Virco Manufacturing Corporation
09/04/2026 | Press release | Distributed by Public on 09/04/2026 11:07
Quarterly Report for Quarter Ending July 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Overview
The Company's core market for education furniture, fixtures and equipment ("FF&E") is marked by extreme seasonality. Typically, the Company recognizes approximately 50% of its total annual revenue in the months of June, July, and August. Incoming orders follow a similar cycle, with the bulk of orders arriving approximately 4-6 weeks preceding the summer delivery season.
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 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. 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, 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. 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. 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 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"). 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 exceeded the President's authority. Subsequently, in March 2026, the U.S. Court of International Trade ("CIT") issued orders directing U.S. 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 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. 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 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 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 $0.7 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 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. 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 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
The market for education furniture is extremely seasonal and approximately 50% of the Company's annual sales volume is shipped in the months of June through August of each year. The Company traditionally manufactures large quantities of inventory during the first and second quarters of each fiscal year in anticipation of seasonally high summer shipments. In addition, the Company finances a large balance of accounts receivable during the peak season.
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 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.
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. This decision was part of the Company's ongoing efforts to reduce benefit obligations and ongoing administrative costs. 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.
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. 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 July 31, 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.
Off Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
The Company's critical accounting policies and estimates are outlined in its Annual Report on Form 10-K for the fiscal year ended January 31, 2026.
Forward-Looking Statements
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"). The words or phrases "anticipates," "expects," "will continue," "believes," "estimates," "projects," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 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 "Item 1A. Risk Factors".
The Company's forward-looking statements represent its judgment only on the dates such statements were made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or unanticipated events or circumstances.
Virco Manufacturing Corporation published this content on September 04, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on September 04, 2026 at 17:07 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]