Virco(VIRC) - 2026 Q2 - Quarterly Report

FORM 10-Q PART I. Financial Information Item 1. Financial Statements This item provides the unaudited condensed consolidated financial statements for Virco Mfg. Corporation, including balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of changes in stockholders' equity, along with comprehensive notes detailing accounting policies, seasonality, debt, income taxes, and other financial disclosures Unaudited Condensed Consolidated Balance Sheets Unaudited Condensed Consolidated Balance Sheets (In thousands) | Metric (In thousands) | 7/31/2025 | 1/31/2025 | 7/31/2024 | | :-------------------- | :-------- | :-------- | :-------- | | Assets | | | | | Total current assets | $111,885 | $102,173 | $125,331 | | Total assets | $198,641 | $191,946 | $216,348 | | Liabilities | | | | | Total current liabilities | $37,739 | $34,275 | $55,506 | | Total non-current liabilities | $45,526 | $48,406 | $53,030 | | Stockholders' Equity | | | | | Total stockholders' equity | $115,376 | $109,265 | $107,812 | Unaudited Condensed Consolidated Statements of Income Unaudited Condensed Consolidated Statements of Income (In thousands, except per share data) | Metric (In thousands, except per share data) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Net sales | $92,086 | $108,419 | $125,840 | $155,154 | | Gross profit | $40,874 | $50,218 | $56,894 | $70,565 | | Operating income | $15,371 | $21,894 | $15,277 | $24,865 | | Net income | $10,186 | $16,833 | $10,918 | $18,973 | | Basic EPS | $0.65 | $1.04 | $0.69 | $1.16 | | Diluted EPS | $0.65 | $1.04 | $0.69 | $1.16 | - Net sales decreased by 15.1% for the three months ended July 31, 2025, and by 18.9% for the six months ended July 31, 2025, compared to the prior year, partly due to the absence of one-time disaster recovery shipments in the current period[81][86][91] Unaudited Condensed Consolidated Statements of Comprehensive Income Unaudited Condensed Consolidated Statements of Comprehensive Income (In thousands) | Metric (In thousands) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :-------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Net income | $10,186 | $16,833 | $10,918 | $18,973 | | Pension adjustments | $(67) | $(19) | $(134) | $(47) | | Net comprehensive income | $10,119 | $16,814 | $10,784 | $18,926 | Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Cash Flows (In thousands) | Metric (In thousands) | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :-------------------- | :------------------------- | :------------------------- | | Net cash (used in) provided by operating activities | $(15,826) | $7,963 | | Net cash used in investing activities | $(3,516) | $(2,741) | | Net cash used in financing activities | $(4,915) | $(2,737) | | Net (decrease) increase in cash | $(24,257) | $2,485 | | Cash at end of period | $2,610 | $7,771 | - The company experienced a significant net decrease in cash of $24.26 million for the six months ended July 31, 2025, compared to a net increase of $2.49 million in the prior year, primarily driven by cash used in operating activities[21] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (In thousands, except share data) | Metric (In thousands, except share data) | Balance at 1/31/2025 | Net Income (6M) | Cash Dividends (6M) | Pension Adjustments (6M) | Stock Repurchase (6M) | Balance at 7/31/2025 | | :------------------------------------- | :------------------- | :-------------- | :------------------ | :----------------------- | :-------------------- | :------------------- | | Common Stock (Amount) | $161 | — | — | — | $(4) | $157 | | Additional Paid-in Capital | $117,549 | — | — | — | $(3,996) | $113,667 | | Retained Earnings (Accumulated Deficit) | $(8,867) | $10,918 | $(787) | — | — | $1,264 | | Accumulated Other Comprehensive Income (Loss) | $422 | — | — | $(134) | — | $288 | | Total Stockholders' Equity | $109,265 | $10,918 | $(787) | $(134) | $(4,000) | $115,376 | - Total stockholders' equity increased from $109.27 million at January 31, 2025, to $115.38 million at July 31, 2025, driven by net income and offset by cash dividends and stock repurchases[24] Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Basis of Presentation - Interim financial statements are prepared under U.S. GAAP and SEC rules, not including all disclosures required for complete annual statements, and should be read in conjunction with the latest Form 10-K[30] Note 2. Seasonality and Management Use of Estimates - Approximately 50% of the Company's total sales typically occur from June to August, requiring significant upfront investment in inventory, labor, and storage, often necessitating third-party bank financing[31] - Key management estimates include inventory valuation, deferred tax assets/liabilities, useful lives of property/plant/equipment, pension/warranty/self-insurance liabilities, and accounts receivable allowance for credit losses[32] Note 3. Recently Issued Accounting Standards - The Company adopted ASU 2023-07 (Segment Reporting) during the fiscal year ended January 31, 2025, which updates reportable segment disclosure requirements[33] - The Company is evaluating ASU 2024-03 (Expense Disaggregation Disclosures), effective for annual periods beginning after December 15, 2026, and does not expect ASU 2023-09 (Income Taxes) to have a material impact[34][35] Note 4. Revenue Recognition - Revenue is recognized when control of goods is transferred to customers, primarily for school and office furniture, with performance obligations satisfied at a point in time upon shipment or delivery according to FOB terms[37][38] - Sales are recorded net of discounts, sales incentives, rebates, sales taxes, and estimated returns and allowances, with variable consideration estimated using the expected value method[39] Note 5. Inventories - Inventories are valued at the lower of cost (FIFO) or net realizable value, including material, labor, and factory overhead, with valuation adjustments for slow-moving/obsolete inventory based on estimates[41] Inventories (In thousands) | Inventory Category (In thousands) | 7/31/2025 | 1/31/2025 | 7/31/2024 | | :-------------------------------- | :-------- | :-------- | :-------- | | Finished goods | $23,317 | $19,599 | $23,498 | | Work in process | $23,133 | $21,357 | $20,938 | | Raw materials | $13,416 | $14,691 | $14,138 | | Total inventories | $59,866 | $55,647 | $58,574 | Note 6. Leases Leases (In thousands) | Lease Cost (In thousands) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :------------------------ | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Operating lease cost | $2,359 | $1,423 | $4,717 | $2,842 | | Short-term lease cost | $112 | $130 | $230 | $234 | | Sublease income | $(10) | $(10) | $(20) | $(20) | | Variable lease cost | $109 | $690 | $382 | $618 | | Total lease cost | $2,570 | $2,233 | $5,309 | $3,674 | - As of July 31, 2025, the weighted-average remaining lease term is 5.0 years, and the weighted-average discount rate is 9.83%[45] - On July 23, 2024, the Company entered into a new lease agreement for its Torrance, California facility, extending tenancy through September 2030, resulting in a $33.0 million operating lease liability and corresponding ROU asset[46] Note 7. Debt Debt (In thousands) | Debt (In thousands) | 7/31/2025 | 1/31/2025 | 7/31/2024 | | :------------------ | :-------- | :-------- | :-------- | | Revolving credit line | $— | $— | $— | | Other (Mortgage) | $4,008 | $4,136 | $4,261 | | Total debt | $4,008 | $4,136 | $4,261 | | Non-current portion | $3,745 | $3,878 | $4,008 | - The Credit Agreement with PNC Bank was amended on April 9, 2025, to establish a new category of permitted share repurchases up to $7.5 million for the fiscal year ending January 31, 2026, in addition to existing limits[53] - The company was in compliance with its debt covenants as of July 31, 2025[51][101] Note 8. Income Taxes Income Taxes | Effective Income Tax Rate | 7/31/2025 (3 Months) | 7/31/2024 (3 Months) | 7/31/2025 (6 Months) | 7/31/2024 (6 Months) | | :------------------------ | :------------------- | :------------------- | :------------------- | :------------------- | | Rate | 28.1% | 23.7% | 28.0% | 23.9% | - Valuation allowances for certain state net operating loss carryforwards were $216,000 as of July 31, 2025[57] - The One Big Beautiful Bill (OBBB) Act, signed into law on July 4, 2025, is not expected to have a material impact on the company's effective tax rate and deferred tax assets for the fiscal year ending January 31, 2026, or future periods[60][80] Note 9. Net Income per Share Net Income per Share (Per share data) | Metric (Per share data) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :---------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Net income | $10,186 | $16,833 | $10,918 | $18,973 | | Basic EPS | $0.65 | $1.04 | $0.69 | $1.16 | | Diluted EPS | $0.65 | $1.04 | $0.69 | $1.16 | | Weighted average shares outstanding - basic | 15,741 | 16,214 | 15,749 | 16,305 | Note 10. Stock-Based Compensation Stock-Based Compensation (In thousands) | Stock-Based Compensation Expense (In thousands) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :-------------------------------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Cost of goods sold | $— | $10 | $— | $38 | | Selling, general and administrative expenses | $51 | $88 | $114 | $232 | | Total stock-based compensation expense | $51 | $98 | $114 | $270 | - As of July 31, 2025, there was $156,000 of unrecognized compensation expense related to unvested restricted stock awards, expected to be recognized in one month[63] Note 11. Retirement Plans Retirement Plans (In thousands) | Net Periodic Pension Cost (In thousands) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :------------------------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Interest cost | $325 | $311 | $650 | $622 | | Expected return on plan assets | $(208) | $(169) | $(416) | $(338) | | Recognized net actuarial gain | $(90) | $(40) | $(180) | $(75) | | Benefit cost | $27 | $102 | $54 | $209 | - Employer match compensation costs for the 401(k) retirement plan were $1.014 million for the six months ended July 31, 2025, an increase from $778,000 in the prior year[68] Note 12. Warranty Accrual Warranty Accrual (In thousands) | Warranty-Claim Activity (In thousands) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Beginning balance | $500 | $500 | $500 | $500 | | Provision | $33 | $21 | $76 | $51 | | Costs incurred | $(33) | $(21) | $(76) | $(51) | | Ending balance | $500 | $500 | $500 | $500 | Note 13. Contingencies - The Company has self-insured retention for product, workers' compensation, general, and automobile liability losses, with insurance covering losses up to $30.0 million in excess of retention[70] - Management believes that the ultimate outcome of various legal proceedings in the normal course of business will not materially affect the Company's financial position, results of operations, or cash flows[71] Note 14. Delivery Costs Delivery Costs (In millions) | Delivery Costs (In millions) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :--------------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Shipping and classroom delivery costs | $10.0 | $10.1 | $13.4 | $14.3 | Note 15. Property, Plant, and Equipment, Net Property, Plant, and Equipment, Net (In thousands) | Property, Plant, and Equipment (In thousands) | 7/31/2025 | 1/31/2025 | 7/31/2024 | | :-------------------------------------------- | :-------- | :-------- | :-------- | | Property, plant and equipment, gross | $179,682 | $177,096 | $173,134 | | Less accumulated depreciation and amortization | $(143,562) | $(140,668) | $(138,154) | | Property, plant and equipment, net | $36,120 | $36,428 | $34,980 | Property, Plant, and Equipment, Net (In millions) | Depreciation and Amortization Expenses (In millions) | Three Months Ended 7/31/2025 | Three Months Ended 7/31/2024 | Six Months Ended 7/31/2025 | Six Months Ended 7/31/2024 | | :--------------------------------------------------- | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- | | Cost of goods sold | $1.1 | $1.1 | $2.3 | $2.1 | | Selling, general, and administrative expenses | $0.5 | $0.3 | $0.8 | $0.6 | Note 16. Segment Information - The Company operates in one segment and has one reportable segment, with its CODM reviewing consolidated financial information to manage the business[76][77] Note 17. Subsequent Events - On September 2, 2025, the Board of Directors declared a cash dividend of $0.025 per common share for the second fiscal quarter, payable October 10, 2025[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial performance, liquidity, and capital resources, highlighting the impact of seasonality, macroeconomic conditions, and the absence of prior-year one-time disaster recovery shipments on revenue and profitability. It also covers recent tax law changes, debt covenants, and share repurchase activities Overview - The Company's core market for education furniture is highly seasonal, with approximately 50% of total annual revenue typically occurring from June to August[79] - Net revenue decreased by approximately 15.1% for the three months and 18.9% for the six months ended July 31, 2025, compared to the prior year, partly due to the absence of one-time disaster recovery shipments and adverse macroeconomic conditions[81][82] - Shipments plus backlog were approximately 25.8% lower than last year, leading management to moderate production levels[82] Three Months Ended July 31, 2025 Three Months Ended July 31, 2025 (In millions) | Metric (In millions) | 7/31/2025 | 7/31/2024 | Change ($) | Change (%) | | :------------------- | :-------- | :-------- | :--------- | :--------- | | Net income | $10.2 | $16.8 | $(6.6) | (39.3%) | | Net sales | $92.1 | $108.4 | $(16.3) | (15.1%) | Three Months Ended July 31, 2025 | Metric | 7/31/2025 | 7/31/2024 | | :--------------------- | :-------- | :-------- | | Cost of sales % | 55.6% | 53.7% | | Gross margin | 44.4% | 46.3% | | SG&A as % of sales | 27.7% | 26.1% | | Effective income tax rate | 28.1% | 23.7% | - The decrease in gross margin was attributable to a slight decline in the proportion of orders delivered with full service, which carry higher margins[87] Six Months Ended July 31, 2025 Six Months Ended July 31, 2025 (In millions) | Metric (In millions) | 7/31/2025 | 7/31/2024 | Change ($) | Change (%) | | :------------------- | :-------- | :-------- | :--------- | :--------- | | Net income | $10.9 | $19.0 | $(8.1) | (42.6%) | | Net sales | $125.8 | $155.2 | $(29.4) | (18.9%) | Six Months Ended July 31, 2025 | Metric | 7/31/2025 | 7/31/2024 | | :--------------------- | :-------- | :-------- | | Cost of sales % | 54.8% | 54.5% | | Gross margin | 45.2% | 45.5% | | SG&A as % of sales | 33.1% | 29.5% | | Effective income tax rate | 28.0% | 23.9% | - The increase in SG&A for both periods was primarily due to higher delivery costs[88][93] Liquidity and Capital Resources - The Company's liquidity is heavily influenced by the extreme seasonality of the education furniture market, with significant inventory build-up and accounts receivable financing during the June to August peak season[96] Liquidity and Capital Resources (In millions) | Metric (In millions) | 7/31/2025 | 7/31/2024 | Change ($) | | :------------------- | :-------- | :-------- | :--------- | | Accounts Receivable | $46.8 | $56.1 | $(9.3) | | Inventory | $59.9 | $58.6 | $1.3 | - The Company spent $4.0 million to repurchase 348,944 shares of its common stock for the six months ended July 31, 2025, with $7.2 million authorized and available for future repurchases[100] - Management believes cash flows from operations and unused borrowing capacity will be sufficient to fund debt service, capital expenditures, and working capital for the next twelve months[102] Off Balance Sheet Arrangements - The Company has no off-balance sheet arrangements[103] Critical Accounting Policies and Estimates - Critical accounting policies and estimates are consistent with those disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2025[104] Forward-Looking Statements - Forward-looking statements are subject to risks and uncertainties, including funding for educational institutions, material/labor costs, demand, competition, capital costs, and general economic conditions[105] - The Company assumes no duty to update forward-looking statements to reflect new, changed, or unanticipated events or circumstances[106] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Virco Mfg. Corporation is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Virco Mfg. Corporation is exempt from providing quantitative and qualitative disclosures about market risk[107] Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of July 31, 2025. There have been no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures - Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of July 31, 2025[108] Changes in Internal Control Over Financial Reporting - No material changes in internal control over financial reporting occurred during the fiscal quarter ended July 31, 2025[110] PART II. Other Information Item 1. Legal Proceedings The company is involved in various legal actions in the ordinary course of business, but management believes these will not materially affect the company's financial position, results of operations, or cash flows - Management believes that the ultimate outcome of various legal proceedings will not materially affect the Company's financial position, results of operations, or cash flows[112] Item 1A. Risk Factors The risk factors associated with the company's business have not materially changed from those disclosed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2025 - The risk factors associated with the Company's business have not materially changed compared to those disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2025[113] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company did not repurchase any common stock during the fiscal quarter ended July 31, 2025. As of July 31, 2025, $7.19 million was available for repurchase under existing programs, subject to discretion and credit agreement limitations Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs | | :-------- | :------------------------------- | :--------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | May 2025 | — | $— | — | $7,190,210 | | June 2025 | — | $— | — | $7,190,210 | | July 2025 | — | $— | — | $7,190,210 | | Total | — | | — | | - As of July 31, 2025, $7.19 million was available for repurchase of shares by the Company under existing programs, subject to discretion and credit agreement limitations[114][115] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[116] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[117] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended July 31, 2025 - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the fiscal quarter ended July 31, 2025[118] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and SVP of Finance, and XBRL-related documents - The exhibits include certifications from the Chief Executive Officer and Senior Vice President, Finance, pursuant to the Securities Exchange Act and Sarbanes-Oxley Act, along with XBRL instance and taxonomy documents[119] SIGNATURES Signatures The report is signed by Bassey Yau, Senior Vice President — Finance (Principal Financial Officer), on behalf of Virco Mfg. Corporation, dated September 5, 2025 - The report was signed by Bassey Yau, Senior Vice President — Finance (Principal Financial Officer), on September 5, 2025[123]