Virco(VIRC) - 2022 Q2 - Quarterly Report

Part I. Financial Information Financial Statements Virco Mfg. Corporation's unaudited condensed consolidated financial statements show increased six-month net sales, flat Q2 sales, and a reduced net loss Condensed Consolidated Balance Sheets Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Item | Jul 31, 2021 | Jan 31, 2021 | Jul 31, 2020 | | :--- | :--- | :--- | :--- | | Total current assets | $79,760 | $50,967 | $85,779 | | Total assets | $149,922 | $125,036 | $163,369 | | Total current liabilities | $43,674 | $22,106 | $51,744 | | Total liabilities | $92,965 | $70,849 | $108,637 | | Total stockholders' equity | $56,957 | $54,187 | $54,732 | Condensed Consolidated Statements of Income & Operations Three Months Ended July 31 (in thousands, except per share data) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net sales | $59,022 | $59,456 | -0.7% | | Gross profit | $22,319 | $23,203 | -3.8% | | Operating income | $6,068 | $7,715 | -21.3% | | Net income | $3,760 | $3,553 | +5.8% | | Diluted EPS | $0.24 | $0.23 | +4.3% | Six Months Ended July 31 (in thousands, except per share data) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net sales | $87,389 | $77,273 | +13.1% | | Gross profit | $30,007 | $28,107 | +6.8% | | Operating income | $1,773 | $688 | +157.7% | | Net loss | $(149) | $(1,145) | +87.0% (improvement) | | Diluted EPS | $(0.01) | $(0.07) | +85.7% (improvement) | Condensed Consolidated Statements of Cash Flows Six Months Ended July 31 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,557) | $(15,855) | | Net cash used in investing activities | $(853) | $(1,359) | | Net cash provided by financing activities | $9,649 | $16,942 | | Net increase (decrease) in cash | $239 | $(272) | Notes to Financial Statements - The company's market is highly seasonal, with about 50% of sales typically occurring from June to August Due to COVID-19 and supply chain disruptions, the company anticipates a larger portion of annual sales will occur in September, October, and November of the current fiscal year[42] - The company was not in compliance with its fixed-charge coverage ratio covenant as of July 31, 2020, and October 31, 2020 It subsequently negotiated waivers and amendments with its lender, PNC Bank, and was in compliance as of July 31, 2021[39][58] - The company's revolving line of credit with PNC Bank matures on March 19, 2023 As of July 31, 2021, approximately $41,182,000 was available for borrowing under this facility[57][61] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the COVID-19 pandemic's impact, noting strong order growth but flat Q2 sales due to supply chain issues and labor shortages, leading to increased backlog Results of Operations - The company faced significant operational challenges, including supply chain issues for imported components, volatile costs for steel and plastic, and severe labor shortages for both permanent and temporary employees[91] Order Rate Growth vs. Prior Year | Period | Order Growth | | :--- | :--- | | Q1 ended Apr 30, 2021 | +26.7% | | Q2 ended Jul 31, 2021 | +29.9% | | H1 ended Jul 31, 2021 | +28.5% | - Despite strong order growth, Q2 sales were flat (-0.7% YoY) due to production and supply chain constraints This led to an order backlog approximately $20 million greater than the prior year as of July 31, 2021[93][95][96] - Gross margin for Q2 2021 decreased to 37.8% from 39.0% in the prior year, affected by increased raw material costs and factory inefficiencies from supply interruptions[97] Liquidity and Capital Resources - Reduced inventory levels and moderated seasonal borrowing needs allowed the company to decrease its reliance on its revolving line of credit compared to the prior year[105][107] - The company previously violated its fixed-charge coverage ratio covenant but obtained waivers and amendments Management believes it will maintain compliance for the next 12 months based on current forecasts and the amended covenant terms[110] - Capital expenditures were reduced to $1.21 million for the first six months of 2021, down from $1.63 million in the prior year, to preserve cash Management believes cash flows and borrowing capacity are sufficient to fund needs for the next twelve months[109][111] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Virco is exempt from providing quantitative and qualitative market risk disclosures - As a smaller reporting company, Virco is exempt from the requirement to provide quantitative and qualitative disclosures about market risk[116] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[117][118] - No changes in internal control over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[119] Part II. Other Information Legal Proceedings The company is involved in ordinary course legal actions, which management believes will not materially impact its financial position - Management believes that ongoing legal actions, which arise from the normal course of business, will not have a material impact on the company's financials[122] Risk Factors No material changes to the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K - The risk factors associated with the business have not materially changed from those disclosed in the most recent Form 10-K[123] Other Items (Items 2, 3, 4, 5, & 6) This section confirms no unregistered equity sales, senior security defaults, or mine safety disclosures, and lists filed exhibits including officer certifications - The company reported no information under Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[124][125][126][127] - Item 6 lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications required by the Sarbanes-Oxley Act and XBRL data files[128]