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Item 2. Management’s Discussion and Analysis

2025-09-05 compared with 2025-06-06 · 55 added, 30 removed, 47 unchanged (64% of the section changed)

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Incoming orders follow a similar cycle, with the bulk of orders arriving approximately 4-6 weeks preceding the summer delivery season.

During the three-month period ended April 30, 2025, the Company experienced approximately a 27.8% decrease in net revenue compared to the same period last year.

In the same period last year, the Company benefited from a large series of one-time, disaster recovery orders that resulted in approximately $9 million of additional counter-seasonal shipments.

On July 4, 2025, the OBBB Act, which includes a broad range of tax reform provisions, was signed into law in the United States.

FASB Topic 740, Income Taxes, requires the effects of tax law changes to be recognized in the period of enactment.

As the legislation was signed into law before the close of the second quarter, the impacts are contemplated in our operating results for the six months ended July 31, 2025.

Among other provisions, the OBBB repealed the capitalization of domestic research and development expenditures, extended bonus depreciation on fixed assets, and includes a reduced deduction rate on foreign-derived deduction eligible income and income from non-U.S.

subsidiaries.

These provisions are not expected to have a material impact to our effective tax rate and deferred tax assets in fiscal year ending January 31, 2026 and future periods.

During the three months and six months ended July 31, 2025, the Company experienced a decrease in net revenue of approximately 15.1% and 18.9%, respectively, compared to last year.

In the same periods last year, the Company benefited from a large series of one-time, disaster recovery counter-seasonal shipments that resulted in approximately $4 million of additional shipments for the three months ended July 31, 2024 and approximately $13 million for the six months ended July 31, 2024.

These deliveries positively affected the Company’s traditional cycle in the prior year, with positive impacts on production, overhead absorption, accounts receivable, collections, and reductions in inventory, as well as lower borrowings to support that inventory.

Reflecting the absence of these unusual orders, as of April 30, 2025 the Company’s backlog was $70.4 million compared to $88.5 million on April 30, 2024.

The current dynamic macroeconomic environment and uncertainty surrounding the government’s budget and spending levels have adversely affected the demand for our products.

Reflecting the absence of these unusual disaster recovery counter-seasonal orders as of July 31, 2025, the Company’s shipments plus backlog was approximately 25.8% lower than last year.

Management has moderated production levels and will continue to monitor incoming order rates in pursuit of an appropriate balance between on-time summer deliveries and inventory investment.

The Company believes that the majority of the current backlog will be delivered and recognized as revenue during June, July and August of the current fiscal year.

The Company believes that the majority of the current backlog will be delivered and recognized as revenue during the third quarter of the current fiscal year.

As discussed in the Risk Factors section of the Company’s Form 10-K for the fiscal year ended January 31, 2025, the Company’s recent revenue growth in fiscal 2025 and 2024 was partly a result of the delayed recovery from COVID-related school closures and subsequent supply-chain disruptions.

Management cautions that future growth rates are unlikely to match those of the past several years.

As with the unpredictable outcomes of school closures and supply chain disruptions, future events beyond the Company’s control—such as tariffs and trade realignments—may have both negative and positive impacts on the Company’s revenue and operating margins.

As with the unpredictable outcomes of school closures, supply chain disruptions, and school funding decisions, future events beyond the Company’s control—such as tariffs and trade realignments—may have both negative and positive impacts on the Company’s revenue and operating margins.

Management intends to position the Company to respond to these uncertainties by continuing to reinvest in operating systems, employee training, and customer development and retention.

The recent shift in political direction nationally may also cause uncertainty regarding specific funding for school furniture, although Management estimates that more than 85% of public school funding and virtually all bond-funded new-school construction derives from state and local sources, which are less dependent on federal funding.

For example, the Company’s two largest states by revenue are California and Florida, which occupy opposite ends of the political spectrum, but both states continue to invest heavily in public education.

Management estimates that more than 85% of public school funding and virtually all bond-funded new-school construction derives from state and local sources.

In recent months there have been significant changes and proposed changes to U.S.

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“Risk Factors—Industry and Economic Risks” included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2025.

Three Months Ended April 30, 2025

For the three months ended April 30, 2025, the Company earned a net income of $0.7 million on sales of $33.8 million, compared to net income of $2.1 million on sales of $46.7 million in the same period of the prior year.

Sales for the first quarter decreased by approximately $13.0 million or 27.8%, compared to the prior year.

First quarter revenue in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $9 million in counter-seasonal shipments to the seasonally light quarter in the prior year.

Cost of sales was 52.5% for the quarter ended April 30, 2025, compared to 56.5% for the period ended April 30, 2024.

Gross margin for first quarter was 47.5% compared to 43.5% in the prior year.

The increase in gross margin was attributable to an increase in the proportion of orders delivered with full service.

Three Months Ended July 31, 2025

For the three months ended July 31, 2025, the Company earned a net income of $10.2 million on sales of $92.1 million, compared to net income of $16.8 million on sales of $108.4 million in the same period of the prior year.

Sales for the three months ended July 31, 2025 decreased by approximately $16.3 million or 15.1%, compared to the prior year.

Second quarter revenue in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $4 million in shipments in the prior year.

The remaining decrease was driven by the current dynamic macroeconomic environment and uncertainty surrounding the government’s budget and spending levels, which adversely affected the demand for our products.

Cost of sales was 55.6% for the quarter ended July 31, 2025, compared to 53.7% for the same quarter ended last year.

Gross margin for the second quarter was 44.4% compared to 46.3% in the prior year.

The decrease in gross margin was attributable to a slight decline in the proportion of orders delivered with full service.

These orders carry higher margins than orders with simple delivery.

Selling, general and administrative expenses for the three months ended April 30, 2025 decreased slightly by approximately $1.3 million compared to the same period last year.

The decrease in SG&A was primarily due to lower variable selling expenses related to overall lower revenue.

Selling, general and administrative expenses ("SG&A") as a percentage of sales for the three months ended July 31, 2025 was 27.7% compared to 26.1% the same period last year.

The increase in SG&A was primarily due to higher delivery costs.

The Company holds equity securities in a Rabbi Trust to fund benefits under its VIP Pension Plan.

The Company benefited from $1.2 and $0.2 million of unrealized gains during the three months ended April 30, 2025 and 2024, respectively.

These non-operating gains provided a partial offset to the operating impacts of the overall lower revenue in the first quarter.

Net interest expense was $60,000 for the three months ended April 30, 2025, compared to net interest expense of $208,000 for the same period last year.

The decrease was attributable to less demand for seasonal working capital and related lower borrowings under the Company’s credit facility with PNC National Bank.

For the three months ended April 30, 2025 and 2024, the effective income tax rates were 26.4% and 25.5%, respectively.

The Company recorded approximately $1.0 million of unrealized loss and $0.6 million of unrealized gain during the three months ended July 31, 2025 and 2024, respectively.

Net interest expense was $0.2 million for the three months ended July 31, 2025, compared to $0.3 million for the same period last year.

The decrease was attributable to less demand for seasonal working capital and related lower borrowings under the Company’s credit facility with PNC Bank.

For the three months ended July 31, 2025 and 2024, the effective income tax rates were 28.1% and 23.7%, respectively.

The change in effective tax rates was due to a change in the forecasted mix of income before actual federal and state income taxes and estimated permanent differences.

The OBBB did not have a material impact on our effective income tax rate for the three months ended July 31, 2025.

Six Months Ended July 31, 2025

For the six months ended July 31, 2025, the Company earned a net income of $10.9 million on sales of $125.8 million, compared to net income of $19.0 million on sales of $155.2 million in the same period of the prior year.

Sales for the fiscal year decreased by approximately $29.3 million or 18.9%, compared to the prior year.

Fiscal year to date revenue in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $13 million in shipments in the prior year.

Cost of sales was 54.8% for the six months ended July 31, 2025, compared to 54.5% for the same period ended last year.

Gross margin for the six months ended July 31, 2025 was 45.2% compared to 45.5% in the prior year.

The decrease in gross margin was attributable to a slight decline in the proportion of orders delivered with full service.

These orders carry higher margins than orders with simple delivery.

SG&A for the six months ended July 31, 2025 was 33.1% compared to 29.5% the same period last year.

The increase in SG&A was primarily due to higher delivery costs.

The Company holds equity securities in a Rabbi Trust to fund benefits under its VIP Pension Plan.

The Company recorded approximately $0.2 million and $0.8 million of unrealized gain during the six months ended July 31, 2025 and 2024, respectively.

Net interest expense was $0.3 million for the six months ended July 31, 2025, compared to $0.5 million for the same period last year.

The decrease was attributable to less demand for seasonal working capital and related lower borrowings under the Company’s credit facility with PNC Bank.

For the six months ended July 31, 2025 and 2024, the effective income tax rates were 28.0% and 23.9%, respectively.

The change in effective tax rates was due to a change in the forecasted mix of income before actual federal and state income taxes and estimated permanent differences.

The OBBB did not have a material impact on our effective income tax rate for the six months ended July 31, 2025.

Liquidity and Capital Resources

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In addition, the Company finances a large balance of accounts receivable during the peak season.

Accounts Receivable decreased by $7.5 million at April 30, 2025 compared to the same period last year.

The decrease is attributable to decreased shipments (as discussed above under “Overview”) and improved collections.

Inventory increased by $2.7 million at April 30, 2025 compared to April 30, 2024.

The slight increase is primarily attributable to increased material costs during the quarter.

Accrual basis capital expenditures for the three months ended April 30, 2025 were $1.6 million compared to $0.8 million for the same period last year.

Accounts Receivable decreased by $9.2 million at July 31, 2025 compared to last year.

The change is primarily due to a decrease in shipments (as discussed above under “Overview”) and offset slightly by improved collections.

Inventory increased by $1.3 million at July 31, 2025 compared to last year.

The slight increase is primarily driven by higher material costs and offset slightly by decreased production hours during the year.

Accrual basis capital expenditures for the six months ended July 31, 2025 were $2.8 million compared to $3.1 million for the same period last year.

Capital expenditures are being financed through the Company's operating cash flow and restricted to not exceed $8.0 million per year by covenant.

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The permitted share repurchases under this new category are also not counted as “Restricted Payments” when calculating the Company’s compliance with the Fixed Charge Coverage Ratio covenants in the Credit Agreement.

For the three months ended April 30, 2025, the Company spent $4.0 million to repurchase 348,944 shares of its common stock.

As of April 30, 2025, $7.2 million was authorized by the Board and available for repurchase of shares by the Company, subject to the restrictions on repurchases under its Credit Agreement with PNC Bank.

For the six months ended July 31, 2025, the Company spent $4.0 million to repurchase 348,944 shares of its common stock.

As of July 31, 2025, $7.2 million was authorized by the Board and available for repurchase of shares by the Company, subject to the restrictions on repurchases under its Credit Agreement with PNC Bank.

The Company may elect to opportunistically purchase shares based on excess cash generation and share price considerations.

Based on the Company’s current projections, raw material costs and its ability to introduce price increases, management believes it will maintain compliance with its financial covenants under the Credit Agreement, although risks and uncertainties remain, such as changes in economic conditions, changing raw material costs and supply chain challenges.

The Company was in compliance with its debt covenants as of April 30, 2025.

The Company was in compliance with its debt covenants as of July 31, 2025.

The Company believes that cash flows from operations, together with the Company's unused borrowing capacity with PNC Bank will be sufficient to fund the Company's debt service requirements, capital expenditures and working capital needs for the next twelve months.

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Forward-Looking Statements

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2025, the Company or its representatives have made and may make forward-looking statements, orally or in writing.

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2025, the Company or its representatives have made and may make forward-looking statements, orally or in writing.

Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission ("SEC").

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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-Q

Item 2. Management’s Discussion and Analysis