Kewaunee Scientific Corp: Form 10-Q for the period ended Jul 31, 2024

The Company's 2024 Annual Report to Stockholders on Form 10-K contains management's discussion and analysis of the Company's financial condition and results of operations as of and for the fiscal year ended April 30, 2024. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 2024. The analysis of results of operations compares the three months ended July 31, 2024 with the comparable periods of the prior year.

Results of Operations

Sales for the quarter were $48,393,000, a decrease from sales of $49,839,000 in the comparable period of the prior year. Domestic sales for the quarter were $35,523,000, relatively flat when compared to sales of $35,420,000 in the comparable period of the prior year. International sales for the quarter were $12,870,000, down 10.7% when compared to sales of $14,419,000 in the comparable period of the prior year. International sales decreased when compared to the prior year period due to customer construction site delays in India which pushed out the timing of deliveries.

The Company's order backlog was $159.4 million at July 31, 2024, as compared to $140.8 million at July 31, 2023, and $155.6 million at April 30, 2024.

The gross profit margin for the three months ended July 31, 2024 was 25.8% of sales, as compared to 23.9% of sales in the comparable quarter of the prior year. The increase in gross profit margin percentage for the three months ended July 31, 2024 is primarily being generated from Domestic operations. Specifically, the increase is primarily driven by a favorable sales mix when compared to the prior year, which included installation services sold directly to end users that were completed at a loss for the Company.

Operating expenses for the three months ended July 31, 2024 were $9,913,000, or 20.5% of sales, as compared to $8,106,000, or 16.3% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended July 31, 2024 was primarily due to increases in SG&A wages, benefits, incentive and stock-based compensation of $713,000, consulting and professional fees of $836,000, international operating expenses of $295,000, corporate governance expenses of $33,000, and depreciation expense of $23,000, partially offset by decreases in bad debt expense of $114,000.

Interest expense, net was $472,000 for the three months ended July 31, 2024, respectively, as compared to $430,000 and respectively, for the comparable periods of the prior year. The changes in interest expense were due to changes in the levels of bank borrowings and interest rates.

Income tax expense of $192,000 and $897,000 was recorded for the three months ended July 31, 2024 and 2023, respectively. The effective income tax rate for the three months ended July 31, 2024 was 7.9%, as compared to 26.3% for the three months ended July 31, 2023. The effective tax rate for the current three-month periods reflects the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21%, combined with expected current year tax expense for the Company's domestic operations. In addition, the income tax expense recorded for the three months ended July 31, 2024 was favorably impacted by a discrete tax benefit of $421,000 resulting from the issuance of stock through the vesting of restricted stock units and the exercise of stock options during the quarter. See Note L, Income Taxes, of the Notes to Condensed Consolidated Financial Statements for additional information.

Non-controlling interests related to the Company's subsidiaries not 100% owned by the Company decreased net earnings by $45,000 for the three months ended July 31, 2024, as compared to $41,000, for the comparable periods of the prior year. The change in the net earnings attributable to the non-controlling interest in the current period was due to changes in earnings (losses) of the subsidiaries in the related period.

Net earnings was $2,193,000, or $0.74 per diluted share, for the three months ended July 31, 2024, compared to net earnings of $2,474,000, or $0.86 per diluted share, in the prior year period.

Liquidity and Capital Resources

Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our Revolving Credit Facility. Additionally, certain machinery and equipment are financed by non-cancellable operating and financing leases. The Company believes that these sources will be sufficient to support ongoing business requirements in the current fiscal year, including capital expenditures.

The Company had working capital of $56,012,000 at July 31, 2024, compared to $56,037,000 at April 30, 2024. The ratio of current assets to current liabilities was 2.5-to-1.0 at July 31, 2024, compared to 2.4-to-1.0 at April 30, 2024.

The Company used cash of $794,000 during the three months ended July 31, 2024, primarily from decreases in accounts payable and other accrued expenses of $5.1 million, and the change in other, net of $1.9 million, of which $1.7 million related to an increase in other non-current assets, partially offset by operations, decreases in receivables of $1.5 million and decreases in inventories of $1.4 million. During the three months ended July 31, 2024, the Company used net cash of $278,000 in investing activities, all of which was used for capital expenditures. The Company's financing activities provided cash of $343,000 during the three months ended July 31, 2024, primarily from a net increase in short-term borrowings by the Company's International subsidiaries. See Note F, Long-term Debt and Other Credit Arrangements, for more details.

Outlook

The Company's ability to predict future demand for its products continues to be limited given its role as subcontractor or supplier to dealers for subcontractors. Demand for the Company's products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under construction. The Company's earnings are also impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace and costs of raw materials, including steel, wood, and epoxy resin.

The Company continues to focus on supporting its dealers and distribution channel partners domestically while continuing to provide turnkey solutions in the international markets it serves. The improved focus of the organization, combined with a strong global management team, a healthy backlog, improved manufacturing capabilities, and end-use markets that continue to prioritize investment in projects that require the products Kewaunee designs and manufactures, positions the Company well.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Certain statements in this document constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All statements other than statements of historical fact included in this Annual Report, including statements regarding the Company's future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "predict," "believe" and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions, and other important factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to: competitive and general economic conditions, including disruptions from government mandates, both domestically and internationally, as well as supplier constraints and other supply disruptions; changes in customer demands; technological changes in our operations or in our industry; dependence on customers’ required delivery schedules; risks related to fluctuations in the Company’s operating results from quarter to quarter; risks related to international operations, including foreign currency fluctuations; changes in the legal and regulatory environment; changes in raw materials and commodity costs; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events. The cautionary statements made pursuant to the Reform Act herein and elsewhere by us should not be construed as exhaustive. We cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. Over time, our actual results, performance, or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and harmful to our stockholders' interest. Many important factors that could cause such differences are described under the caption "Risk Factors" in Item 1A in the Company's 2024 Annual Report on Form 10-K and in Item 1A of Part II in this Quarterly Report on Form 10-Q, which you should review carefully. These forward-looking statements speak only as of the date of this document. The Company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

There are no material changes to the disclosures made on this matter in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2024.

(a) Evaluation of disclosure controls and procedures

An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of July 31, 2024. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that, as of July 31, 2024, the Company's disclosure controls and procedures were adequate and effective and designed to ensure that all material information required to be filed in this quarterly report is made known to them by others within the Company and its subsidiaries.

(b) Changes in internal controls

There was no significant change in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the Company's 2024 Annual Report on Form 10-K under the heading "Risk Factors," any one or more of which could, directly or indirectly, cause the Company's actual financial condition and operating results to vary materially from its past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company's business, financial condition, operating results and stock price. There have been no material changes to the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended April 30, 2024 as filed with the SEC on June 28, 2024 beyond those set forth below.