What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-06-03 compared with 2025-12-08 · 73 added, 78 removed, 46 unchanged (77% 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.

On July 4, 2025, the One Big Beautiful Bill (“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 the Company's operating results for the nine months ended October 31, 2025.

Among other provisions, the OBBB repealed the capitalization of domestic research and development expenditures, extended bonus depreciation on fixed assets, and reduced the deduction rate on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 the Company's effective tax rate and deferred tax assets in fiscal year ending January 31, 2026 and future periods.

During the three months and nine months ended October 31, 2025, the Company experienced a decrease in net sales of approximately 42.3% and 27.0%, respectively, compared to the same periods in the prior fiscal 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 $6 million of additional shipments for the three months ended October 31, 2024 and approximately $19 million for the nine months ended October 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.

Excluding this one-time event, net sales for the three months and nine months ended October 31, 2025 decreased approximately 38.3% and 22.1%, respectively.

Management believes that the traditional seasonal cycle for school furniture and the Company's ability to service that seasonal cycle have returned to its pre-pandemic normal.

The current dynamic macroeconomic environment and uncertainty surrounding the government’s budget and spending levels have adversely affected the demand for the Company's school furniture.

Reflecting the absence of last year's unusual disaster recovery counter-seasonal orders as of October 31, 2025, the Company’s shipments plus backlog was approximately 25% lower than as of the same date last year.

During the three months ended April 30, 2026, the Company experienced a decrease in net sales of 9.1% compared to the same period in the prior fiscal year.

Net sales for the three months ended April 30, 2025 were favorably impacted by a series of disaster recovery and counter-seasonal shipments totaling approximately $2.7 million, compared to approximately $190,000 of such shipments in the three months ended April 30, 2026.

Excluding this series of shipments, net sales for the three months ended April 30, 2026 decreased by 1.7%.

The current dynamic macroeconomic environment and uncertainty surrounding state and local governments' budget and spending levels have adversely affected the demand for the Company's school furniture.

As of April 30, 2026, the Company’s shipments plus backlog was approximately 2% lower than as of the same date last year.

Despite these macroeconomic headwinds, incoming order rates have begun to normalize, with the Company's order backlog at April 30, 2026 comparable to the backlog at April 30, 2025.

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.

Order backlog at October 31, 2025 declined slightly to approximately $26 million compared to $27 million in the prior year.

The Company believes that the majority of the current backlog will be delivered and recognized as revenue during the fourth 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.

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.

As discussed in the Risk Factors section of the Company’s Form 10-K for the fiscal year ended January 31, 2026, the Company’s revenue growth since 2023 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, 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.

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, trade realignments and geopolitical conflicts—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.

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.

trade policies, including significant tariffs on imports from China, Canada, and other countries.

These actions, and potential retaliatory responses, could result in revenue reduction, cost increases, and disruptions to supply chains and Company logistics.

The Company is responding to these uncertainties in a similar way as it did with COVID-related school closures and supply chain disruptions.

The Company is reinforcing its domestic capabilities and relationships in the belief that strong domestic suppliers to robustly funded, essential domestic institutions like schools, will ultimately benefit as these macro-level forces move toward a new equilibrium.

This was the pattern of the post-COVID recovery, which lagged the triggering events by about two years.

Management is not predicting this result but noting that global uncertainties can offer opportunities as well as challenges for domestically-focused suppliers like Virco.

The short- and mid-term impacts of trade uncertainties could adversely affect the Company’s operating results and financial condition.

For more information on risks to the Company’s business caused by the recent changes in macro-economic

conditions, please see Part 1, Item 1A.

Ongoing conflict in the Middle East has contributed to volatility in crude oil and natural gas markets, resulting in higher material and transportation costs.

Because many plastic resins are petroleum- and natural gas-based, disruptions in these markets may reduce supply availability and increase material costs.

Energy price volatility has also contributed to higher transportation and logistics costs.

These events are expected to impact material costs during the fiscal year ending January 31, 2027.

Although the Company increased product prices slightly in fiscal 2027 to offset higher costs, it may not be able to fully pass through increases in raw materials, transportation, and energy, including steel and plastics.

Beginning in 2025, the United States implemented and proposed significant changes to trade policies, including broad-based tariffs on imports from certain countries and product categories under the International Emergency Economic Powers Act (“IEEPA”).

These actions included tariffs on imports from Canada, Mexico, and China, as well as higher tariffs on steel, aluminum, and certain manufactured goods, including furniture.

As a result, U.S.

tariff rates increased to their highest levels in decades.

Tariffs have also been used as a policy tool in trade negotiations and in connection with broader geopolitical objectives.

These tariffs increased the cost of imported components and materials during the fiscal year ended January 31, 2026.

In February 2026, the U.S.

Supreme Court ruled that tariffs imposed under IEEPA were unconstitutional.

Subsequently, in March 2026, the U.S.

Court of International Trade ("CIT") issued orders directing U.S.

Customers and Border Protection ("CBP") to process related refunds.

In response to these rulings, CBP launched a refund claims process for qualifying importers.

Since the IEEPA tariffs were first imposed in February 2025, the Company has paid approximately $1.0 million in related tariffs and has now begun the process of requesting refunds of eligible amounts paid.

As of April 30, 2026, the Company has not recognized any tariff refunds in its unaudited condensed consolidated financial statements because the Company was unable to assert that the realization of such recovery is probable as of such date, due to uncertainties surrounding the refund process and collectability of claims.

Should the circumstances surrounding the refund process become more certain and the likelihood of collection become probable, we may recognize a receivable for the amount of the IEEPA tariffs paid.

We may also be entitled to interest on the amounts recovered.

As of the date of this Quarterly Report on Form 10-Q, the Company has not received any portion of the requested refunds.

The short- and mid-term impacts of trade uncertainties could adversely affect the Company’s operating results and financial condition in future periods.

For more information on risks to the Company’s business caused by the recent changes in macro-economic conditions, please see "Part 1, Item 1A.

Risk Factors—Industry and Economic Risks” included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2026.

Three Months Ended October 31, 2025

For the three months ended October 31, 2025, the Company incurred a net loss of $1.3 million on sales of $47.6 million, compared to net income of $8.4 million on sales of $82.6 million in the same period of the prior year.

Sales for the three months ended October 31, 2025 decreased by approximately $35.0 million or 42.3%, compared to the prior year.

Third quarter sales in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $6 million in shipments.

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 the Company's products.

Cost of goods sold was 62.0% of net sales for the quarter ended October 31, 2025, compared to 55.6% for the same quarter ended last year.

Gross margin for the third quarter was 38.0% compared to 44.4% in the prior year.

Gross margin declined in the current period primarily due to lower sales volume combined with a decline in production levels, partially offset by a slight reduction in manufacturing spending.

The Company reduced production levels in order to maintain control over inventory levels.

Selling, general and administrative expenses ("SG&A") for the three months ended October 31, 2025 decreased by $5.8 million.

The decrease in SG&A expenses was primarily due to lower variable selling expenses related to the overall decline in sales volume.

SG&A expenses as a percentage of sales for the three months ended October 31, 2025 were 41.5% compared to 30.9% in the same period last year.

This was primarily due to lower sales volume in relation to fixed SG&A costs.

Since a significant portion of SG&A expense does not fluctuate with sales volume, SG&A increased as a percentage of sales.

The Company holds equity securities in a rabbi trust to fund benefits under its VIP Retirement Plan (the "VIP Plan").

The Company recorded approximately $49,000 of unrealized loss and $246,000 of unrealized gain during the three months ended October 31, 2025 and 2024, respectively.

For the three months ended October 31, 2025 and 2024, the effective income tax rates were 26.8% and 25.5%, 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 the Company's effective income tax rate for the three months ended October 31, 2025.

Nine Months Ended October 31, 2025

For the nine months ended October 31, 2025, the Company earned a net income of $9.6 million on sales of $173.5 million, compared to net income of $27.4 million on sales of $237.8 million in the same period of the prior year.

Sales for the fiscal year decreased by approximately $64.3 million or 27.0% compared to the prior year.

Fiscal year to date sales in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $19 million in shipments.

Cost of goods sold was 56.8% for the nine months ended October 31, 2025, compared to 54.9% for the same period ended last year.

Gross margin for the nine months ended October 31, 2025 was 43.2% compared to 45.1% in the prior year.

Gross margin declined in the current period primarily due to lower sales volume combined with a decline in production levels, partially offset by a slight reduction in manufacturing spending.

Three Months Ended April 30, 2026

For the three months ended April 30, 2026, the Company incurred a net loss of $2.8 million on sales of $30.7 million, compared to net income of $0.7 million on sales of $33.8 million in the same period of the prior year.

Sales for the three months ended April 30, 2026 decreased by approximately $3.1 million or 9.1%, compared to the prior year.

First quarter sales in the prior year were boosted by the previously noted disaster recovery orders, which contributed approximately $2.7 million in additional shipments compared to approximately $190,000 during the first fiscal quarter this year.

Excluding these shipments, net sales for the current period decreased by 1.7%, driven by the current dynamic macroeconomic environment and uncertainty surrounding state and local governments' budget and spending levels, which adversely affected the demand for the Company's products.

Cost of goods sold was 58.6% of net sales for the quarter ended April 30, 2026, compared to 52.5% for the same quarter last year.

Gross margin for the first quarter was 41.4% compared to 47.5% in the prior year.

Gross margin declined in the current period primarily due to lower sales volume, partially offset by a slight reduction in manufacturing spending.

The Company reduced production levels in order to maintain control over inventory levels.

SG&A for the nine months ended October 31, 2025 decreased by $9.9 million.

The decrease in SG&A expenses was primarily due to lower variable selling expenses related to the overall decline in sales volume.

SG&A expenses as a percentage of sales for the nine months ended October 31, 2025 were 35.4% compared to 30.0% in the same period last year.

This was primarily due to lower sales volume in relation to fixed SG&A costs.

Since a significant portion of SG&A expense does not fluctuate with sales volume, SG&A increased as a percentage of sales.

The Company holds equity securities in a rabbi trust to fund benefits under its VIP Plan.

The Company recorded approximately $0.2 million and $1.1 million of unrealized gain during the nine months ended October 31, 2025 and 2024, respectively.

For the nine months ended October 31, 2025 and 2024, the effective income tax rates were 28.2% and 24.4%, respectively.

Lower production levels resulted in a slightly unfavorable overhead variance.

The material portion of our costs as a percentage of sales was 31.9% for the quarter ended April 30, 2026 and 29.8% for the same quarter last year, reflecting effects of the ongoing conflict in the Middle East.

Selling, general and administrative ("SG&A") expenses for the three months ended April 30, 2026 increased by $0.2 million.

SG&A expenses as a percentage of sales for the three months ended April 30, 2026 were 53.3% compared to 47.7% in the same period last year.

This increase was the result of changes to product mix, as business shifted to a higher percentage of full service deliveries.

Full service delivery orders are more service oriented and as such the associated expenses are recorded in SG&A instead of cost of sales.

Additionally, a certain portion of SG&A is fixed in nature and as such does not fluctuate with sales volume.

The Company holds equity securities in a rabbi trust to fund benefits under its Virco Important Performers Retirement Plan ("VIP Plan").

The Company recorded approximately $0.1 million of unrealized loss and $1.2 million of unrealized gain during the three months ended April 30, 2026 and 2025, respectively.

During the quarter ended April 30, 2026, the Company recorded approximately $189,000 in net pension benefit, compared to $27,000 in pension expense in the same period last year.

As a result of the expected settlement of the VIP Plan during the fourth quarter of the fiscal year ending January 31, 2027, the Company recognized increased amortization of actuarial gains previously recorded in accumulated other comprehensive (loss) income.

For the three months ended April 30, 2026 and 2025, the effective income tax rates were 25.0% and 26.4%, 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 the Company's effective income tax rate for the nine months ended October 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 $14.4 million at October 31, 2025 compared to last year.

The change is primarily due to a decrease in shipments (as discussed above under “Overview”).

Inventory increased by $4.1 million at October 31, 2025 compared to last year.

The increase is primarily driven by increased costs, offset slightly by decreased production levels during the year.

Accrual basis capital expenditures for the nine months ended October 31, 2025 were $3.7 million compared to $5.4 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.

As a result of materially improved profitability in recent years, the Company had approximately $26.5 million and $38.9 million in cash at October 31, 2025 and 2024, respectively.

The Company uses its cash flow generated from operations to fund capital expenditures, quarterly cash dividends and stock repurchases.

For the nine months ended October 31,2025, the Company spent $5.1 million in capital expenditures, issued $1.2 million of cash dividends and spent $4.0 million to repurchase 348,944 shares of its common stock.

As of October 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, National Association ("PNC").

Accounts receivable increased by $2.7 million at April 30, 2026 compared to last year.

The increase is primarily due to a the timing of customer payments and collections around the fiscal quarter end, offset by lower sales in the current year.

Inventory decreased by $5.7 million at April 30, 2026 compared to last year.

The decrease is primarily driven by lower production levels, offset slightly by higher material costs.

Management moderated production levels in order to maintain control over inventory levels.

Accrual basis capital expenditures for the three months ended April 30, 2026 were $0.6 million compared to $1.6 million for the same period last year.

Capital expenditures are being financed through the Company's operating cash flow and are restricted to $8.0 million per year by covenant.

Despite recording a net loss for the three months ended April 30, 2026, the Company improved net cash used in operating activities by $9.7 million compared to the same period last year.

Moderation of production and inventory levels led to favorable

cash flow activity for inventories and accounts payable compared to last year.

For the three months ended April 30, 2026, the Company spent $0.7 million for capital expenditures, issued $0.4 million of cash dividends and spent $0.2 million to repurchase 31,598 shares of its common stock.

As of April 30, 2026, $7.0 million was authorized by the Board and available for repurchase of shares by the Company, subject to the restrictions on share repurchases under its Credit Agreement with PNC Bank, National Association ("PNC").

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

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On April 9, 2025, the Company entered into Amendment No.

6 to the Credit Agreement with PNC, which established a new category of permitted share repurchases in an amount up to $7.5 million, which was a new category in addition to the share repurchases under the Credit Agreement.

6 to the Credit Agreement with PNC, which established a new category of permitted share repurchases in an amount up to $7.5 million.

The share repurchases under the new category were required to occur during the fiscal year ending January 31, 2026, may not occur while any Default or Event of Default exists or would result from such repurchases, and must be made solely from cash on hand and not from the proceeds of advances under the Credit Agreement.

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Reduce the $15.0 million seasonal over-advance to $10.0 million and limit to the months of January through June (removing access in the month of July).

In connection with this amendment, the Company incurred fees totaling $20,000 which will be capitalized as deferred financing costs when paid.

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 did not have an outstanding amount under the Credit Agreement as of October 31, 2025.

In connection with this amendment, the Company incurred fees totaling $20,000 which were capitalized as deferred financing costs and are included in prepaid expenses and other current assets on the accompanying unaudited condensed consolidated balance sheets.

The Company is subject to risks and uncertainties arising from general economic conditions, changes in raw material costs, and supply chain disruptions, which could adversely affect its operations and financial flexibility.

Such risks and uncertainties are discussed in more detail in the Company's Form 10-K for the fiscal year ended January 31, 2026, under the caption "Item 1A.

Risk Factors—Strategic and Operational Risks”.

The Company was in compliance with all financial covenants as of April 30, 2026.

As of that date, the Company had no outstanding borrowings under its credit facility.

The Company believes that cash flows from operations and cash on hand, together with the Company's unused borrowing capacity with PNC, 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 October 31, 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 April 30, 2026, 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