Virco Mfg Corporation 10-Q for FY2025 Q3
Virco Mfg Corporation (VIRC)
10-Q
2024-12-09
For: 2024-10-31
View Original
Added on
April 11, 2026
About this 10-Q
Virco Mfg Corporation filed this 10-Q on December 9, 2024, covering the quarter ended October 31, 2024 (FY2025 Q3).
Headline figures
Quarter ended October 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $82.62M
- down 1.9% from $84.25M a year earlier
- Net income
- $8.4M
- down 17.3% from net income of $10.16M a year earlier
- Diluted EPS
- $0.52
- down 16.1% from $0.62 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM | ||
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended October 31, 2024
OR
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the transition period from to
Commission File number 1-8777
(Exact Name of Registrant as Specified in its Charter) | ||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant’s Telephone Number, Including Area Code: (310 ) 533-0474
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
| ý | Smaller reporting company | |||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The number of shares outstanding for each of the registrant’s classes of common stock, as of the latest practicable date:
Common Stock, $.01 par value — 16,289,406 shares as of November 30, 2024.
TABLE OF CONTENTS
| Item 3. Defaults Upon Senior Securities | ||||||||
| Item 4. Mine Safety Disclosures | ||||||||
| Item 5. Other Information | ||||||||
2
PART I. Financial Information
Item 1. Financial Statements
Virco Mfg. Corporation
Unaudited Condensed Consolidated Balance Sheets
| 10/31/2024 | 1/31/2024 | 10/31/2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash | $ | $ | $ | ||||||||||||||
| Trade accounts receivables, net | |||||||||||||||||
| Inventories | |||||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Non-current assets | |||||||||||||||||
| Property, plant and equipment | |||||||||||||||||
| Land | |||||||||||||||||
| Land improvements | |||||||||||||||||
| Buildings and building improvements | |||||||||||||||||
| Machinery and equipment | |||||||||||||||||
| Leasehold improvements | |||||||||||||||||
| Total property, plant and equipment | |||||||||||||||||
| Less accumulated depreciation and amortization | |||||||||||||||||
| Net property, plant and equipment | |||||||||||||||||
| Operating lease right-of-use assets | |||||||||||||||||
| Deferred tax assets, net | |||||||||||||||||
| Other assets, net | |||||||||||||||||
| Total assets | $ | $ | $ | ||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
Virco Mfg. Corporation
Unaudited Condensed Consolidated Balance Sheets
| 10/31/2024 | 1/31/2024 | 10/31/2023 | |||||||||||||||
| (In thousands, except share and par value data) | |||||||||||||||||
| Liabilities | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | $ | $ | $ | ||||||||||||||
| Accrued compensation and employee benefits | |||||||||||||||||
| Income tax payable | |||||||||||||||||
| Current portion of long-term debt | |||||||||||||||||
| Current portion of operating lease liability | |||||||||||||||||
| Other accrued liabilities | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Non-current liabilities | |||||||||||||||||
| Accrued self-insurance retention | |||||||||||||||||
| Accrued pension expenses | |||||||||||||||||
| Income tax payable, less current portion | |||||||||||||||||
| Long-term debt, less current portion | |||||||||||||||||
| Operating lease liability, less current portion | |||||||||||||||||
| Other long-term liabilities | |||||||||||||||||
| Total non-current liabilities | |||||||||||||||||
| Commitments and contingencies (Notes 6, 7 and 13) | |||||||||||||||||
| Stockholders’ equity | |||||||||||||||||
| Preferred stock: | |||||||||||||||||
Authorized | |||||||||||||||||
| Common stock: | |||||||||||||||||
Authorized | |||||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Accumulated deficit | ( | ( | ( | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ( | ||||||||||||||
| Total stockholders’ equity | |||||||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | $ | ||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
Virco Mfg. Corporation
Unaudited Condensed Consolidated Statements of Income
| Three months ended | |||||||||||
| 10/31/2024 | 10/31/2023 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Net sales | $ | $ | |||||||||
| Costs of goods sold | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Operating income | |||||||||||
| Unrealized (gain) loss on investment in trust account | ( | ||||||||||
| Pension expense | |||||||||||
| Interest (income) expense, net | ( | ||||||||||
| Income before income taxes | |||||||||||
| Income tax expense | |||||||||||
| Net income | $ | $ | |||||||||
| Cash dividends declared per common share: | $ | $ | |||||||||
| Net income per common share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average shares of common stock outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
Virco Mfg. Corporation
Unaudited Condensed Consolidated Statements of Income
| Nine months ended | |||||||||||
| 10/31/2024 | 10/31/2023 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Net sales | $ | $ | |||||||||
| Costs of goods sold | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Operating income | |||||||||||
| Unrealized gain on investment in trust account | ( | ( | |||||||||
| Pension expense | |||||||||||
| Interest expense | |||||||||||
| Income before income taxes | |||||||||||
| Income tax expense | |||||||||||
| Net income | $ | $ | |||||||||
| Cash dividends declared per common share: | $ | $ | |||||||||
| Net income per common share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average shares of common stock outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
Virco Mfg. Corporation
Unaudited Condensed Consolidated Statements of Comprehensive Income
| Three months ended | |||||||||||
| 10/31/2024 | 10/31/2023 | ||||||||||
| (In thousands) | |||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income: | |||||||||||
Pension adjustments (net of tax adjustment of $( | ( | ||||||||||
| Net comprehensive income | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
Virco Mfg. Corporation
Unaudited Condensed Consolidated Statements of Comprehensive Income
| Nine months ended | |||||||||||
| 10/31/2024 | 10/31/2023 | ||||||||||
| (In thousands) | |||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income: | |||||||||||
Pension adjustments (net of tax adjustment of $( | ( | ||||||||||
| Net comprehensive income | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
8
Virco Mfg. Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
| Nine months ended | |||||||||||
| 10/31/2024 | 10/31/2023 | ||||||||||
| (In thousands) | |||||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Non-cash lease expense (benefits) | ( | ||||||||||
| Provision for credit losses | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Deferred income taxes | |||||||||||
| Stock-based compensation | |||||||||||
| Defined pension plan settlement | |||||||||||
| Amortization of net actuarial gain (loss) for pension plans | ( | ||||||||||
| Non-cash unrealized gain on investment | ( | ( | |||||||||
| Surrender of life insurance policies | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable | ( | ( | |||||||||
| Other receivables | ( | ||||||||||
| Inventories | |||||||||||
| Income taxes | |||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Purchases of marketable securities in trust accounts | ( | ||||||||||
| Proceeds from sale of fixed assets | |||||||||||
| Proceeds from sale of marketable securities in trust accounts | |||||||||||
| Proceeds from surrendering life insurance policies | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Borrowing from long-term debt | |||||||||||
| Repayment of long-term debt | ( | ( | |||||||||
| Common stock repurchased | ( | ||||||||||
| Tax withholding payments on share-based compensation | ( | ( | |||||||||
| Payment of deferred financing costs | ( | ( | |||||||||
| Cash dividends paid | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase in cash | |||||||||||
| Cash at beginning of period | |||||||||||
| Cash at end of period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Property, plant and equipment acquired and not yet paid at end of period | $ | $ | |||||||||
| Cash paid during the period for interest, net of interest income | $ | $ | |||||||||
| Cash paid during the period for income taxes, net of refunds | $ | $ | |||||||||
| Noncash investment in right-of-use assets in exchange for a lease liability | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
9
Virco Mfg. Corporation
Unaudited Consolidated Statements of Changes in Stockholders' Equity
| Three-Month Period Ended October 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| In thousands, except share data | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholder's Equity | ||||||||||||||||||||||||||||||||
| Balance at July 31, 2024 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Cash dividends | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Pension adjustments | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Shares vested and others | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock repurchase | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2024 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Three-Month Period Ended October 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| In thousands, except share data | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholder's Equity | ||||||||||||||||||||||||||||||||
| Balance at July 31, 2023 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Pension adjustments | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares vested and others | — | — | ||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock repurchase | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2023 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Nine-Month Period Ended October 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| In thousands, except share data | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholder's Equity | ||||||||||||||||||||||||||||||||
| Balance at January 31, 2024 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Cash dividends | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Pension adjustments | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Shares vested and others | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock repurchase | ( | ( | ( | $ | — | — | ( | |||||||||||||||||||||||||||||||
| Balance at October 31, 2024 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
10
| Nine-Month Period Ended October 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| In thousands, except share data | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholder's Equity | ||||||||||||||||||||||||||||||||
| Balance at January 31, 2023 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Cash dividends | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Pension adjustments | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares vested and others | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock repurchase | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2023 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
11
VIRCO MFG. CORPORATION
Notes to unaudited Condensed Consolidated Financial Statements
October 31, 2024
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2024 (“Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended October 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2025. The balance sheet at January 31, 2024 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All references to the “Company”, “we” and “our” refer to Virco Mfg. Corporation and its subsidiaries.
Note 2. Seasonality and Management Use of Estimates
The market for educational furniture is marked by extreme seasonality, with approximately 50 % of the Company’s total sales typically occurring from June to August each year, the Company’s peak season. Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market. This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months. As the capital required for this build-up generally exceeds cash available from operations, the Company has generally relied on third-party bank financing to meet cash flow requirements during the build-up period immediately preceding the peak season. In addition, the Company typically is faced with an overall higher accounts receivable balance during the peak season. This occurs for two primary reasons. First, accounts receivable balances typically increase during the peak season as shipments of products increase. Second, many customers during this period are educational institutions and government entities, which tend to pay accounts receivable slower than commercial customers.
Note 3. Recently Issued Accounting Standards
ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. In November 2024, the FASB issued this ASU which requires a public entity to disclose additional information about specific expense categories in the notes to financial statements on an annual and interim basis. The amendments are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. A public entity should apply the amendments either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact that this guidance will have on our consolidated financial statements and disclosures.
Accounting Standards Updates ("ASUs") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued this ASU to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We do not expect that this guidance will have a material impact on our consolidated financial statements and disclosures.
12
ASU 2023-09, Income Taxes (Topic 740): Improvements to Tax Disclosures. In December 2023, the FASB issued this ASU which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. We do not expect that this guidance will have a material impact on our consolidated financial statements and disclosures.
The Company evaluates all ASUs issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability to our condensed consolidated financial statements. We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.
Note 4. Revenue Recognition
The Company manufactures, markets and distributes a wide variety of school and office furniture to wholesalers, distributors, educational institutions and governmental entities. Revenue is recorded for promised goods or services when control is transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.
The Company's sales generally involve a single performance obligation to deliver goods pursuant to customer purchase orders. Prices for our products are based on published price lists and customer agreements. The Company has determined that the performance obligations are satisfied at a point in time when the Company completes delivery per the customer contract. The majority of sales are free on board ("FOB") destination where the destination is specified per the customer contract and may include delivering the furniture into the classroom, school site or warehouse. Sales of furniture that are sold FOB factory are typically made to resellers of our product who in turn provide logistics to the ultimate customer. Once a product has been delivered per the shipping terms, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset. The Company considers control to have transferred upon shipment or delivery in accordance with shipping terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.
Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. The Company offers sales incentives and discounts through various regional and national programs to our customers. These programs include product rebates, product returns allowances and trade promotions. Variable consideration for these programs is estimated in the transaction price at contract inception based on current sales levels and historical experience using the expected value method, subject to constraint.
The Company generates revenue primarily by manufacturing and distributing products through resellers and direct-to-customers. Control transfers to both resellers and direct customers at a point in time when the delivery process is complete as determined by the corresponding shipping terms. Therefore, we do not consider them to be meaningfully different revenue streams given similarities in the nature of the products, performance obligation and distribution processes. Sales are predominately in the United States and to a similar class of customer. We do not manage or evaluate the business based on product line or any other discernable category.
Note 5. Inventories
Inventory is valued at the lower of cost or net realizable value (determined on a first-in, first-out basis (“FIFO”) and includes material, labor, and factory overhead. The Company records valuation adjustments for the excess cost of the inventory over its estimated net realizable value. Valuation adjustments for slow-moving and obsolete inventory involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company's financial condition or results of operations. Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and consideration of active marketing programs. The market for educational furniture is traditionally driven by value, not style, and the Company has not typically incurred material obsolescence expenses. If market conditions are less favorable than those anticipated by management, additional valuation adjustments may be required. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.
The following table presents a breakdown of the Company’s inventories as of October 31, 2024, January 31, 2024 and October 31, 2023:
13
| 10/31/2024 | 1/31/2024 | 10/31/2023 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Finished goods | $ | $ | $ | |||||||||||||||||
| Work in process | ||||||||||||||||||||
| Raw materials | ||||||||||||||||||||
| Total inventories | $ | $ | $ | |||||||||||||||||
Note 6. Leases
The Company has operating leases on real property, equipment, and automobiles, expiring at various dates through the fiscal year 2031. The Company determines if an arrangement is a lease at inception and assesses classification of the lease at commencement. The Company's lease terms include options to extend or terminate the lease only when it is reasonably certain that we exercise that option. All of the Company’s leases are classified as operating leases. The Company uses the implicit rate when readily determinable, or the incremental borrowing rate. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments using Company specific credit spreads. The Company’s lease terms include options to extend or terminate the lease only when it is reasonably certain that we will exercise that option. Lease expense for our operating leases is recognized on a straight-line basis over the lease term.
The Company has an operating lease for its corporate office and manufacturing and distribution facility located in Torrance, California, currently with a remaining lease term through September 2030. The Company leases equipment under a 5-year operating lease arrangement. The Company has the option of buying the assets at the end of the lease period at a price that does not result in the Company being reasonably certain of exercising the option. In addition, the Company leases trucks and automobiles under operating leases that include certain fleet management and maintenance services. Certain of the leases contain renewal or purchase options and require payment for property taxes and insurance. The Company records lease expense on a straight-line basis based on the contractual lease payments. The Company recognizes the present value of the future lease commitments as an operating lease liability, and a corresponding right-of-use asset (“ROU asset”), net of tenant allowances. Tenant improvements and related tenant allowances are recorded as a reduction to the ROU asset. The Company elected to account for leases with an original term of 12 months or less that do not contain a purchase option as short-term leases. Additionally, certain of the leases provide for variable payment for property taxes, insurance, and common area maintenance payments, among others. The Company recognizes variable lease expenses for these leases in the period incurred. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The quantitative information regarding our leases is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 10/31/2024 | 10/31/2023 | 10/31/2024 | 10/31/2023 | ||||||||||||||||||||
| (In thousands, except lease term and discount rate) | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Other operating leases information: | |||||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | |||||||||||||||||||||
| Right-of-use assets obtained in exchange for new lease liabilities (a) | $ | $ | |||||||||||||||||||||
| Weighted-average remaining lease term (years) | |||||||||||||||||||||||
| Weighted-average discount rate | % | % | |||||||||||||||||||||
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Minimum future lease payments for operating leases in effect as of October 31, 2024, are as follows:
| Operating Lease | |||||
| For the year ending January 31, | (In thousands) | ||||
| Remaining of 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Remaining balance of lease payments | |||||
| Short-term lease liabilities | |||||
| Long-term lease liabilities | |||||
| Total lease liabilities | |||||
| Difference between undiscounted cash flows and discounted cash flows | $ | ||||
(a) On July 23, 2024, the Company entered into a new lease agreement (the “Lease”) with Starboard Distribution Center, LLC which extends the Company’s tenancy at its 560,000 sq. ft. office, manufacturing and warehouse facility in Torrance, California. The Lease extends the tenancy for 65 months, covering the period from May 1, 2025 through September 30, 2030. Under the Lease, the monthly base rent will be abated for the initial 5-month period from May 1, 2025 to September 30, 2025, then is set at $726,700 for October 1, 2025 through April 30, 2026, with subsequent increases of 3.5 % every 12 months thereafter. The Lease also provides for a tenant improvement allowance of up to $1.7 million to be used by December 31, 2026. The Landlord has the right to terminate the Lease upon customary events of default. In connection with this lease agreement, in the second quarter ended July 31, 2024, the Company recorded approximately $33.0
Note 7. Debt
Outstanding balances for the Company’s long-term debt were as follows:
| 10/31/2024 | 1/31/2024 | 10/31/2023 | |||||||||||||||
(In thousands) | |||||||||||||||||
| Revolving credit line | $ | $ | $ | ||||||||||||||
| Other | |||||||||||||||||
| Total debt | |||||||||||||||||
| Less current portion | |||||||||||||||||
| Non-current portion | $ | $ | $ | ||||||||||||||
The Company and Virco Inc., its wholly-owned subsidiary (collectively, the “Borrowers”) have a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”). The Credit Agreement was amended numerous times since its origination in December 2011, most recently on November 22, 2024.
The Credit Agreement as currently in effect permits the Company to issue cash dividends or make payments with respect to the Company’s capital stock in an aggregate amount up to $5.0 million during any fiscal year, provided that no default shall have occurred or is continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month trailing fixed charge coverage ratio of not less than 1.20 :1.00 as of the fiscal quarter immediately preceding the date of any such dividend or payment. The Credit Agreement also requires the Company to maintain a minimum fixed charge
15
coverage ratio, and contains numerous other covenants that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, sell assets outside of the ordinary course of business, enter into transactions with affiliates, or substantially change the general nature of the business of the Borrowers.
In addition to the financial covenants, the Credit Agreement provides for customary events of default, subject to certain cure periods and other limitations. Substantially all of the Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Credit Agreement upon receipt by the Borrowers. Due to this automatic liquidating nature of the Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion.
The other material terms of the Credit Agreement as currently in effect include the following: (i) a revolving line of credit with a Maximum Revolving Advance Amount of $60.0 million (increasing to $70.0 million during the months of June
through August 2024) that is subject to a borrowing base limitation and generally provides for advances of up to 85 % of eligible accounts receivable, plus a percentage equal to the lesser of 60 % of the value of eligible inventory or 85 % of the liquidation value of eligible inventory, plus $15.0 million from January through July of each year, minus undrawn amounts of letters of credit and reserves; (ii) inventory sublimit of $35.0 million and assemble-to-ship (ATS) inventory sublimit of $15.0 million during the months of May through August 2024; and (iii) an equipment loan of $2.0 million. The Credit Agreement is secured by substantially all of the Borrowers’ personal property and certain of the Borrowers’ real property. The Credit Agreement is subject to certain prepayment penalties upon early termination of the Credit Agreement. Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions, including reduced borrowings under the revolving line to less than or equal $10.0 million for a period of 30 consecutive days during the fourth quarter of each fiscal year. The Credit Agreement also contains certain financial covenants, including covenants requiring a minimum fixed charge coverage ratio and limits on capital expenditures. The Company was in compliance with its debt covenants as of October 31, 2024.
The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season. Approximately $18.7 million was available for borrowing as of October 31, 2024. The interest rate is determined as a sum of the applicable margin rate, which is 3.00 % from January through July and 2.50 % from August through December, plus the Secured Overnight Financing Rate (SOFR). The Company did not have an outstanding amount under the Credit Agreement as of October 31, 2024. The Company also incurred a fee on the unused portion of the revolving line of credit at a rate of 0.375 % through September 30, 2024 and 0.250 % thereafter.
On November 22, 2024, the Company entered into Amendment No. 5 to Amended and Restated Revolving Credit and Security Agreement (“Amendment No. 5”) with PNC, with an effective date of October 1, 2024. Amendment No. 5 amended the Credit Agreement and the secured revolving line of credit provided to the Company by PNC to reflect the following material changes:
i.Reduced the facility fee on the unused portion of the revolving line of credit to 0.250 % from 0.375 % per annum, commencing October 1, 2024;
ii.Increased limits on permitted acquisitions (as defined in the Credit Agreement) from $5 million to $8 million during the term of the Credit Agreement;
iii.Increased limits on cash dividends and common stock repurchase payments from $5 million to $8 million in the aggregate during any fiscal year.
The Company also carries a mortgage on its manufacturing building in Conway, Arkansas. The original note was dated August 2017 with a principal balance of $5.8 million, at a fixed rate of 4.0 % per year and 20 -year term. The outstanding amount under this note was $4.2 million as of October 31, 2024.
On April 29, 2024, the Company entered into Amendment No. 4 to the Credit Agreement ("Amendment No. 4") with PNC. Amendment No.4 amended the Credit Agreement to reflect the following material changes:
i.Maximum size of the PNC line of credit was lowered from $72.5 million to $70.0 million during the months of June through August, and
ii.Maximum amount allowed for the Company to issue dividends or repurchase stock has been increased from $3.0 million to $5.0 million in the aggregate during any fiscal year.
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Management believes that the carrying value of debt approximated fair value at October 31, 2024, as all of the long-term debt bears interest at variable rates based on prevailing market conditions, except mortgage on a manufacturing building in Conway Arkansas at a fixed rate of 4.0 % per year.
Note 8. Income Taxes
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carrybacks, tax-planning strategies, and results of recent operations, to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets. Valuation allowances of $218,000 , $251,000 and $255,000 as of October 31, 2024, January 31, 2024 and October 31, 2023, respectively, are needed for federal deferred tax assets and certain state net operating loss carryforwards to reduce the carrying amount of deferred tax assets to an amount that is more likely than not to be realized. The net change in the valuation allowance for the three months and nine months ended October 31, 2024 was $0 and a decrease of $33,000 , respectively. The net change in the valuation allowance for the three months and nine months ended October 31, 2023 was a decrease of $135,000 and a decrease of $609,000 , respectively.
For the three months ended October 31, 2024 and 2023, the effective income tax rates were 25.5 % and 24.5 %, respectively. For the nine months ended October 31, 2024 and 2023, the effective income tax rates were 24.4 % and 24.0 %, respectively. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes.
Note 9. Net Income per Share
The following table sets forth the computation of basic and diluted net income per share:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 10/31/2024 | 10/31/2023 | 10/31/2024 | 10/31/2023 | ||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares of common stock outstanding - basic | |||||||||||||||||||||||
| Dilutive effect of common stock equivalents from equity incentive plans | |||||||||||||||||||||||
| Weighted average shares of common stock outstanding - diluted | |||||||||||||||||||||||
| Net income per share - basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share - diluted | $ | $ | $ | $ | |||||||||||||||||||
Note 10. Stock-Based Compensation
Stock Incentive Plan
Under the Company's 2019 Omnibus Equity Incentive Plan (the “2019 Plan”), the Company may grant an aggregate of up to 1,000,000 shares to its employees and non-employee directors in the form of restricted stock units, restricted stock awards and stock options. Restricted stock units and awards granted under the 2019 Plan are expensed ratably over the vesting period of the units and awards. The Company determines the fair value of its restricted stock units or awards and related compensation expense as the difference between the market value of the units or awards on the date of grant less the exercise price of the units or awards granted. During the nine-month period ended October 31, 2024, the Company granted 16,066
17
The following table summarizes the stock-based compensation expense related to restricted stock units and awards recognized in the Company's statements of operations for the three and nine months ended October 31, 2024 and 2023:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 10/31/2024 | 10/31/2023 | 10/31/2024 | 10/31/2023 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Cost of goods sold | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
As of October 31, 2024, there was $146,000 of unrecognized compensation expense related to unvested restricted stock units and/or awards, which is expected to be recognized over a weighted average period of approximately one year .
Note 11. Retirement Plans
The Company and its subsidiaries cover certain employees under a noncontributory defined benefit retirement plan, entitled the Virco Employees’ Retirement Plan (the “Pension Plan”). As more fully described in the Annual Report on Form 10-K, benefit accruals under the Employees Retirement Plan were frozen effective December 31, 2003. There is no service cost incurred under the Pension Plan.
The Company also provides a supplementary retirement plan for certain key employees, the VIP Retirement Plan (the “VIP Plan”). As more fully described in the Annual Report on Form 10-K for the year ended January 31, 2024, benefit accruals under the VIP Plan were frozen since December 31, 2003. There is no service cost incurred under the VIP Plan.
The following table summarizes the net periodic pension cost for the Pension Plan and the VIP Plan for the three and nine months ended October 31, 2024 and 2023:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 10/31/2024 | 10/31/2023 | 10/31/2024 | 10/31/2023 | ||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Plan settlement | |||||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||
| Recognized net actuarial (gain) loss | ( | ( | |||||||||||||||||||||
| Benefit cost | $ | $ | $ | $ | |||||||||||||||||||
401(k) Retirement Plan
The Company’s retirement plan, which covers all U.S. employees, allows participants to defer from 1 % to 75 % of their eligible compensation through a 401(k) retirement program. The plan includes Virco stock as one of the investment options. At October 31, 2024 and 2023, the plan held 1,105,376 shares and 1,404,774 shares of Virco stock, respectively. For the three months ended October 31, 2024 and 2023, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $387,000 and $356,000 respectively. For the nine months ended October 31, 2024 and 2023, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $1,165,000 and $1,078,000 respectively.
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Note 12. Warranty Accrual
Effective February 1, 2014, the Company modified its warranty to a limited lifetime warranty. The warranty was effective February 1, 2014, and is not anticipated to have a significant effect on warranty expense. Effective January 1, 2017, the Company modified the standard warranty offered on products sold after January 1, 2017 to provide specific warranty periods by product component, with no warranty period longer than ten years . The Company’s warranty is not a guarantee of service life, which depends upon events outside the Company’s control and may be different from the warranty period. The Company accrues an estimate of its exposure to warranty claims based upon both product sales data and an analysis of actual warranty claims incurred.
The following is a summary of the Company’s warranty-claim activity for the three and nine months ended October 31, 2024 and 2023:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 10/31/2024 | 10/31/2023 | 10/31/2024 | 10/31/2023 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Provision | |||||||||||||||||||||||
| Costs incurred | ( | ( | ( | ( | |||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||
Note 13. Contingencies
The Company has a self-insured retention for product losses up to $250,000 per occurrence, workers’ compensation liability losses up to $250,000 per occurrence, general liability losses up to $50,000 per occurrence and automobile liability losses up to $50,000 per occurrence. The Company has purchased insurance to cover losses in excess of the self-insurance retention or deductible up to a limit of $30.0 million. The Company has obtained an actuarial estimate of its total expected future losses for liability claims and recorded a liability equal to the net present value.
The Company and its subsidiaries are defendants in various legal proceedings resulting from operations in the normal course of business. It is the opinion of management, in consultation with legal counsel, that the ultimate outcome of all such matters will not materially affect the Company’s financial position, results of operations or cash flows.
Note 14. Delivery Costs
For the three months ended October 31, 2024 and 2023, shipping and classroom delivery costs of approximately $8.8 million and $8.6 million, respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
Note 15. Subsequent Events
On November 22, 2024, the Company executed Amendment No. 5 to the Restated Credit Agreement, with an effective date of October 31, 2024. See Note 7.
On December 5, 2024, the Company’s Board of Directors declared a cash dividend for the Company’s fourth fiscal quarter of
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Overview
The market for educational furniture is marked by extreme seasonality. Typically, the Company has a highly seasonal annual cycle where approximately 50% of sales occur in June, July and August. Orders received from customers follow a similar seasonal cycle, with the bulk of orders arriving approximately 4-6 weeks preceding the delivery season.
The Company has benefited from a large series of disaster recovery orders that were received at the end of the prior fiscal year and the first quarter of the current year. Collectively, these orders resulted in approximately $9 million of additional revenue that was recognized in the first quarter of the current year compared to the same quarter in the prior year. The new orders positively affected the Company’s traditional seasonal cycle this fiscal year, with positive impacts on production, overhead absorption, accounts receivable, collections, and reductions in inventory, as well as lower borrowings to support that inventory. An additional $4 million and $6 million of disaster recovery orders were delivered in the second and third quarters of the current year, respectively, resulting in similar positive impacts. The Company believes that it will receive additional orders for this project in the fourth quarter, and that the project will be substantially complete by the end of the current fiscal year. The Company further believes that the timing and related positive impacts of this project are unusual and that more typical seasonal and financial patterns are likely to return after this project concludes.
With the exception of the disaster recovery project for the nine-month period ended October 31, 2024, management believes that the traditional seasonal cycle for school furniture and equipment has largely returned to its pre-pandemic summer peak. Management further believes that the Company’s ability to service that seasonal cycle has returned to normal. During the three-month period ended October 31, 2024, the Company experienced approximately 13% decrease in orders compared to the same period last year. For the nine-month period ended October 31, 2024, the Company experienced approximately 2% increase in orders compared to the same period last year.
Due to improved delivery performance in the year ended January 31, 2024 compared to the same period last year, the Company began the current year with a sales order backlog that was approximately $10 million less than the same period last year. The combination of a smaller beginning backlog and more timely deliveries for the first nine months resulted in a reduced sales order backlog at October 31, 2024 compared to the same period in the prior year, despite an increase in sales orders for the current year. Order backlog at October 31, 2024 declined to approximately $25.0 million compared to $42.6 million in the prior year.
The combination of materially improved profitability in the last six months of the prior year and first nine months of fiscal 2025 along with muted seasonality due to the project discussed above contributed to material changes in the Company’s balance sheet at October 31, 2024 compared to the same period last year. As a result of after-tax profits earned during this period, the Company has approximately $22.1 million of additional stockholders’ equity on October 31, 2024 compared to the same date last year, including reductions in equity for cash dividends paid in each of the first three quarters and stock repurchases during the first quarter. Because the Company shipped a larger than typical portion of deliveries in the first quarter, the Company shipped inventory earlier in the year and did not have as much seasonal inventory at October 31, 2024 compared to the same period last year. Finally, because the year-to-date increase in revenue was primarily in the first quarter, and receivables were collected more efficiently in the second and third quarters, accounts receivable decreased by approximately $4.9 million compared to the same date last year. The combination of these events resulted in the Company having $38.9 million of cash and no borrowings under its line of credit on October 31, 2024 compared to cash of $4.9 million and borrowing of approximately $3.7 million under its line of credit at October 31, 2023.
The final material change in the balance sheet relates to a 5-year lease renewal for the Company’s facility in Torrance, CA that was executed on July 23, 2024. This facility houses the Company’s principal executive offices, and manufacturing and distribution for the western United States. This lease renewal resulted in an increase in ROU Assets of approximately $33.0 million and a related increase in long- and short-term lease liabilities of a comparable amount.
The Company does not typically deliver furniture to new schools until the customer has an occupancy certificate. Supply chain disruptions in the construction industry, which may delay the completion of new schools, did not significantly impact sales volume during the quarter ended October 31, 2024, despite portions of the United States experiencing hurricanes and other severe weather conditions. As a consequence of these tragic weather conditions, the Company may benefit from future orders as the schools are rebuilt.
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Recent elections and the shift in political power nationally may cause some uncertainty regarding future funding for school furniture, although Management estimates that more than 80% of school funding and virtually all new bond funded construction and refurbishment derive from state and local budgets, which are less dependent on federal funding sources. The two largest states for the Company’s revenue are California and Florida. In addition, because the Company has maintained and invested in its domestic factories and experienced workforce, Management believes that the Company may be less vulnerable to current and potential future tariffs and supply chain disruptions than many other suppliers of education furniture, although the Company is sensitive to the price of steel and imports a number of raw materials and components from international suppliers, primarily China.
Three Months Ended October 31, 2024
For the three months ended October 31, 2024, the Company earned net income of $8.4 million on sales of $82.6 million compared to net income of $10.2 million on sales of $84.3 million in the prior year.
Sales for the third quarter decreased by approximately $1.6 million or 1.9% compared to the same period prior year. The decrease was affected by the timing of shipments, as the Company delivered a larger than expected portion of sales orders in the first quarter ended April 30, 2024.
Gross margin for the third quarter ended October 31, 2024 was 44.4% compared to 45.4% in the prior year. The decrease in margin was attributable to slightly increased levels of overhead expense relative to sales.
Selling, general and administrative expenses for the three months ended October 31, 2024 increased by approximately $2.1 million and increased to 30.9% of sales compared to 27.9% in the same period last year. The increase was attributable to increased freight and selling expenses.
Net interest income was $24,000 for the three months ended October 31, 2024 compared to net interest expense of $765,000 for the same period last year. The decrease was primarily attributable to a decrease in the amount borrowed in 2024 to finance seasonal working capital.
For the three months ended October 31, 2024 and 2023, the effective income tax rates were 25.5% and 24.5%, respectively.
Nine Months Ended October 31, 2024
For the nine-month period ended October 31, 2024 the Company earned net income of $27.4 million on sales of $237.8 million compared to net income of $24.3 million on sales of $226.5 million in the prior year. Sales increased by approximately $11.3 million or 5.0% compared to the same period in the prior year. The increase was attributable to an increase in volume and product mix.
Gross Margin for the first nine months ended October 31, 2024 was 45.1% compared to 44.1% in the prior year. The margin was affected by increased production levels combined with relatively stable costs for raw materials.
Selling, general and administrative expenses for the nine months ended October 31, 2024 increased by approximately $5.9 million and increased to 30.0% of sales compared to 28.9% in the same period last year . The increase in selling, general and administrative expenses was attributable to increased variable selling and service expenses.
Net interest expense was $506,000 and $2,560,000 for the nine months ended October 31, 2024 and 2023, respectively. The decrease was primarily attributable to a decrease in the amount borrowed in 2024 to finance seasonal working capital.
For the nine months ended October 31, 2024 and 2023, the effective income tax rates were 24.4% and 24.0%, respectively.
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.
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Accounts Receivable decreased by $4.9 million at October 31, 2024 compared to the same period last year. The decrease is attributable to earlier than normal shipments (as discussed above under “Overview”) and improved collections.
Inventory decreased by $10.0 million at October 31, 2024 compared to October 31, 2023. The decrease is primarily attributable to increased shipments during the early part of the year and inventory management in response to the order backlog at October 31, 2024.
Accrual basis capital expenditures for the nine months ended October 31, 2024 were $5.4 million compared to $4.1 million for the same period last year. Capital expenditures are being financed through the Company's credit facility with PNC Bank and operating cash flow and restricted to not exceed $8.0 million per year by covenant.
Based on the Company’s current projections, raw material costs and its ability to introduce price increases, management believes it will maintain compliance with its financial covenants under the Credit Agreement, although risks and uncertainties remain, such as changes in economic conditions, changing raw material costs and supply chain challenges. The Company was in compliance with its debt covenants as of October 31, 2024.
On November 22, 2024, the Company executed Amendment No. 5 to the Restated Credit Agreement, with an effective date of October 31, 2024. See Note 7.
The Company believes that cash flows from operations, together with the Company's unused borrowing capacity with PNC Bank 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 are outlined in its Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
Forward-Looking Statements
From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2024, 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, 2024, including 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and is therefore not required to provide the information under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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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 October 31, 2024. 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.
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PART II — Other Information
Virco Mfg. Corporation
Item 1. Legal Proceedings
The Company is a party to various legal actions arising in the ordinary course of business which, in the opinion of the Company, are not material in that management either expects that the Company will be successful on the merits of the pending cases or that any liabilities resulting from such cases will be substantially covered by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these actions, management believes that the aggregate amount of such liabilities will not be material to the results of operations, financial position, or cash flows of the Company.
Item 1A. Risk Factors
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, 2024 (the “Form 10-K”), which was filed with the SEC on April 12, 2024. The risk factors associated with our business have not materially changed compared to the risk factors disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides the repurchases of our common stock during the fiscal quarter ended October 31, 2024:
| Period | Total Number of Shares Purchased | Average Price Paid per Share (a) | 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 (b) | ||||||||||||||||||||||
| August 2024 | — | — | — | $ | 3,501,551 | |||||||||||||||||||||
| September 2024 | — | — | — | $ | 3,501,551 | |||||||||||||||||||||
| October 2024 | — | — | — | $ | 3,501,551 | |||||||||||||||||||||
| Total | — | — | ||||||||||||||||||||||||
| (a) The average price paid per share includes any broker commissions. | ||||||||||||||||||||||||||
| (b) On December 5, 2023, the Board of Directors authorized the repurchase of up to $5.0 million of the Company's common stock, which repurchase program was publicly announced on December 8, 2023. The repurchase program does not obligate the Company to acquire a minimum amount of shares. Under the repurchase program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. The repurchase program has no time limit and may be suspended or discontinued at any time. The actual dollar value of shares that may be repurchased in any fiscal year plus cash dividends during such fiscal year is limited to an aggregate of $5,000,000 under our Credit Agreement with PNC Bank, which amount was increased to $8,000,000 commencing November 22, 2024, as further discussed above under “Note 7. Debt” to our Unaudited Consolidated Financial Statements. | ||||||||||||||||||||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
24
Not applicable.
Item 5. Other Information
During the fiscal quarter ended October 31, 2024, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
Exhibit Number | Document | ||||
| 10.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
Exhibit 101.INS — XBRL Instance Document.
Exhibit 101.SCH — XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB — XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VIRCO MFG. CORPORATION | ||||||||
| Date: December 9, 2024 | By: | /s/ Robert E. Dose | ||||||
| Robert E. Dose | ||||||||
| Vice President — Finance | ||||||||
| (Principal Financial Officer) | ||||||||
26
Exhibit 10.1
AMENDMENT NO. 5 TO AMENDED AND RESTATED
REVOLVING CREDIT AND SECURITY AGREEMENT
This AMENDMENT NO. 5 TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT (this “Amendment”) is entered into as of November 22, 2024 by and among VIRCO MFG. CORPORATION, a Delaware corporation (“VMC”), VIRCO INC., a Delaware corporation (“Virco”, and together with VMC, “Borrowers” and, each individually, a “Borrower”), the financial institutions from time to time party to the Credit Agreement (as defined below) as lenders (collectively, “Lenders”), and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as administrative agent for Lenders (PNC, in such capacity, “Agent”), with respect to the following:
RECITALS
WHEREAS, Borrowers, Lenders and Agent have previously entered into that certain Amended and Restated Revolving Credit and Security Agreement, dated as of September 28, 2021 (as amended, restated or otherwise modified from time to time, the “Credit Agreement”);
WHEREAS, Borrowers have requested that Lenders and Agent amend the Credit Agreement in certain respects, including without limitation to modify covenants relating to stock repurchases and dividend payments and unused line fees, which Lenders and Agent are willing to do on the terms and subject to the conditions contained in this Amendment.
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Credit Agreement, the Other Documents and this Amendment, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
AGREEMENTS
A.Definitions Incorporated. Initially capitalized terms used but not otherwise defined in this Amendment have the respective meanings set forth in the Credit Agreement, as amended hereby.
B.Recitals. The Recitals above are incorporated herein as though set forth in full and Borrowers stipulate to the accuracy of each of the Recitals.
C.Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:
1.Section 1.2. Section 1.2 of the Credit Agreement is hereby amended as follows:
a.To add the following new definitions in the proper alphabetical order:
“Amendment No. 5” shall mean that certain Amendment No. 5 to Amended and Restated Revolving Credit and Security Agreement dated as of November 22, 2024 among Borrowers, the Lenders party thereto and Agent.
“Amendment No. 5 Effective Date” has the meaning specified for such term in Amendment No. 5.
b.To amend and restate in its entirety the definition of “Permitted Acquisitions” to read as follows:
“Permitted Acquisitions” shall mean acquisitions of the assets or Equity Interests of another Person (the “target”) so long as: (a) at the time of and after giving effect to such acquisition, Borrowers have pro forma Availability (i.e., after giving effect to consummation of such acquisition and the sources of proceeds thereof) of not less than 25% of the then applicable Maximum Revolving Advance Availability; (b) the total costs and liabilities (including without limitation, all assumed liabilities, all earn-out payments, deferred payments and the value of any other stock or assets transferred, assigned or encumbered with respect to such acquisitions) of any individual acquisition does not exceed $8,000,000 and of all such acquisitions do not exceed $8,000,000 in the aggregate throughout the Term; (c) with respect to the acquisition of Equity Interests, such target shall (i) have a positive EBITDA and tangible net worth, calculated in accordance with GAAP immediately prior to such acquisition, (ii) be added as a Borrower to this Agreement and be jointly and severally liable for all Obligations, and (iii) grant to Agent a first priority lien in all assets of such target; (d) the target or property is used or useful in the Borrowers’ Ordinary Course of Business; (e) Agent shall have received a first-priority security interest in all acquired assets or Equity Interests, subject to documentation satisfactory to Agent; (f) the board of directors (or other comparable governing body) of the target shall have duly approved the transaction; (g) Borrowers shall have delivered to Agent (i) a pro forma balance sheet and pro forma financial statements and a Compliance Certificate demonstrating that, upon giving effect to such acquisition on a pro forma basis, Borrowers would be in compliance with the financial covenants set forth in Section 6.5 as of the most recent fiscal quarter end and (ii) financial statements of the acquired entity for the two most recent fiscal years then ended, in form and substance reasonably acceptable to Agent; (h) if such acquisition includes general partnership interests or any other Equity Interest that does not have a corporate (or similar) limitation on liability of the owners thereof, then such acquisition shall be effected by having such Equity Interests acquired by a corporate holding company directly or indirectly wholly-owned by a Borrower and newly formed for the sole purpose of effecting such acquisition; (i) no assets acquired in any such transaction(s) shall be included in the Formula Amount until Agent has received a field examination and/or appraisal of such assets, in form and substance acceptable to Agent; and (j) no Default or Event of Default shall have occurred or will occur after giving pro forma effect to such acquisition. For the purposes of calculating Availability under this definition, any assets being acquired in the proposed acquisition shall be included in the Formula Amount on the date of closing so long as Agent has received an audit or appraisal of such assets as set forth in clause (i) above and so long as such assets satisfy the applicable eligibility criteria.
2.Section 7.7(d) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
(d) subject to the proviso set forth below in this Section 7.7(d), Borrowers may make Restricted Payments to any Person that owns an Equity Interest in any Borrower so
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long as (i) such Restricted Payments shall not exceed $8,000,000 in the aggregate during any fiscal year; (ii) no Default or Event of Default shall have occurred or be continuing, (iii) no Default or Event of Default shall result from any such Restricted Payment, and (iv) as of the date of the making of such Restricted Payment and after giving effect thereto, the Borrowers shall have a pro forma Fixed Charge Coverage Ratio of not less than 1.20:1.00 for the most recent twelve-month period ending as of the fiscal quarter immediately preceding the date of such Restricted Payment; provided that (x) if any such Restricted Payment is to be made pursuant to a Share Repurchase Program (each, a “Share Repurchase Payment”), Borrowers shall provide to Agent a Compliance Certificate at least ten (10) Business Days prior to making the first Share Repurchase Payment under such Share Repurchase Program, which Compliance Certificate shall reflect a pro forma Fixed Charge Coverage Ratio of not less than 1.20:1.00 for the most recent twelve-month period ending as of the fiscal quarter immediately preceding the date of such first Share Repurchase Payment, with such calculation assuming that the full amount of such Share Repurchase Program is paid as of the proposed first Share Repurchase Payment date, (y) with respect to any Cash Dividend to be made pursuant to this Section 7.7(d), Borrowers shall provide to Agent a Compliance Certificate at least ten (10) Business Days prior to declaring the first Cash Dividend during any fiscal year, which Compliance Certificate shall reflect a pro forma Fixed Charge Coverage Ratio of not less than 1.20:1.00 for the most recent twelve-month period ending as of the fiscal quarter immediately preceding the declaration of such Cash Dividend (giving pro forma effect to such Cash Dividend as if it had been made on such date), and (z) with respect to any other Restricted Payment to be made pursuant to this Section 7.7(d), Borrowers shall provide to Agent a Compliance Certificate at least ten (10) Business Days prior to making such Restricted Payment, which Compliance Certificate shall reflect a pro forma Fixed Charge Coverage Ratio of not less than 1.20:1.00 for the most recent twelve-month period ending as of the fiscal quarter immediately preceding the date of such Restricted Payment (giving pro forma effect to such Restricted Payment as if it had been made on such date); and
D.Conditions Precedent. The obligations of Agent and Lenders hereunder, and this Amendment, will be effective on the date (the “Amendment No. 5 Effective Date”) of satisfaction of each of the following conditions precedent, each in a manner in form and substance acceptable to Agent:
1.Amendment. Borrowers shall have delivered to Agent an executed original of this Amendment.
2.Amendment to Fee Letter. Borrowers shall have delivered to Agent an executed original of the Amendment to Fee Letter dated the date hereof, and shall have paid all fees in connection therewith.
3.Representations and Warranties. The representations and warranties contained herein and in the Credit Agreement shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date, in which case each such representation and warranty shall be true and correct in all material respects as of such specific date;
4.No Default. After giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing; and
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5.Other. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated hereby shall be satisfactory in form and substance to Agent and its counsel.
E.Representations and Warranties. To induce Lenders and Agent to enter into this Amendment, each Borrower represents and warrants to Lenders and Agent as of the date hereof as follows:
1.Such Borrower has full power, authority and legal right to enter into this Amendment and to perform all its respective Obligations hereunder. This Amendment has been duly executed and delivered by such Borrower and the Credit Agreement, as amended by this Amendment constitutes the legal, valid and binding obligation of such Borrower enforceable in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally. The execution, delivery and performance of this Amendment (i) are within such Borrower’s powers, have been duly authorized by all necessary company action, are not in contravention of law or the terms of such Borrower’s by-laws, certificate of incorporation, or other applicable documents relating to such Borrower’s formation or to the conduct of such Borrower’s business or of any material agreement or undertaking to which such Borrower is a party or by which such Borrower is bound, (ii) will not conflict with or violate any law or regulation, or any judgment, order, writ, injunction or decree of any court or Governmental Body, (iii) will not require the Consent of any Governmental Body or any other Person, except those Consents which will have been duly obtained, made or compiled prior to date hereof and which are in full force and effect, and (iv) will not conflict with, nor result in any breach in any of the provisions of or constitute a default under or result in the creation of any Lien except Permitted Encumbrances upon any asset of such Borrower under the provisions of any material agreement, charter document, instrument, by-law or other instrument to which such Borrower is a party or by which it or its property is a party or by which it may be bound.
2.After giving effect to this Amendment, the representations and warranties contained in the Credit Agreement are true and correct in all material respects except to the extent any such representation or warranty is expressly stated to have been made as of a specific date, in which case each such representation and warranty is true and correct in all material respects as of such specific date, and no Default or Event of Default has occurred and is continuing.
F.Reaffirmation. Except as specifically modified by this Amendment, the Credit Agreement and the Other Documents remain in full force and effect in accordance with their respective terms and are hereby ratified, reaffirmed and confirmed by Borrowers.
G.Events of Default. Any failure to comply with the terms of this Amendment will constitute an Event of Default under the Credit Agreement.
H.Integration. This Amendment, together with the Credit Agreement and the Other Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.
I.Severability. If any part of this Amendment is contrary to, prohibited by, or deemed invalid under Applicable Laws, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.
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J.Submission of Amendment. The submission of this Amendment to the parties or their agents or attorneys for review or signature does not constitute a commitment by Agent or Lenders to amend or otherwise modify any of the provisions of the Credit Agreement and this Amendment shall have no binding force or effect until the Amendment No. 5 Effective Date.
K.Counterparts; Facsimile Signatures. This Amendment may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or other similar form of electronic transmission (e.g., via .pdf) shall be deemed to be an original signature hereto.
L.Governing Law. This Amendment is an Other Document and is governed by the Applicable Law pertaining in the State of New York, other than those conflict of law provisions that would defer to the substantive laws of another jurisdiction. This governing law election has been made by the parties in reliance on, among other things, Section 5-1401 of the General Obligations Law of the State of New York, as amended (as and to the extent applicable), and other Applicable Law.
M.Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of Borrowers, Lenders, Agent, and all future holders of the Obligations and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Amendment without the prior written consent of Agent.
N.Attorneys’ Fees; Costs. Borrowers agree to promptly pay, upon written demand, all reasonable and documented attorneys’ fees and costs incurred in connection with the negotiation, documentation and execution of this Amendment. If any legal action or proceeding shall be commenced at any time by any party to this Amendment in connection with its interpretation or enforcement, the prevailing party or parties in such action or proceeding shall be entitled to reimbursement of its reasonable attorneys’ fees and costs in connection therewith, in addition to all other relief to which the prevailing party or parties may be entitled.
O.Jury Waiver; California Judicial Reference. WITHOUT LIMITING THE APPLICABILITY OF ANY OTHER PROVISION OF THE CREDIT AGREEMENT, THE TERMS OF ARTICLE XII OF THE CREDIT AGREEMENT, INCLUDING WITHOUT LIMITATION SECTION 12.3 REGARDING JURY TRIAL WAIVER AND CALIFORNIA JUDICIAL REFERENCE SHALL APPLY TO THIS AMENDMENT.
P.Total Agreement. This Amendment, the Credit Agreement, and the Other Documents contain the entire understanding among Borrowers, Lenders and Agent and supersede all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties, or guarantees not herein contained and hereinafter made have no force and effect unless in writing, signed by Borrowers’ and Agent’s respective officers. Neither this Amendment nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled, or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged. Each Borrower acknowledges that it has been advised by counsel in connection with the execution of this Amendment and the Other Documents and is not relying upon oral representations or statements inconsistent with the terms and provisions of this Amendment.
[signature pages follow]
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512397476
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first written above.
VIRCO MFG. CORPORATION,
a Delaware corporation, as a Borrower
a Delaware corporation, as a Borrower
By: /s/ Bassey Yau
Name: Bassey Yau
Title: Vice President of Finance, Assistant Treasurer and Assistant Secretary
VIRCO INC.,
a Delaware corporation, as a Borrower
a Delaware corporation, as a Borrower
By: /s/ Bassey Yau
Name: Bassey Yau
Title: Vice President of Finance, Assistant Treasurer and Assistant Secretary
Signature Page to Amendment No. 5 [Virco]
PNC BANK, NATIONAL ASSOCIATION,
as Lender and as Agent
as Lender and as Agent
By: /s/ Robin Van Meter
Name: Robin Van Meter
Title: Senior Vice President
Signature Page to Amendment No. 5 [Virco]
November 22, 2024
Virco Mfg. Corporation
2027 Harpers Ways
Torrance, California 90501
Attention: Robert Dose and Bassey Yau
Virco Inc.
2027 Harpers Ways
Torrance, California 90501
Attention: Robert Dose and Bassey Yau
Re: Amended and Restated Fee Letter (as amended, restated, amended and restated, or otherwise modified from time to time, the “Fee Letter”) provided in connection with the Amended and Restated Revolving Credit and Security Agreement, dated as of September 28, 2021, among VIRCO MFG. CORPORATION, a Delaware corporation, and VIRCO INC., a Delaware corporation (collectively “Borrowers”), the financial institutions that are now or that hereafter become a party thereto (collectively, “Lenders”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as administrative agent for Lenders (PNC, in such capacity, “Agent”) (as amended on the date hereof pursuant to Amendment No. 5 and as may be further amended, restated, or otherwise modified from time to time, the “Credit Agreement”). Initially capitalized terms used but not defined herein have the respective meanings set forth in the Credit Agreement
Ladies and Gentlemen:
This letter agreement constitutes an amendment, effective as of the Amendment No. 5 Effective Date, of the fees under the Fee Letter that Borrowers have agreed to pay to Agent in connection with the Credit Agreement.
In connection with, and in consideration of, the agreements contained in the Credit Agreement and Amendment No. 5, Agent’s continued services as agent, and Agent’s participation in the credit facilities set forth in the Credit Agreement, Borrowers hereby agree to the following amendment to the Fee Letter:
(i) Reduced Facility Fee. Section 2 of the Fee Letter is amended and restated in its entirety to read as follows:
2. Facility Fee. If, for any day in each calendar quarter during the Term, the daily unpaid balance of the sum of Revolving Advances plus Swing Loans plus the Maximum Undrawn Amount of all outstanding Letters of Credit (the “Usage Amount”) does not equal the Maximum Revolving Advance Amount, then Borrowers shall pay to Agent, for the ratable benefit of Lenders holding the Revolving Commitments based on their Revolving Commitment Percentages, (a) for all periods prior to October 1, 2024, a fee at a rate equal to three eighths
#245165573
of one percent (0.375%) per annum, and (b) commencing as of October 1, 2024 and at all times thereafter, a fee at a rate equal to one-quarter of one percent (0.250%) per annum, in each case, for each such day during the applicable period, the amount by which the Maximum Revolving Advance Amount on such day exceeds such Usage Amount (the “Facility Fee”). Such Facility Fee shall be payable to Agent in arrears on the first Business Day of each calendar quarter with respect to each day in the previous calendar quarter (or portion thereof), and on the last day of the Term with respect to each day in the previous calendar quarter (or portion thereof) ending on such date, as applicable.
Except as amended hereby, the Fee Letter remains in full force and effect.
The fees and other consideration to be paid pursuant to the Fee Letter and this letter are confidential and shall not to be disclosed by any Borrower to any person or entity. By execution of this letter, Borrowers agree to pay or cause to be paid the fees to Agent as and when due as provided in the Fee Letter, as amended hereby. This letter may be executed in any number of counterparts, each of which will be an original and all of which will constitute one and the same agreement.
[Signature Page Follows]
9
512398463
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By: /s/ Robin Van Meter
Name: Robin Van Meter
Title: Senior Vice President
Signature Page to Amendment No. 5 to A&R Fee Letter [Virco]
Accepted and agreed to as of the date first set forth above:
VIRCO MFG. CORPORATION,
a Delaware corporation
By: /s/ Bassey Yau
Name: Bassey Yau
Title: Vice President of Finance, Assistant Treasurer
and Assistant Secretary
VIRCO INC.,
a Delaware corporation
By: /s/ Bassey Yau
Name: Bassey Yau
Title: Vice President of Finance, Assistant Treasurer
and Assistant Secretary
Signature Page to Amendment No. 5 to A&R Fee Letter [Virco]
Exhibit 31.1
CERTIFICATIONS
I, Robert A. Virtue, certify that:
1. I have reviewed this Form 10-Q of Virco Mfg. Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Robert A. Virtue | |||||
| Robert A. Virtue | |||||
| Date: December 9, 2024 | Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | ||||
Exhibit 31.2
CERTIFICATIONS
I, Robert E. Dose, certify that:
1. I have reviewed this Form 10-Q of Virco Mfg. Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Robert E. Dose | |||||
| Robert E. Dose | |||||
| Date: December 9, 2024 | Vice President — Finance, Secretary and Treasurer (Principal Financial Officer) | ||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his capacity as an officer of Virco Mfg. Corporation (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his own knowledge:
•The Quarterly Report of the Company on Form 10-Q for the period ended October 31, 2024, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
•The information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Date: December 9, 2024
| /s/ Robert A. Virtue | ||
| Robert A. Virtue | ||
Chief Executive Officer and Chairman of the Board | ||
| (Principal Executive Officer) | ||
| /s/ Robert E. Dose | ||
| Robert E. Dose | ||
| Vice President — Finance, Secretary and Treasurer | ||
| (Principal Financial Officer) | ||
A signed original of this written statement required by Section 906 has been provided to Virco Mfg. Corporation and will be retained by Virco Mfg. Corporation and furnished to the Securities and Exchange Commission or its staff upon request.