Virco(VIRC) - 2021 Q1 - Quarterly Report

Part I. Financial Information Financial Statements Unaudited condensed consolidated financial statements for the period ended April 30, 2020, reflect decreased net sales and increased net loss, primarily due to the COVID-19 pandemic, alongside a decline in total assets and a slight rise in liabilities Unaudited Condensed Consolidated Balance Sheets As of April 30, 2020, total assets decreased due to lower receivables and inventories, while total liabilities slightly increased, and stockholders' equity declined year-over-year Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | 4/30/2020 | 1/31/2020 | 4/30/2019 | | :--- | :--- | :--- | :--- | | Total Current Assets | $69,020 | $58,342 | $79,298 | | Total Assets | $151,492 | $138,992 | $163,308 | | Total Current Liabilities | $42,386 | $25,118 | $53,702 | | Total Liabilities | $100,773 | $84,174 | $109,032 | | Total Stockholders' Equity | $50,719 | $54,818 | $54,276 | Unaudited Condensed Consolidated Statements of Operations For the three months ended April 30, 2020, net sales decreased significantly, leading to an increased net loss per share, primarily driven by lower sales and reduced gross profit Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2020 (3 mos ended 4/30/20) | Q1 2019 (3 mos ended 4/30/19) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $17,599 | $26,893 | -34.6% | | Gross Profit | $4,904 | $9,084 | -46.0% | | Operating Loss | $(7,027) | $(3,597) | +95.3% | | Net Loss | $(4,698) | $(3,067) | +53.2% | | Net Loss per Share (Basic & Diluted) | $(0.30) | $(0.20) | +50.0% | Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved for the three months ended April 30, 2020, primarily due to moderated inventory increases and favorable changes in working capital, despite a net decrease in overall cash Cash Flow Summary (in thousands) | Activity | Three months ended 4/30/2020 | Three months ended 4/30/2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,887) | $(18,286) | | Net cash used in investing activities | $(488) | $(1,219) | | Net cash provided by financing activities | $9,552 | $19,320 | | Net decrease in cash | $(823) | $(185) | | Cash at end of period | $327 | $553 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, business seasonality, debt, leases, and the significant operational and financial challenges posed by the COVID-19 pandemic, which has disrupted demand and operations - The educational furniture market is highly seasonal, with approximately 50% of total sales typically occurring from June to August, requiring a significant pre-season build-up of inventory[28] - The company's revolving credit line with PNC Bank matures on March 19, 2023. As of April 30, 2020, the company was in compliance with its financial covenants and had approximately $12.3 million available for borrowing[49][52][57] - The CARES Act, signed in March 2020, modified the business interest expense deduction limitation, resulting in a calculated tax benefit of approximately $200,000 for the company[59] - In response to COVID-19, the company has been operating its manufacturing facilities on a voluntary basis. The Torrance, CA facility is staffed at approximately 50% of its normal level, while the Conway, AR facilities remain fully operational. Management expects lower sales and earnings for the remainder of fiscal 2021 due to the pandemic[77][78][79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant Q1 net sales decrease to the COVID-19 pandemic, which also impacted gross margin, while order backlog increased, and liquidity was managed through moderated inventory and reduced borrowing, though future uncertainty remains Q1 FY2021 vs Q1 FY2020 Performance | Metric | Q1 FY2021 (ended 4/30/20) | Q1 FY2020 (ended 4/30/19) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $17,599,000 | $26,893,000 | -34.6% | | Pre-tax Loss | $(7,973,000) | $(4,485,000) | +77.8% | | Order Backlog | $47,578,000 | $39,254,000 | +21.2% | | Gross Margin | 27.9% | 33.8% | -5.9 p.p. | - The COVID-19 pandemic significantly impacted Q1 results by disrupting customer operations. School closures led to deferred deliveries, which reduced shipments but increased year-over-year order backlog by $8.3 million[81] - The company moderated its seasonal inventory build-up due to COVID-19, resulting in lower inventory levels and a corresponding $13.6 million reduction in borrowing under its revolving credit line compared to the prior year[88][89] - Management believes that while the overall market for school furniture may decline, there are opportunities to gain market share from competitors, particularly those reliant on challenged Chinese supply chains, without resorting to price cuts[82] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company defined by Rule 12b-2 of the Exchange Act, the company is not required to provide quantitative and qualitative disclosures about market risk[95] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of April 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of April 30, 2020[96] - There were no changes in the company's internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[98] Part II. Other Information Legal Proceedings The company is involved in ordinary course legal actions, which management believes will not materially affect its financial position, results of operations, or cash flows - Management opines that ongoing legal proceedings from the ordinary course of business are not expected to be material to the company's financial condition, as any potential liabilities are expected to be substantially covered by insurance or successfully defended[101] Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended January 31, 2020 - The risk factors associated with the business have not materially changed from those disclosed in the Form 10-K for the fiscal year ended January 31, 2020[102] Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company reported no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the period - None reported for the period[103] Other Information On June 9, 2020, the Board of Directors amended the company's Bylaws to facilitate virtual annual stockholder meetings in response to the COVID-19 pandemic - On June 9, 2020, the company's Bylaws were amended to permit stockholder meetings to be held solely by means of remote communications, a measure taken to facilitate the 2020 annual meeting amid the COVID-19 pandemic[106][107] Exhibits This section lists exhibits filed with the Form 10-Q, including amended bylaws, CEO and CFO certifications, and XBRL data files - Key exhibits filed include the Third Amended and Restated Bylaws (Exhibit 3.3), CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906 (Exhibits 31.1, 31.2, 32.1), and XBRL instance documents[108]