What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-09-04 compared with 2026-06-03 · 74 added, 59 removed, 60 unchanged (69% 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 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%.

During the three and six months ended July 31, 2026, the Company experienced a decrease in net sales of 5.0% and 6.1%, respectively, compared to the same periods in the prior fiscal year.

Net sales for the six months ended July 31, 2025 were favorably impacted by a series of disaster recovery and counter-seasonal shipments totaling approximately $2.8 million, compared to approximately $0.2 million of such shipments in the six months ended July 31, 2026.

Excluding this series of shipments, net sales for the six months ended July 31, 2026 decreased by approximately 4%.

Disaster recovery sales for the three months ended July 31, 2026 and 2025 did not materially impact the change in sales for those periods.

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.

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 of July 31, 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 July 31, 2026 favorable to the backlog at July 31, 2025 by approximately 13%.

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

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, 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.

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

Recent school bond election results have resulted in the approval of additional funding for school construction, renovation and modernization projects in certain of the Company's key markets.

The timing and extent to which such funding may ultimately result in customer orders will depend on the timing of project development, construction and related procurement activities.

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

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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.

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 transportation, energy, and raw materials, 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”).

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In February 2026, the U.S.

Supreme Court ruled that tariffs imposed under IEEPA were unconstitutional.

Supreme Court ruled that tariffs imposed under IEEPA exceeded the President's authority.

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.

Customs 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.

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

As of July 31, 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.

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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, 2026.

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.

Three Months Ended July 31, 2026

For the three months ended July 31, 2026, the Company earned a net income of $8.6 million on sales of $87.5 million, compared to net income of $10.2 million on sales of $92.1 million in the same period of the prior year.

Sales for the three months ended July 31, 2026 decreased by approximately $4.6 million or 5.0%, compared to the prior year.

The decrease was 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 60.0% of net sales for the quarter ended July 31, 2026, compared to 55.6% for the same quarter last year.

Gross margin for the second quarter was 40.0% compared to 44.4% in the prior year.

Gross margin declined in the current period primarily due to lower sales volume and higher material and overhead costs.

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

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.

Lower production levels contributed to a slightly unfavorable overhead variance.

Selling, general and administrative ("SG&A") expenses for the three months ended July 31, 2026 decreased by $1.0 million.

SG&A expenses as a percentage of sales for the three months ended July 31, 2026 were 28.0% compared to 27.7% in the same period last year.

The slight increase as a percentage of sales was primarily due to higher delivery costs.

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.

The Company recorded approximately $0.7 million of unrealized gain during the three months ended July 31, 2026 compared to $1.0 million of unrealized loss recognized during the same period last year.

During the quarter ended July 31, 2026, the Company recorded approximately $203,000 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.

For the three months ended July 31, 2026 and 2025, the effective income tax rates were 23.3% and 28.1%, 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.

Six Months Ended July 31, 2026

For the six months ended July 31, 2026, the Company earned a net income of $5.8 million on sales of $118.2 million, compared to net income of $10.9 million on sales of $125.8 million in the same period of the prior year.

Sales for the six months ended July 31, 2026 decreased by approximately $7.7 million or 6.1%, compared to the prior year.

Fiscal year to date sales in the prior year were boosted by the previously noted disaster recovery orders, which contributed approximately $2.8 million in additional shipments compared to approximately $0.2 million during the same period this year.

Excluding these shipments, net sales for the current period decreased by approximately 4%, 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 59.6% of net sales for the six months ended July 31, 2026, compared to 54.8% for the same period last year.

Gross margin for the six months ended July 31, 2026 was 40.4% compared to 45.2% in the prior year.

Gross margin declined in the current period primarily due to lower sales volume and higher material and overhead costs.

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

Lower production levels contributed to a slightly unfavorable overhead variance.

SG&A expenses for the six months ended July 31, 2026 decreased by $0.8 million.

SG&A expenses as a percentage of sales for the six months ended July 31, 2026 were 34.5% compared to 33.1% in the same period last year.

The increase as a percentage of sales was the result of higher delivery costs and 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 VIP Plan.

The Company recorded approximately $0.5 million and $0.2 million of unrealized gain during the six months ended July 31, 2026 and 2025, respectively.

During the six months ended July 31, 2026, the Company recorded approximately $392,000 in net pension benefit, compared to $54,000 in pension expense in the same period last year.

For the six months ended July 31, 2026 and 2025, the effective income tax rates were 22.5% and 28.0%, 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.

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 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.

Accounts receivable decreased by $1.3 million at July 31, 2026 compared to last year.

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

Inventory decreased by $6.8 million at July 31, 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.

Accrual basis capital expenditures for the six months ended July 31, 2026 were $1.7 million compared to $2.8 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.

Accounts payable increased by $3.0 million compared to last year.

The increase reflected the timing of vendor due dates at quarter-end and higher material costs, partially offset by lower purchasing volumes as management moderated inventory levels.

Net cash used in operating activities improved by $13.0 million for the six months ended July 31, 2026, compared to the same period last year.

The Company's net cash used in operating activities during the current period was primarily driven by timing variations in employee benefits disbursements and payments to vendors.

For the six months ended July 31, 2026, the Company spent $1.3 million for capital expenditures, issued $0.8 million of cash dividends and spent $0.2 million to repurchase 31,598 shares of its common stock.

As of July 31, 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 cash availability and share price considerations.

During the quarter ended October 31, 2025, the Company’s Board of Directors approved the termination of the VIP Plan, a supplemental retirement plan for certain key employees.

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The termination is expected to be settled through lump sum distributions to participants funded by the liquidation of assets held in a rabbi trust, which are expected to occur during the fourth quarter of fiscal year 2027.

Management anticipates these distributions will not materially impact the Company's current and long-term liquidity and that the termination will not materially impact the Company's consolidated financial statements.

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.

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.

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

On December 5, 2025, the Company entered into Amendment No.

7 to the Credit Agreement with PNC.

Amendment No.

7 amended the Credit Agreement and the secured revolving line of credit provided to the Company by PNC to reflect the following material changes:

Modify the repurchase window, originally from February 1, 2025 to January 31, 2026, changed to November 1, 2024 to October 31, 2025 for the $7.5 million of permitted share repurchases that are excluded from a) the FCCR testing, b) the Payment Conditions governing stock repurchases, and c) the trailing twelve months ("TTM") $8.0 million aggregate limit on stock repurchases and dividends.

Commencing with respect to the fiscal quarter ending October 31, 2025, modify the definition of Earnings Before Interest, Taxes, Depreciation, and Amortization as it relates to the FCCR testing to add back non-cash lease expense or subtract non-cash lease income for each TTM reporting period.

Reduce the Revolving Line of Credit limit by $10.0 million, except for the months of October, December, and January.

The maximum Revolving Line of Credit limit during June through August was reduced from $70.0 million to $60.0 million.

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 were capitalized as deferred financing costs and are included in prepaid expenses and other current assets on the accompanying unaudited condensed consolidated balance sheets.

Effective September 3, 2026, the Company and Virco Inc., its wholly-owned subsidiary (collectively, the “Borrowers”) entered into Amendment No.

8 to its existing credit agreement (the “Credit Agreement”) with PNC.

The Credit Agreement provides for a $40.0 million revolving credit facility and a $3.0 million equipment line and matures five years from the effective date.

See " Note 7.

Debt " in Notes to Unaudited Condensed Consolidated Financial Statements above.

In connection with this agreement, the Company incurred fees totaling $60,000 which will be capitalized as deferred financing costs and will be included in other assets on the next quarter's 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.

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Risk Factors—Strategic and Operational Risks”.

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

The Company was in compliance with all financial covenants as of July 31, 2026.

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

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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, 2026, 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, 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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The results contemplated by the Company's forward-looking statements are subject to certain risks and uncertainties that could cause actual results to vary materially from anticipated results, including without limitation, availability of funding for educational institutions, availability and cost of materials, availability and cost of labor, demand for the Company's products, competitive conditions affecting selling prices and margins, capital costs and general economic conditions.

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

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

Risk Factors" .

The Company's forward-looking statements represent its judgment only on the dates such statements were made.

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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