenue decreasing from 86% to 78%.
Operating income increased by 785% to $9,899,000 in 2024, reflecting efficient operations and higher revenue levels.
Earnings per share (basic and diluted) jumped to $1.45 in 2024 from $0.15 in 2023.
Barrier rental revenue increased by 90% in 2024, aligning with the company's strategic shift from barrier sales to rentals.
Utility sales saw a 171% increase, driven by growth in the data center market.
Architectural sales grew by 272% due to new project production.
The company improved its Days Sales Outstanding (DSO) to 88 days in 2024 from 113 days in 2023, indicating better collection efficiency.
A plant expansion in North Carolina was completed in 2024, doubling the size of the facility and increasing manufacturing capacity.
The company is in compliance with all loan covenants as of December 31, 2024, including maintaining a tangible net worth of $25,000,000.
Management believes current cash resources, anticipated cash flow from operations, and available line of credit will be sufficient to finance operations for at least the next 12 months.

Negatives

SlenderWall panel sales decreased by 100% in 2024, as no projects were in production during the year, compared to $5,312,000 in 2023.
Barrier sales decreased by 50% in 2024, consistent with the company's strategic shift but representing a decline in a traditional revenue stream.
Cash decreased by $1,627,000 from December 31, 2023, to December 31, 2024, primarily due to increased capital expenditures.
Inventory increased by $1,528,000, and inventory turns decreased from 15.0 in 2023 to 10.0 in 2024, suggesting less efficient inventory management.
The company incurred a loss from operations for the quarter ended June 30, 2023.
The company has not had a Chief Financial Officer since July 17, 2024, and is in need of additional accounting personnel, although remediation efforts are underway.
The sales backlog slightly decreased to $59,500,000 as of March 3, 2025, from $60,800,000 around the same time in the prior year.

Risks

No assurances that the Company can remain profitable in future periods, despite net income in 2024, 2023, and 2022.
No assurance of achieving significantly greater revenues despite significant funds expended to increase manufacturing capacity and the barrier rental fleet.
Substantial amount of debt, and the ability to satisfy and meet debt obligations cannot be assured.
Cash decreased as of December 31, 2024, and there can be no assurance that the Company's cash will not be further reduced.
Accounts receivables increased during 2024 and 2023, and the ability to fully collect balances cannot be assured.
Material weaknesses identified in internal controls over financial reporting related to design and maintenance of effective controls over the financial reporting process, and certain business processes and the information control environment.
Uncertainties arising from policies of the new Administration and DOGE, including government spending cuts and tariffs, with no assurance that infrastructure spending will not be adversely affected.
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.
The continued availability of financing in the amounts, at the times, and on the terms required, to support future business and capital projects.
Cybersecurity incidents could disrupt business operations, result in loss of critical information, and adversely impact reputation and results of operations; a wire fraud incident occurred in Q2 2023.
The extent to which the company is successful in developing, acquiring, licensing, or securing patents for proprietary products.
Changes in economic conditions specific to any one or more of the company's markets, including the availability of public funds and grants for construction.
Adverse impact from inflation in the purchase of raw materials (cement, aggregates, steel) and labor costs in 2024 and 2023.
Changes in general economic conditions in primary service areas.
Adverse weather, which inhibits the demand for products or the installation/completion of projects.
Compliance with governmental regulations, including OSHA and environmental protection, with potential for substantial sanctions for non-compliance.
The outcome of future litigation, if any.
Potential decreases in contract backlog.
Ability to produce and install product on material construction projects that conforms to contract specifications and in a time frame that meets contract requirements.
The cyclical nature of the construction industry.
Exposure to increased interest expense payments should interest rates change (though current debt is fixed).
No assurance of commercial acceptance or regulatory approvals for new products like Beach Prisms and H2Out.
Seasonality may lead to reduced revenues and lower profits/losses from December through February, requiring sufficient working capital.
Actual uncollectible amounts may differ from the company's estimate for allowance for credit losses.
Risk that recessionary economic conditions may adversely affect the Company more than experienced to date.

Future Outlook

Smith-Midland Corporation anticipates greater sales volumes throughout 2025, with expectations for continued funding from the Infrastructure Investment and Jobs Act to promote growth in highway and transportation markets. The company projects SlenderWall sales to increase in the first half of 2025 as new projects begin, and expects barrier rental revenue, building and restroom sales, and royalties to trend higher. Selling expenses are also expected to increase due to plans for additional sales associates and advertising. Capital spending for 2025 is anticipated to be approximately $5,000,000 for increased production capacity and equipment, and the company expects Days Sales Outstanding (DSO) to trend downwards with increased collection efforts. Management also anticipates labor costs to increase in 2025 due to inflation.

Management Comments

"Overall, the Company's financial bottom line performance was significantly greater in 2024 when compared to 2023."
"The Company anticipates greater sales volumes throughout 2025, although no assurance can be provided."
"The Company also anticipates funding related to the Infrastructure Investment and Jobs Act to continue coming through the state and local governments in 2025 and beyond to further promote growth in the revenue backlog related to the highway and transportation 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."
"The Company expects soundwall panel sales to be similar in 2025 as compared to 2024."
"SlenderWall sales are expected to increase in 2025 compared to 2024, as several SlenderWall projects are anticipated to start in the first half of 2025."
"Barrier sales are expected to trend lower in 2025 than previous years as the Company continues to shift from barrier sales to barrier rentals."
"Building and restroom sales are expected to trend higher during 2025 as compared to 2024 due to demand from increased sales and marketing."
"As funding increases related to the Infrastructure Investment and Jobs Act, as anticipated, the Company expects 2025 royalties to continue to increase compared to 2024."
"The Company anticipates capital spending for 2025 to be approximately $5,000,000, which includes forms for increased production capacity, and miscellaneous manufacturing equipment."
"The Company expects DSO to trend downwards, with increased collection efforts."
"Management believes that the Company's operations were affected by inflation in 2024 and 2023, particularly in the purchases of raw materials such as cement and aggregates, steel, and also with labor costs, and labor costs will increase in 2025."
"The Company expects the backlog to increase with continued bidding on large infrastructure and SlenderWall/architectural projects."
"Management believes that the consolidated financial statements in this Form 10-K present, in all material respects, the Company's financial condition, results of operations, and cash flows for the periods disclosed in conformity with U.S. Generally Accepted Accounting Principles."

Industry Context

Smith-Midland operates within the highly competitive and cyclical precast concrete industry, which is fragmented by geographical location due to product weight and delivery costs. The company's performance is significantly influenced by government spending on infrastructure, with anticipated continued funding from the Infrastructure Investment and Jobs Act expected to drive growth in highway and transportation markets. The demand for dry utility vaults, a key product for Smith-Midland, is benefiting from the growth in data centers. The company differentiates itself through innovative and proprietary products like SlenderWall and J-J Hooks, and is strategically shifting its focus from barrier sales to higher-margin barrier rentals. The industry faces challenges from fluctuating economic conditions, interest rates, labor relations, material and energy supplies, and adverse weather, as well as inflationary pressures on raw materials and labor costs.

Comparison to Industry Standards

The document does not provide specific comparable companies, projects, or results to global benchmarks for a detailed assessment against industry standards.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Chief Financial Officer, Secretary, and Treasurer	Stephanie Poe	New CFO (unnamed in document)	July 17, 2024 (resignation date)	Stephanie Poe resigned; a new CFO has been hired as part of remediation efforts for internal control weaknesses.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Internal Control Weaknesses Identified	Management identified material weaknesses in internal controls over financial reporting, specifically in the control environment, risk assessment procedures, control activities, information and communication, and monitoring activities. These were attributed to CFO turnover, lack of structure/responsibility, insufficient qualified resources, inadequate oversight, ineffective risk identification, and ineffective evaluation of internal control components. Additional weaknesses were found in formal accounting policies/procedures, review/approval of journal entries, and IT general controls (user access, vendor management, segregation of duties).	As of December 31, 2024	Despite weaknesses, management believes consolidated financial statements fairly present financial condition, results of operations, and cash flows in conformity with U.S. GAAP. Remediation efforts are underway to address these deficiencies and improve the internal control structure.
Remediation Efforts for Internal Controls	The company has hired a Chief Financial Officer, is actively pursuing additional finance and accounting personnel, designing and implementing new entity-level controls aligned with COSO 2013, developing training programs, implementing a risk assessment process, developing internal controls documentation, enhancing policies for management review controls, engaging outside resources for complex accounting, developing monitoring activities, segregating key functions, and reassessing/formalizing IT policies.	Ongoing, initiated after identification of weaknesses	Aims to improve the internal control structure, reduce risk of material misstatement, and ensure timely, complete, and accurate financial accounting and reporting.
Board Oversight of Cybersecurity	The Board of Directors has overall responsibility for risk oversight and oversees the implementation and continuous improvement of the cybersecurity program and compliance with disclosure requirements. The Board receives regular reports and periodic briefings from the Chief Executive Officer (in view of the absence of a Chief Financial Officer) on cybersecurity matters.	Ongoing	Enhances governance and oversight of cybersecurity risks, aiming to protect assets and information and maintain secure storage of proprietary data.
Audit Committee Composition	The Audit Committee consists of James Russell Bruner, Read Van de Water, and Richard Gerhardt, all three independent board members. Mr. James Russell Bruner is identified as an audit committee financial expert.	Created in 2018, composition as of filing date	Provides independent oversight of financial reporting, internal controls, and audit processes, enhancing financial integrity and accountability.
Code of Ethics Adoption	The company adopted a code of ethics applicable to the Chief Executive Officer, Chief Financial Officer, Accounting Manager, and similar functions, approved by the Board of Directors.	June 3, 2020	Establishes ethical guidelines for key financial personnel, promoting integrity and responsible conduct.
Insider Trading Policy Adoption	The company adopted an insider trading policy and related procedures governing the purchase, sale, or other disposition of company securities by the company, directors, officers, and employees. It prohibits short sales, certain hedging/monetizing transactions, holding stock in margin accounts, or pledging stock without prior CEO approval.	Adopted	Designed to promote compliance with insider trading laws and regulations, enhancing market integrity and investor confidence.

Legal Proceedings

The Company is not presently involved in any litigation of a material nature.

Related Party Transactions

The Company pays an annual royalty fee of $99,000 to its former Chief Executive Officer and Chairman of the Board, Rodney I. Smith, as consideration for his assignment of rights, title, and interest in certain patents. This payment continues as long as the Company uses the inventions underlying the unexpired patents.
No other transactions for the year ended December 31, 2024, met the criteria for disclosure as related party transactions.

Stakeholder Impact

**Shareholders:** Significant increase in net income and EPS is positive for shareholder value. The material weaknesses in internal controls could be a concern, but remediation efforts aim to mitigate this. The slight decrease in backlog might be a minor concern for future growth expectations.
**Employees:** The company had 264 employees as of March 3, 2025, and considers relationships satisfactory. Focus on training, development, and a safety-first culture is positive. The need for additional accounting personnel indicates potential job opportunities.
**Customers:** Increased production capacity and improved DSO suggest better service and efficiency. The company's focus on innovative products and shift to barrier rentals aims to meet evolving customer needs. The remaking of panels due to defective steel for one customer in 2023 indicates a commitment to quality, albeit at a cost.
**Suppliers:** Inflationary pressures on raw materials (cement, aggregates, steel) and labor costs are noted, which could impact supplier relationships and pricing negotiations.
**Creditors:** The company is in compliance with all loan covenants as of December 31, 2024, indicating good financial standing relative to its debt obligations. The decrease in cash is noted but management believes liquidity is sufficient for the next 12 months.

Next Steps

Increase marketing and sales efforts for SlenderWall and barrier rentals.
Anticipate greater sales volumes throughout 2025.
Anticipate continued funding related to the Infrastructure Investment and Jobs Act to promote growth in highway and transportation markets.
Expect SlenderWall sales to increase in the first half of 2025 as several projects are anticipated to start.
Expect barrier sales to trend lower in 2025 as the company continues to shift focus to barrier rentals.
Expect Easi-Set and Easi-Span building and restroom sales to trend higher during 2025.
Expect selling expenses to increase in future periods with the plan for additional sales associates and increased advertising spending.
Anticipate capital spending for 2025 to be approximately $5,000,000, including forms for increased production capacity and miscellaneous manufacturing equipment.
Expect Days Sales Outstanding (DSO) to trend downwards with increased collection efforts.
Continue on the 'lean journey' and implementing a lean culture throughout the company to increase quality, reduce defects, and increase production capacity and sales volume.
Remediate material weaknesses in internal controls over financial reporting by hiring additional finance and accounting personnel, designing and implementing new entity-level controls, developing training programs, implementing a risk assessment process, enhancing documentation, engaging outside resources for complex accounting, developing monitoring activities, segregating key functions, and formalizing IT policies.

Key Dates

Date	Description
1960	Smith Cattleguard Company, a Virginia corporation, was incorporated (later changed name to Smith-Midland Corporation in 1985).
August 2, 1994	Smith-Midland Corporation was incorporated in Delaware.
October 1994	Corporate reorganization completed.
December 13, 1995	Company's Registration Statement on Form SB-2 (No. 33-89312) declared effective by the Commission.
March 1999	FHWA approved the free-standing J-J Hooks Barrier (tested in accordance with NCHRP-350 Test Level 3).
April 20, 2011	Credit Line Deed of Trust date.
August 2012	J-J Hooks restrained (pinned or bolted) barrier successfully passed the MASH TL3 tests.
December 2012	FHWA approved the pinned and bolted J-J Hooks.
September 12, 2013	Credit Line Deed of Trust date.
2014	James Russell Bruner was President and Chief Executive Officer of Maersk Line.
2015	Matthew I. Smith became President of Concrete Safety Systems.
October 13, 2016	Company's Board of Directors adopted the 2016 Equity Incentive Plan.
November 23, 2016	Registration Statement on Form S-8 (No. 333-214788) filed.
November 2016	James Russell Bruner became Chairman of Maersk Line, Limited.
2017	Stephanie Poe became Accounting Manager for the Company.
January 2018	New J-J Hooks free-standing barrier successfully passed two required MASH TL3 tests and received FHWA federal-aid eligibility letters.
February 2018	FHWA Eligibility letter B300 issued.
March 2018	FHWA approved the free-standing J-J Hooks (tested in accordance with MASH Test Level 3).
May 2018	Rodney I. Smith ceased providing services as Chief Executive Officer.
August 2018	New J-J Hooks free-standing barrier received FHWA federal-aid eligibility letters.
September 2018	FHWA approved a 20-foot J-J Hooks design (MASH Test Level 3) and Eligibility letter B307 issued.
October 11, 2019	Promissory Note in the amount of $2,228,000 issued by the Company to Summit Community Bank.
March 27, 2020	Promissory Note in the amount of $2,701,404 issued by the Company to Summit Community Bank.
June 3, 2020	The Board of Directors approved the company's code of ethics.
November 11, 2020	Employment agreement with Ashley B. Smith commenced.
November 1, 2021	Purchase and Sale Agreements for real property in Midland, VA.
February 10, 2022	Company completed financing for acquisition of real property in Midland, VA, with a note payable to the Bank.
April 13, 2022	Amendment to the buy-back agreement with a customer was entered into.
January 2023	Stephanie Poe became Chief Financial Officer, Secretary, and Treasurer of the Company.
January 2023	Ashley B. Smith became Chairman of the Board of Directors.
Q2 2023	Company experienced a wire fraud incident.
June 30, 2023	Company incurred a loss from operations for the quarter ended.
October 1, 2023	Company received a Commitment Letter from the Bank for a guidance line of credit up to $1,500,000 to purchase business equipment.
December 2023	Matthew I. Smith and Read Van de Water joined the Board of Directors.
December 31, 2023	Fiscal year end for 2023 financial reporting.
July 17, 2024	Stephanie Poe resigned as Chief Financial Officer, Secretary, and Treasurer.
June 2024	FHWA approved the J-J Hook Low Profile Concrete Barrier (tested in accordance with MASH Test Level 2).
June 11, 2024	Audit Committee approved the engagement of BDO USA, P.C. as the Company's independent registered public accounting firm for fiscal year ending December 31, 2024.
October 1, 2024	Commitment for the $1,500,000 guidance line of credit matured without equipment purchases.
December 6, 2024	Form 13-D filed by Thompson Davis & Co., Inc. indicating 33.2% ownership.
December 31, 2024	Fiscal year end for 2024 financial reporting.
January 1, 2025	The $5,000,000 line of credit with the Bank was renewed, maturing January 1, 2026.
March 3, 2025	Company's total employee count was 264; sales backlog was approximately $59,500,000.
April 4, 2025	Approximately 250 record holders of the Company's Common Stock.
May 2, 2025	Company had outstanding 5,304,606 shares of Common Stock.
May 3, 2025	Date for security ownership information.
May 27, 2025	Date of signing for the Annual Report on Form 10-K.

Recommendation

buy

Keywords

Precast Concrete, Highway Safety Barrier, Construction Materials, Infrastructure, SlenderWall, J-J Hooks, Easi-Set Buildings, Utility Vaults, Soundwall, Barrier Rentals, SEC Filing, 10-K, Financial Performance, Corporate Governance, Risk Management

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