Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the Company’s financial performance.
The Company believes its strategy of continuing to invest in product engineering and development and its focus on delivering the highest quality products and superior service will strengthen the Company’s market position. The Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. The Company will continue to scrutinize its relationships with suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.
The Company continues to monitor and evaluate the risks related to the
COVID-19
pandemic, including impacts on its employees, customers, suppliers and financial results. As of the date of issuance of these Condensed Consolidated Financial Statements, the Company’s operations have not been significantly impacted. However, the full impact of the
COVID-19
pandemic continues to evolve subsequent to the quarter ended March 31, 2021 and as of the date these Condensed Consolidated Financial Statements are issued. As such, the full magnitude that the
COVID-19
pandemic will have on the Company’s financial condition and future results of operations is uncertain. Management is actively monitoring the Company’s financial condition, operations, suppliers, industry, customers, and workforce. As the
COVID-19
pandemic continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to
COVID-19.
Reduced demand for products or ability to meet customer demand (including as a result of disruptions from the Company’s suppliers) could have a material adverse effect on its business operations and financial performance.
Quarter Ended March 31, 2021 versus March 31, 2020
Net revenues for the quarters ended March 31, 2021 and March 31, 2020 were $21,352,000 and $25,993,000, respectively, a decrease of $4,641,000. The reduced revenues reflect a decrease in equipment sales recognized over time over the comparative quarter in the prior year. During the quarter ended March 31, 2021, the Company generated approximately $1.6 million in paver parts sales.
As a percent of sales, gross profit margins were 28.8% in the quarter ended March 31, 2021, compared to 28.2% in the quarter ended March 31, 2020. During the quarter ended March 31, 2021, the Company continued to experience higher manufacturing costs associated with steel and OEM parts pricing, as well as unabsorbed manufacturing labor and overhead expenses related to the paver line. The negative effect of these higher manufacturing costs on the quarter ended March 31, 2021, was offset by improved margins on certain equipment sales recognized over time and increased parts sales, in dollars and as a percentage of total net revenues, at higher margins.
Product engineering and development expenses increased $380,000 to $1,069,000 for the quarter ended March 31, 2021, as compared to $689,000 for the quarter ended March 31, 2020, due primarily to engineering wages related to the paver line. Selling, general and administrative (“SG&A”) expenses increased by $1,277,000 to $3,838,000 for the quarter ended March 31, 2021, compared to the quarter ended March 31, 2020. The increase in SG&A expenses was primarily due to expenses related to the paver line and professional fees to support business development efforts.
Operating income decreased from $4,088,000 for the quarter ended March 31, 2020 to $1,239,000 for the quarter ended March 31, 2021, due primarily to the operational and
start-up
costs related to the Blaw-Knox acquisition and professional fees to support business development efforts.