The Company's 2022 Annual Report to Stockholders on Form 10-K contains
management's discussion and analysis of the Company's financial condition and
results of operations as of and for the year ended April 30, 2022. The following
discussion and analysis describes material changes in the Company's financial
condition since April 30, 2022. The analysis of results of operations compares
the three months ended July 31, 2022 with the comparable period of the prior
year.
Results of Operations
Sales for the quarter were $50,123,000, an increase from sales of $39,493,000 in
the comparable period of the prior year. Domestic sales for the quarter were
$37,468,000, up 26.3% from sales of $29,663,000 in the comparable period of the
prior year. The increase in Domestic sales was predominantly from higher input
costs being rolled into product pricing. International sales for the quarter
were $12,655,000, up 28.7% from sales of $9,830,000 in the comparable period of
the prior year. International sales increased when compared to the prior year
period due to the commencement of delivery of large projects booked in the prior
fiscal year.
The Company's order backlog was $174.0 million at July 31, 2022, as compared to
$120.6 million at July 31, 2021, and $173.9 million at April 30, 2022.
The gross profit margin for the three months ended July 31, 2022 was 12.4% of
sales, as compared to 14.4% of sales in the comparable quarter of the prior
year. The decrease in gross profit margin percentage for the three months ended
July 31, 2022 is primarily due to nearly 25% of the current period's domestic
segment revenue being attributable to direct orders that, in aggregate, were
delivered at a loss for the Company. Most of these projects were tied to
contracts that were executed prior to the broad-based inflation experienced over
the last fiscal year.
Operating expenses for the three months ended July 31, 2022 were $6,592,000, or
13.2% of sales, as compared to $6,765,000, or 17.1% of sales, in the comparable
period of the prior year. The decrease in operating expenses for the three
months ended July 31, 2022 was primarily due to reductions in administrative
wages, benefits, incentive and stock-based compensation of $630,000, and
marketing expense of $128,000, partially offset by increases in consulting and
professional fees of $198,000, corporate governance expenses of $25,000, and
increases in international operating expenses of $368,000.
Interest expense, net was $384,000 for the three months ended July 31, 2022, as
compared to $106,000 for the comparable period of the prior year. The changes in
interest expense were primarily due to changes in the levels of bank borrowings
and the Sale-Leaseback financing transaction.
The effective income tax rate for the three months ended July 31, 2022 was
(111.5)% as compared to (23.8)% for the three months ended July 31, 2021. Income
tax expense of $379,000 and $251,000 was recorded for the three months ended
July 31, 2022 and 2021, respectively. The change in the effective tax rate for
the three months ended July 31, 2022 reflects the impact of international
operations which are taxed at different rates, combined with no U.S. tax benefit
being recorded for the most recent quarter due to the Company's full valuation
allowance position. See Note K , Income Taxes, of the Notes to Condensed
Consolidated Financial Statements for additional information.
Non-controlling interests related to the Company's subsidiaries not 100% owned
by the Company increased net loss by $28,000 for the three months ended July 31,
2022, compared to $38,000 for the comparable period of the prior year. The
change in the net earnings attributable to the non-controlling interest in the
current period was due to changes in earnings of the subsidiaries in the related
period.
Net loss was $747,000, or $(0.27) per diluted share, for the three months ended
July 31, 2022, compared to $1,345,000, or $(0.48) per diluted share, in the
prior year period.
Liquidity and Capital Resources
Our principal sources of liquidity have historically been funds generated from
operating activities. In addition, on March 24, 2022, we executed a
Sale-Leaseback financing transaction with respect to our manufacturing and
corporate facilities in Statesville, North Carolina to provide additional
liquidity. See Note G , Sale-Leaseback Financing Transaction for more
information. Additionally, certain machinery and equipment are financed by
non-cancellable operating leases. The Company believes that these sources will
be sufficient to support ongoing business requirements in the current fiscal
year, including capital expenditures.
The Company had working capital of $48,266,000 at July 31, 2022, compared to
$49,272,000 at April 30, 2022. The ratio of current assets to current
liabilities was 2.0-to-1.0 at July 31, 2022, compared to 2.2-to-1.0 at April 30,
2022.
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As previously reported in the Company's 2022 Annual Report on Form 10-K , the
Company was compliant at April 30, 2022 with all of the financial covenants
under the revolving credit facility. On June 27, 2022, the Company terminated
the Credit Agreement with Wells Fargo, National Bank. At the time of
termination, there were no borrowings under the Credit Agreement, and the
Company did not incur any material termination penalties as a result of the
termination. For additional information concerning our credit facility, see
Note F , Long-Term Debt and Other Credit Arrangements.
The Company provided cash of $3,685,000 during the three months ended July 31,
2022, primarily from an increase in deferred revenue of $10.6 million partially
offset by increases in inventory of $1.3 million, accounts payable and other
accrued expenses of $2.1 million and other, net of $4.2 million. The increase in
deferred revenue is primarily related to advance payments received for a large
international order. During the three months ended July 31, 2022, the Company
used net cash of $390,000 in investing activities, all of which was used for
capital expenditures. The Company's financing activities provided cash of
$11,670,000 during the three months ended July 31, 2022, primarily from proceeds
of the sale-leaseback financing transaction that was previously recorded as a
note receivable at April 30, 2022.
Outlook
The Company's ability to predict future demand for its products continues to be
limited given its role as subcontractor or supplier to dealers for
subcontractors. Demand for the Company's products is also dependent upon the
number of laboratory construction projects planned and/or current progress in
projects already under construction. The Company's earnings are also impacted by
fluctuations in prevailing pricing for projects in the laboratory construction
marketplace and increased costs of raw materials, including steel, wood, and
epoxy resin, and whether the Company can increase product prices to customers in
amounts that correspond to such increases without materially and adversely
affecting sales. Additionally, since prices are normally quoted on a firm basis
in the industry, the Company bears the burden of possible increases in labor and
material costs between the quotation of an order and delivery of a product.
In the last quarter, the Company improved the quality of the order backlog by
delivering a portion of the lower margin direct sales orders and replacing those
orders in the backlog with higher margin product orders. This was accomplished
while simultaneously recording a record high order backlog for the fourth time
in the past five quarters. It is the Company's expectation that this dynamic
will lead to margin expansion as it moves through the fiscal year.
Although factors such as broad-based inflation, concern about a possible
recession, and an ongoing labor shortage continue to create economic
uncertainty, the Company remains optimistic about the future based on the
strength of the order backlog and the high level of activity in the marketplace.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements in this document constitute "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). All statements other than statements of historical fact included
in this Quarterly Report, including statements regarding the Company's future
financial condition, results of operations, business operations and business
prospects, are forward-looking statements. Words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "predict," "believe" and
similar words, expressions and variations of these words and expressions are
intended to identify forward-looking statements. Such forward-looking statements
are subject to known and unknown risks, uncertainties, assumptions, and other
important factors that could significantly impact results or achievements
expressed or implied by such forward-looking statements. Such factors, risks,
uncertainties and assumptions include, but are not limited to: competitive and
general economic conditions and the ongoing impact of the COVID-19 pandemic,
including disruptions from government mandates, both domestically and
internationally, as well as supplier constraints and other supply disruptions;
changes in customer demands; technological changes in our operations or in our
industry; dependence on customers' required delivery schedules; risks related to
fluctuations in the Company's operating results from quarter to quarter; risks
related to international operations, including foreign currency fluctuations;
changes in the legal and regulatory environment; changes in raw materials and
commodity costs; acts of terrorism, war, governmental action, natural disasters
and other Force Majeure events; and the ultimate impact on the Company of the
cyber attack suffered on November 5, 2021. The cautionary statements made
pursuant to the Reform Act herein and elsewhere by us should not be construed as
exhaustive. We cannot always predict what factors would cause actual results to
differ materially from those indicated by the forward-looking statements. Over
time, our actual results, performance, or achievements will likely differ from
the anticipated results, performance or achievements that are expressed or
implied by our forward-looking statements, and such differences might be
significant and harmful to our stockholders' interest. Many important factors
that could cause such differences are described under the caption "Risk Factors"
in Item 1A in the Company's 2022 Annual Report on Form 10-K, which you
should review carefully. These forward-looking statements speak only as of the
date of this document. The Company assumes no obligation, and expressly
disclaims any obligation, to update any forward-looking statements, whether as a
result of new information, future events or otherwise.
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