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Item 7. Management’s Discussion and Analysis

2026-06-26 compared with 2025-07-02 · 39 added, 42 removed, 83 unchanged (49% of the section changed)

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The Company's corporate headquarters are located in Statesville, North Carolina.

Sales offices are located in the United States, India, Saudi Arabia, and Singapore.

Sales offices are located in the United States, Spain, India, Saudi Arabia, and Singapore.

Three manufacturing facilities are located in Statesville and one facility is located in Plymouth, Minnesota, with additional manufacturing capabilities in Long Lake, Minnesota, serving the domestic and international markets, and one manufacturing facility is located in Bangalore, India serving the local, Asian, and African markets.

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Such materials and products are purchased from multiple suppliers and are typically readily available.

ACQUISITION OF NU AIRE, INC.

On November 1, 2024, the Company completed an acquisition of Nu Aire.

In November 2024, the Company completed an acquisition of Nu Aire (the "Transaction").

The Company purchased all of the outstanding capital stock of Nu Aire for $55.0 million, subject to certain customary adjustments for debt, cash, transaction expenses, and net working capital.

$23.0 million of the purchase price payable at closing of the Transaction was funded pursuant to subordinated seller notes.

The remaining purchase price payable at closing of the Transaction was paid in cash, which cash was funded, in part, through the Revolving Credit Facility and Term Loan, provided by PNC Bank, National Association.

The remaining purchase price payable at closing of the Transaction was paid in cash, which cash was funded, in part, through a $20.0 million committed senior secured revolving line of credit facility (the "Revolving Credit Facility") and a $15.0 million term loan (the "Term Loan") provided by PNC Bank, National Association.

Nu Aire is renowned for its manufacturing of biological safety cabinets, airflow products, CO2 incubators, ultralow freezers, animal handling equipment, pharmacy compounding isolators, and related parts and accessories.

Their products serve a diverse range of industries, including life sciences, healthcare, pharmacy, education, food and beverage, and industrial sectors.

The acquisition of Nu Aire presents a unique opportunity for the Company to combine its robust capabilities with a recognized market leader whose product portfolio and well-developed channel strategy complement the Company's existing offerings.

This acquisition expands the Company's capabilities, allowing the combined organization to better meet the diverse needs of end-users in laboratory furnishings.

Additionally, Nu Aire has established distribution partners in regions where the Company has not previously had a presence.

The acquisition of Nu Aire presented a unique opportunity for the Company to combine its robust capabilities with a recognized market leader whose product portfolio and well-developed channel strategy complement the Company's offerings.

This acquisition expanded the Company's capabilities, allowing the combined organization to better meet the diverse needs of end-users in laboratory furnishings.

Additionally, Nu Aire has established distribution partners in regions where the Company did not previously have a presence.

This move accelerates the Company's vision of becoming the market leader in the design and manufacturing of laboratory furniture and technical products essential for outfitting laboratories.

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In addition, our actual and forecasted earnings are subject to change due to economic, political, and other conditions.

Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities, their valuation, and the assumptions around their realization in connection with any associated valuation, and interpretations related to tax laws and accounting rules in various jurisdictions.

jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities, their valuation, and the assumptions around their realization in connection with any associated valuation, and interpretations related to tax laws and accounting rules in various jurisdictions.

Goodwill and Other Intangible Assets

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Sales for fiscal year 2026 were $282.0 million, an increase compared to fiscal year 2025 sales of $240.5 million.

Domestic Segment sales for fiscal year 2025 were $179.4 million, an increase of 30.7% compared to fiscal year 2024 sales of $137.2 million.

The increase in Domestic sales was predominantly related to the acquisition of Nu Aire on November 1, 2024.

International Segment sales for fiscal year 2025 were $61.1 million, a decrease of 8.2% from fiscal year 2024 sales of $66.5 million.

International sales decreased when compared to the prior year period due to customer site delays in India which pushed out the timing of deliveries.

LPG Segment sales for fiscal year 2026 were $214.9 million, an increase of 19.8% compared to fiscal year 2025 sales of $179.4 million.

The increase in LPG sales was predominantly related to the acquisition of Nu Aire on November 1, 2024.

International Segment sales for fiscal year 2026 were $67.1 million, an increase of 9.9% from fiscal year 2025 sales of $61.1 million.

International sales increased when compared to the prior year period primarily due to the delivery of projects in India that had experienced customer site delays in the prior year.

Our order backlog was $165.9 million at April 30, 2026, as compared to $214.6 million at April 30, 2025.

LPG order backlog was $118.8 million on April 30, 2026, as compared to $123.9 million on April 30, 2025.

International order backlog was $47.1 million on April 30, 2026, as compared to $90.7 million on April 30, 2025.

Gross profit represented 28.5% and 28.6% of sales in fiscal years 2026 and 2025, respectively.

The increase in gross profit margin percentage is primarily attributable to our Domestic operations.

The acquisition of Nu Aire on November 1, 2024, combined with improved manufacturing productivity and effective cost-containment measures, contributed significantly to this improvement.

Gross profit margin remained relatively consistent with the prior year, reflecting offsetting changes in margin performance across our LPG and International operations.

Operating expenses were $63.7 million and $51.1 million in fiscal years 2026 and 2025, respectively, and 22.6% and 21.2% of sales, respectively.

The increase in operating expenses in fiscal year 2026 as compared to fiscal year 2025 was largely attributable to our acquisition of Nu Aire.

Other significant factors were increases in professional and consulting fees of $2,097,000, increases in SG&A wages of $1,443,000 and an increase in international operating expenses of $1,412,000.

The increases in consulting and professional fees for the year were primarily attributed to costs associated with the acquisition and integration of Nu Aire and costs incurred related to Sarbanes-Oxley 404(b) compliance readiness.

Pension expense was $0 and $4,177,000 in fiscal years 2025 and 2024, respectively.

The decrease in pension expense was due to the Company successfully annuitizing its pension obligation during fiscal year 2024, which had been in a frozen state since 2005.

Terminating the pension resulted in a one-time expense during the prior fiscal year of $4,019,000 for accounting losses that were being amortized from the Balance Sheet based on an annual evaluation of the pension plan.

By annuitizing the pension obligation, the Company eliminated all future responsibility for the plan and future administrative costs associated with maintaining and managing the pension plan.

Other significant factors were increases in SG&A wages of $1,034,000, increases to bad debt expenses of $275,000, increases to corporate governance costs of $229,000, offset by decreases in consulting and professional fees of $522,000.

The increases in corporate governance costs for the year were primarily attributed to costs associated with Sarbanes-Oxley 404(b) compliance readiness.

Other income, net was $880,000 and $240,000 in fiscal years 2026 and 2025, respectively.

The decrease in other income in fiscal year 2025 was primarily due to lower interest earned on international cash balances and the acceleration of deferred financing costs related to the payoff of the Company's Mid Cap Revolving Credit Facility, partially offset by higher interest earned on increased domestic cash balances.

Other income, net increased year over year as a result of the acceleration of deferred financing costs related to the payoff of the secured revolving line of credit initially up to $15.0 million (the "Mid Cap Revolving Credit Facility") and fixed asset disposal activity incurred in fiscal year 2025, partially offset by lower interest income earned on domestic cash balances during fiscal year 2026.

Interest expense was $3,862,000 and $3,214,000 in fiscal years 2026 and 2025, respectively.

The increase in interest expense for fiscal year 2025 was primarily due to elevated borrowing levels.

Income tax expense was $3.2 million for fiscal year 2025, or 21.7% of pretax earnings, as compared to an income tax benefit of $5.9 million for fiscal year 2024, or 45.3% of pretax earnings.

The income tax expense for fiscal year 2025 reflects the impact of foreign operations, which are taxed at different rates than the US tax rate of 21%, combined with the expected current year tax expense for the Company's Domestic operations.

At April 30, 2025, the Company has a Domestic valuation allowance of $808,000 for specific federal and st

ate tax credits, unchanged from the valuation allowance balance at April 30, 2024.

The increase in interest expense for fiscal year 2026 was attributable to a full year of interest on the borrowings incurred in connection with the Nu Aire acquisition, which closed on November 1, 2024, compared to a partial-year impact in fiscal year 2025.

This was partially offset by a decrease in interest expense related to debt repayments made during fiscal year 2026.

Income tax expense was $3.3 million for fiscal year 2026, or 23.8% of pretax earnings, as compared to $3.2 million for fiscal year 2025, or 21.7% of pretax earnings.

The increase in the effective tax rate was primarily attributable to higher state and local income taxes and an increase in deferred taxes on unremitted foreign earnings.

These unfavorable impacts were partially offset by lower nondeductible expenses, increased tax credits, and other tax items.

At April 30, 2026, the Company has an LPG-related valuation allowance of $637,000 associated with certain federal tax credits, compared to $808,000 at April 30, 2025.

The decrease was primarily attributable to the write-off of state tax credits that were fully reserved through a valuation allowance.

See Note 8 , Income Taxes for additional information.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our previous Mid Cap Revolving Credit Facility (as defined below).

Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our previous Mid Cap Revolving Credit Facility.

The Company terminated the Mid Cap Revolving Credit Facility on September 30, 2024.

In conjunction with the Nu Aire Acquisition (see Note 4 , Nu Aire Acquisition for additional details), the Company entered into a new Revolving Credit Facility with PNC, which is available on an ongoing basis to supplement our sources of liquidity as needed.

In conjunction with the Nu Aire Acquisition (see Note 4 , Nu Aire Acquisition for additional details), the Company entered into the Revolving Credit Facility with PNC, which is available on an ongoing basis to supplement our sources of liquidity as needed.

Additionally, certain machinery and equipment are financed by non-cancelable operating and financing leases.

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Sale-Leaseback Financing Transaction 38,007 2,049 4,222 4,393 27,343

13,750 3,000 6,000 4,750 —

Seller Note (1)

23,000 — 23,000 — —

Term Loans 20,083 5,000 10,000 5,083 —

Total Contractual Cash Obligations $ 69,576 $ 11,402 $ 19,422 $ 11,366 $ 27,386

(1) Excludes accrued PIK Interest of $935,000 as of April 30, 2025.

All unpaid accrued PIK Interest will become due and payable on November 1, 2027, along with the outstanding principal balance.

The Company's operating activities provided cash of $18,633,000 in fiscal year 2026.

Excluding the impacts of the Nu Aire acquisition, net cash provided by operating activities was primarily from operations and decreases in inventories of $3,351,000, increases in deferred revenue of $765,000, increases in accounts payable and accrued expenses of $583,000, and the change in other, net of $20,000, partially offset by increases in receivables of $6,738,000.

Operating activities provided cash of $19,564,000 in fiscal year 2024, primarily from operations and decreases in receivables of $741,000, decreases in inventories of $1,210,000, increases in accounts payable and accrued expenses of $691,000, and increases in deferred revenue of $277,000.

Net cash provided by operating activities was primarily from operations and decreases in inventories of $2,316,000, decreases in receivables of $3,303,000, and the change in other, net of $1,255,000, partially offset by decreases in deferred revenue of $1,921,000 and decreases in accounts payable and accrued expenses of $5,147,000.

Operating activities provided cash of $14,783,000 in fiscal year 2025.

Excluding the impacts of the Nu Aire acquisition, this was primarily driven by operations and decreases in inventories of $3,351,000, increases in deferred revenue of $765,000, increases in accounts payable and accrued expenses of $583,000, and the change in other, net of $20,000, partially offset by increases in receivables of $6,738,000.

The Company's financing activities used cash of $19,326,000 during fiscal year 2026, primarily related to the completion of the Company's Seller Note Repayment, the servicing of the Company's long-term debt arrangements, and the payment of employee taxes withheld for stock-based compensation, partially offset by the entrance into the First Amendment to Loan Agreement with PNC.

See Note 6 , Long-term Debt and Other Credit Arrangements , for additional information regarding this Amendment and the Seller Note Repayment.

The Company's financing activities provided cash of $7,411,000 during fiscal year 2025, primarily related to the issuance of a new term loan from PNC bank in connection with the acquisition of Nu Aire, partially offset by the termination of the Company's Mid Cap Revolving Credit Facility on September 30, 2024 and the purchase of shares under the Company's share repurchase program.

See Note 6 , Long-term Debt and Other Credit Arrangements , for additional information regarding the new term loan and see Note 10 , Stockholder's Equity , for additional information on the Company's share repurchase program.

The Company's financing activities used cash of $3,014,000 during fiscal year 2024 as a result of the net decrease in short-term borrowings of $488,000, repayments on our financing liability of $642,000, and the repurchase of outstanding shares as part of our announced share repurchase program for $1,998,000, partially offset by net proceeds from long-term debt of $114,000.

The Company's investing activities used cash of $3,937,000 in fiscal year 2026, all of which was related to capital expenditures.

The Company's investing activities used cash of $30,901,000 in fiscal year 2025, of which $28,735,000 related to the acquisition of Nu Aire, net of cash acquired and $2,166,000 was used for capital expenditures.

The Company's investing activities used cash of $4,373,000 in fiscal year 2024, of which the full amount related to capital expenditures.

Capital expenditures in fiscal year 2026 were funded primarily by operations and from financing activities.

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The majority of the April 30, 2026 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2027, with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner.

Working capital was $64.7 million at April 30, 2025, up from $56.0 million at April 30, 2024, and the ratio of current assets to current liabilities was 2.2-to-1.0 at April 30, 2025, down from a ratio of 2.4-to-1.0 at April 30, 2024.

Working capital was $57.0 million at April 30, 2026, down from $64.7 million at April 30, 2025, and the ratio of current assets to current liabilities was 2.2-to-1.0 at April 30, 2026, unchanged from a ratio of 2.2-to-1.0 at April 30, 2025.

No dividends were declared or paid on the Company's common stock during the last two fiscal years.

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The Company's earnings are also impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace and costs of raw materials, including steel, wood, and epoxy resin.

In November 2024, the Company took a significant step forward in its growth journey with the acquisition of Nu Aire, a pioneer in laboratory and biosafety solutions, bringing together two market leaders with complementary strengths, shared values, and a common vision for the future of laboratory innovation.

Kewaunee's fiscal year 2025 results are a testament to the consistent execution and dedication of the Company's global team, as well as the Company's strong relationships with its dealers and distribution channel partners, who bring our solutions to customers across multiple end markets.

The Company's strong global management team, healthy backlog, improved manufacturing capabilities, and end-use markets that continue to prioritize investment in projects that require the products Kewaunee designs and manufactures, positions the Company well.

Kewaunee's fiscal year 2026 results highlight the meaningful progress the Company has made on its strategic priorities, particularly in light of the challenging operating environment in which these results were delivered.

Kewaunee continued to invest in the Corporate platform required to scale as a public company and accelerate the Company's organic and inorganic growth strategy.

The Company also made significant progress in its integration of Nu Aire, positioning the business for improved performance as life sciences market conditions recover, while also strengthening Kewaunee's balance sheet through the servicing and repayment of acquisition-related debt.

Entering fiscal year 2027, the Company remains focused on disciplined capital allocation, operational execution, and serving our customers with excellence.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis