KEWAUNEE SCIENTIFIC CORP DE

Previous wording

The Company's 2023 Annual Report to Stockholders on Form 10-K contains management's discussion and analysis of the Company's financial condition and results of operations as of and for the fiscal year ended April 30, 2023. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 2023. The analysis of results of operations compares the three and nine months ended January 31, 2024 with the comparable periods of the prior year.

Current wording

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

Previous wording

Sales for the quarter were $46,778,000, a decrease from sales of $60,821,000 in the comparable period of the prior year. Domestic sales for the quarter were $31,774,000, down 12.1% from sales of $36,134,000 in the comparable period of the prior year. The decrease in Domestic sales was predominantly related to the reduction in non-product revenue related to the Company's decision to stop selling directly to end users. This revenue typically includes freight, installation services and buyouts. International sales for the quarter were $15,004,000, down 39.2% when compared to sales of $24,687,000 in the comparable period of the prior year. International sales decreased when compared to the prior year period due to the delivery of several large projects in the comparable prior year period that were booked in earlier fiscal years.

Current wording

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

Previous wording

The Company's order backlog was $152.3 million at January 31, 2024, as compared to $153.2 million at January 31, 2023, and $147.9 million at April 30, 2023.

Current wording

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

Previous wording

The gross profit margin for the three months ended January 31, 2024 was 25.7% of sales, as compared to 17.0% of sales in the comparable quarter of the prior year. The gross profit margin for the nine months ended January 31, 2024 was 25.4% of sales, as compared to 15.2% of sales in the comparable prior year period. The increase in gross profit margin percentage for the three and nine months ended January 31, 2024 is primarily being generated from Domestic operations. Specifically, the increase is primarily driven by improved manufacturing productivity, cost containment actions, and the pricing of new orders in response to higher raw material input costs when compared to the prior year periods.

Current wording

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

Previous wording

January 31, 2024 were $24,688,000, or 16.8% of sales, as compared to $22,564,000, or 13.6% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended January 31, 2024 was primarily due to increases in SG&A wages, benefits, incentive and stock-based compensation of $440,000, corporate governance expenses of $34,000, and depreciation expense of $51,000, partially offset by decreases in international operating expenses of $227,000, consulting and professional fees of $143,000 and bad debt expense of $44,000. The increase in operating expenses for the nine months ended January 31, 2024 was primarily due to increases in SG&A wages, benefits, incentive and stock-based compensation of $1,898,000, corporate governance expenses of $138,000, depreciation expense of $128,000, bad debt expense of $149,000, and increases in international operating expenses of $259,000, partially offset by decreases in consulting and professional fees of $515,000.

Current wording

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

Previous wording

Interest expense, net was $411,000 and $1,213,000 for the three and nine months ended January 31, 2024, respectively, as compared to $436,000 and $1,190,000, respectively, for the comparable periods of the prior year. The changes in interest expense were due to changes in the levels of bank borrowings and interest rates.

Current wording

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

Previous wording

The effective income tax rate for the three and nine months ended January 31, 2024 was 27.9% and 33.1%, respectively, as compared to 46.7% and 87.8% for the three and nine months ended January 31, 2023, respectively. Income tax expense of $982,000 and $962,000 was recorded for the three months ended January 31, 2024 and 2023, respectively. Income tax expense of $3,894,000 and $1,911,000 was recorded for the nine months ended January 31, 2024 and 2023, respectively. The effective tax rate for the three and nine months ended January 31, 2024 reflects the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21%, combined with expected current year tax expense for the Company's domestic operations and estimated increases in the domestic valuation allowance required for the fiscal year. In addition, the income tax expense recorded for the nine months ended January 31, 2024 was unfavorably impacted by additional tax expense of $387,000 related to India tax matters. This one-time expense is related to management's decision to discontinue management fees, citing challenges associated with the Indian tax authority and cost benefit analysis. The effective rate for the three and nine months ended January 31, 2023 was influenced by foreign operations taxed at varying rates, as well as the inclusion of a valuation allowance against deferred tax assets, which led to the nullification of any U.S. income tax benefit for pre-tax losses incurred in the corresponding periods. See Note L, Income Taxes, of the Notes to Condensed Consolidated Financial Statements for additional information.

Current wording

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

Previous wording

Non-controlling interests related to the Company's subsidiaries not 100% owned by the Company decreased net earnings by $12,000 and $151,000 for the three and nine months ended January 31, 2024, respectively, as compared to $375,000 and $532,000, respectively, for the comparable periods of the prior year. The change in the net earnings attributable to the non-controlling interest in the current period was due to changes in earnings (losses) of the subsidiaries in the related period.

Current wording

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

Previous wording

Net earnings was $2,521,000, or $0.85 per diluted share, for the three months ended January 31, 2024, compared to net earnings of $723,000, or $0.25 per diluted share, in the prior year period. Net earnings was $7,727,000, or $2.64 per diluted share, for the nine months ended January 31, 2024, as compared to a net loss of $267,000, or $(0.09) per diluted share, in the prior year period.

Current wording

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

Previous wording

The Company had working capital of $54,014,000 at January 31, 2024, compared to $47,867,000 at April 30, 2023. The ratio of current assets to current liabilities was 2.3-to-1.0 at January 31, 2024, compared to 2.2-to-1.0 at April 30, 2023.

Current wording

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

Previous wording

The Company provided cash of $18,419,000 during the nine months ended January 31, 2024, primarily from operations, decreases in accounts receivable of $4.7 million and increases in deferred revenue of $6.2 million, partially offset by decreases in accounts payable and other accrued expenses of $3.8 million. During the nine months ended January 31, 2024, the Company used net cash of $3,394,000 in investing activities, all of which was used for capital expenditures. The Company's financing activities used cash of $1,545,000 during the nine months ended January 31, 2024, primarily from a net decrease in borrowings under the Revolving Credit Facility and the purchase of treasury stock during the quarter. See Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for more details.

Current wording

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

Previous wording

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

Current wording

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