# Virco MFG Corporation: Form 10-Q for the period ended Apr 30, 2020

- Company: [Virco MFG Corporation](/companies/virc.md) (CIK 751365)
- Form: 10-Q
- Filed: 2020-06-12
- Accepted by EDGAR: Jun 12, 2020, 14:24 ET
- Period: 2020-04-30
- Accession: 0001628280-20-009322
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/751365/000162828020009322/virc-20200430x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/751365/000162828020009322/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-04-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-02-01 to 2020-04-30 | $17.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2020-02-01 to 2020-04-30 | $4.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2020-02-01 to 2020-04-30 | $11.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-02-01 to 2020-04-30 | −$7.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-02-01 to 2020-04-30 | $404.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-02-01 to 2020-04-30 | −$3.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-02-01 to 2020-04-30 | −$4.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-02-01 to 2020-04-30 | −$0.30 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-02-01 to 2020-04-30 | −$0.30 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-02-01 to 2020-04-30 | 15,654,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-02-01 to 2020-04-30 | −$9.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-02-01 to 2020-04-30 | $488.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2020-02-01 to 2020-04-30 | $0 | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2020-04-30 | $327.0k | us-gaap:Cash |
| Current assets | at 2020-04-30 | $69.0m | us-gaap:AssetsCurrent |
| Total assets | at 2020-04-30 | $151.5m | us-gaap:Assets |
| Current liabilities | at 2020-04-30 | $42.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2020-04-30 | $15.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-04-30 | $10.6m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2020-04-30 | $50.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 11,111 characters.

### Results of Operations

### Three Months Ended April 30, 2020

Results of operations for the three months ended April 30, 2020 have been significantly impacted by economic conditions driven by the COVID-19 epidemic. The majority of our primary customers, the K-12 public school systems, closed school campuses and initiated remote learning on or about March 15, 2020. Subsequent to that date there have been significant impacts on the Companies business operations. Selling activities have been significantly impacted. Our direct sales force, one of the Companies distinct competitive advantages, have been unable to make in person sales calls and has been required to call on customers using telephonic or other electronic methods. Our primary customers, educators and district business officials are typically working remotely. Orders of furniture were impacted, but the severity of the impact varied by funding source. Transactional orders, which are typically smaller, sometimes made through internet and other resellers, and are frequently for more immediate delivery, fell sharply. Project orders; typically larger, frequently requiring project management and full-service, characterized by a longer selling process - typically months in advance of the order - remained strong. Funding sources for project orders are frequently bond funded, precluding funding from being diverted to alternative expenditures. Delivery of furniture to customers has been adversely impacted. Customers deferred deliveries of furniture during the initial school closures. This caused a reduction in first quarter shipments, but because orders were stable, our backlog of orders at April 30, 2020 was approximately $8,324,000 greater than the prior year.

The current condition of the K-12 education market is one of significant disruption. The vast majority of schools closed on or about March 15, 2020. The vast majority of schools are remaining closed for the balance of the school year, with the current academic year being completed remotely. Public schools are expected to begin the next school year under normal or slightly accelerated schedules, but the balance of on-site versus remote learning has not been determined. The Company’s business has been intensely seasonal, but the seasonal curve has been extremely stable for many years. The current COVID-19 affected conditions are having an impact on the seasonal nature of our business, and also on the competitive landscape of suppliers of furniture for schools. The Company is operating both manufacturing and distribution facilities, utilizing all reasonable methods to protect the health of our employees. Activity levels in the facilities has been moderated to reflect the level of business activity. At this time, the Company has not incurred significant disruptions in its supply chain that had a material impact on operations. The Company believes that some competitors may fail to successfully deliver furniture to customers this summer. Resellers of furniture may be less likely to commit to large inventories of unsold furniture sourced from China. The China supply chain is more challenged than in prior years, both by these uncertain times as well as the impact of tariffs imposed in recent years. Management believes that while the market for school furniture may decline in the fiscal year ending January 31, 2021, there are meaningful opportunities to take market share without having to do so through pricing tactics.

For the three months ended April 30, 2020, the Company incurred a pre-tax loss of $7,973,000 on net sales of $17,599,000 compared to a pre-tax loss of $4,485,000 on net sales of $26,893,000 in the same period in 2019. Net sales for the three months ended April 30, 2020 decreased by $9,294,000, a 34.6% decrease, compared to the same period last year. Net sales decreased largely due to the impact of COVID-19 as described above. The decrease in sales was substantially all volume related with the volume decline very slightly offset by an increase in selling prices.

Order rates for the first quarter decreased by approximately 2.1% compared to the prior year period. Because orders declined slightly while deliveries were delayed due to COVID-19, order backlog at April 30, 2020 increased by approximately 21.2%. Backlog at April 30, 2020 was $47,578,000 compared to $39,254,000 at April 30, 2019.

Gross margin for the three months ended April 30, 2020 decreased as a percentage of sales to 27.9% in the current quarter compared to 33.8% in the prior quarter. Last year the Company reduced the level of standard product produced to inventory for summer delivery and prioritized product targeted to specific customer project orders. This tactic enabled the Company to achieve improved levels of on-time delivery and customer satisfaction during the summer in the prior year. For the current year, the Company is more aggressively pursuing the same tactic. Production and the related investment in inventory were delayed to receipt of specific orders, and production of standard product, which more often supplies transactional orders, was reduced. Our production strategy combined with a cautious approach to building inventory in this current economic environment caused factory production levels to decline by approximately 20% for the first quarter of fiscal 2021 compared to the prior year. The reduced production levels adversely impacted factory efficiency.

Selling, general and administrative expenses decreased by approximately $750,000 compared to the prior year but increased as a percentage of sales. The decrease in spending is attributable to variable selling and service costs.

Interest expense decreased for the quarter ended April 30, 2020 compared to the same period last year. The Company has borrowed less money to finance accounts receivable and production of inventory in anticipation of increased summer shipping activity.

Income tax benefit for the quarter ended April 30, 2020 increased compared to the prior year. The effective tax rate for the first quarter of 2021 was 41.1% compared to 31.6% for the same period last year.

### Liquidity and Capital Resources

The impact of COVID-19 on liquidity has been to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery. Both the increase in accounts receivable and inventory are traditionally financed through the Company’s line of credit with PNC Bank. Reductions in receivables and inventory were substantially offset by a reduction in borrowing under the line. Net cash used in operating activities for the three months ended April 30, 2020 was $9,887,000 compared to $18,286,000 for the same period last year. The reduction was attributable to reduced inventory and accounts receivable in addition to an increase in accounts payable

Accounts receivable were lower at April 30, 2020 than at April 30, 2019 due to decreased sales during the quarter. Due to the seasonal nature of our business, the Company traditionally builds large quantities of inventory during the first quarter of each fiscal year in anticipation of seasonally high summer shipments. During the first quarter ended April 30, 2020, the Company increased inventory by approximately $14.9 million compared to January 31, 2020, approximately $1.4 million less than what was added in the first quarter of the prior year. Because the Company started the year with less inventory, and produced less, inventory levels at April 30, 2020 were approximately $5.3 million less than at the same date last year. The increase in inventory during the first quarter of this year was financed through the Company's credit facility with PNC Bank, National Association ("PNC").

Borrowing under the Company's revolving line of credit with PNC at April 30, 2020 is approximately $13.6 million lower compared to the same quarter last year. The decrease in borrowing is primarily attributable to decreased accounts receivable and decreased levels of inventory. Accrual basis capital expenditures were $922,000 for the three months ended April 30, 2020 compared to $884,000 for the same period last year. Capital expenditures are being financed through the Company's credit facility with PNC.

The Company believes that cash flows from operations, together with the Company's unused borrowing capacity under its revolving line of credit with PNC will be sufficient to fund the Company's debt service requirements, capital expenditures and working capital needs for at least the next twelve months and that it will be in compliance with debt covenants during that same period. However, we are not able to estimate the full impact of the COVID-19 outbreak on our financial condition and results of operations given the inherent uncertainty as to when the COVID-19 pandemic will end, and businesses and schools will begin operations. Approximately $12,343,000 was available for borrowing as of April 30, 2020.

### Off Balance Sheet Arrangements

None.

### Critical Accounting Policies and Estimates

The Company's critical accounting policies are outlined in its Annual Report on Form 10-K for the fiscal year ended January 31, 2020. There have been no significant changes in the quarter ended April 30, 2020. New Accounting Pronouncements in the Notes to unaudited Condensed Consolidated Financial Statements in Item 1 to this Quarterly Report on Form 10-Q.

### Forward-Looking Statements

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2020, 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, especially steel, 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, 2020 under the caption "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.

## Market risk

As filed, 192 characters.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act as of our second quarter of fiscal 2020 and are not required to provide the information under this item.

## Controls and procedures

As filed, 2,527 characters.

### Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of April 30, 2020. Based upon the foregoing, the Company's Principal Executive Officer along with the Company's Principal Financial Officer concluded that the Company's disclosure controls and procedures as of such date were effective to ensure that the information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Company management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Company management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

### Changes in Internal Control Over Financial Reporting

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures. Based upon the foregoing, the Company's Principal Executive Officer along with the Company's Principal Financial Officer concluded that the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

There have been no changes in the Company's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

## Risk factors

As filed, 431 characters.

You should carefully consider and evaluate the information in this Quarterly Report and the risk factors set forth under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 (the “Form 10-K”), which was filed with the SEC on April 30, 2020. The risk factors associated with our business have not materially changed compared to the risk factors disclosed in the Form 10-K.

Filed Jun 12, 2020.
Source: SEC EDGAR, the filing index for accession 0001628280-20-009322. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.