KEWAUNEE SCIENTIFIC CORP /DE/

Previous 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 and six months ended October 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 and nine months ended January 31, 2025 with the comparable periods of the prior year.

Previous wording

Based on the terms of the transaction, $1.0 million of the purchase price is being held in a working capital escrow account to satisfy amounts payable to any party pursuant to certain post-closing true-up mechanisms with respect to cash, debt, transaction expenses and net working capital. In addition, $32.0 million of the purchase price payable at closing of the transaction was paid in cash, which cash was funded, in part, through the Revolving Credit Facility and Term Loan, provided to the Company by PNC. The remaining $23.0 million of the purchase price payable at closing of the Transaction was funded pursuant to Seller Notes in an aggregate amount of $23.0 million.

Current wording

On November 1, 2024, the Company completed an acquisition of Nu Aire. The Company purchased all of the outstanding capital stock of Nu Aire for $55.0 million, subject to certain customary adjustments for debt, cash, transaction expenses and net working capital. $23.0 million of the purchase price payable at closing of the Transaction was funded pursuant to subordinated seller notes. The remaining purchase price payable at closing of the Transaction was paid in cash, which cash was funded, in part, through the Revolving Credit Facility and Term Loan, provided to the Company by PNC Bank, National Association.

Previous wording

Sales for the quarter were $47,764,000, a decrease from sales of $50,436,000 in the comparable period of the prior year. Domestic sales for the quarter were $36,409,000, up 6.5% when compared to sales of $34,185,000 in the comparable period of the prior year. Domestic sales increased when compared to the prior year primarily due to higher product demand. International sales for the quarter were $11,355,000, down 30.1% when compared to sales of $16,251,000 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.

Current wording

Sales for the quarter were $67,167,000, an increase from sales of $46,778,000 in the comparable period of the prior year. Domestic sales for the quarter were $51,976,000, up 63.6% when compared to sales of $31,774,000 in the comparable period of the prior year. Domestic sales increased when compared to the prior year primarily due to higher manufacturing volumes than the prior year period and the acquisition of Nu Aire, as discussed above, which closed on November 1, 2024 and was not part of the prior year comparable results. International sales for the quarter were $15,191,000, up 1.2% when compared to sales of $15,004,000 in the comparable period of the prior year. International sales remained relatively flat when compared to the prior year period as the International segment continues to be challenged by customer site delays in India, which have pushed out the timing of deliveries.

Previous wording

Sales for the six months ended October 31, 2024 were $96,157,000, a decrease from sales of $100,275,000 in the comparable period of the prior year. Domestic sales for the period were $71,932,000, up 3.3% from sales of $69,605,000 in the comparable period of the prior year. The increase in Domestic sales was primarily driven by higher product demand. International sales for the period were $24,225,000, down 21.0% from sales of $30,670,000 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.

Current wording

Sales for the nine months ended January 31, 2025 were $163,324,000, an increase from sales of $147,053,000 in the comparable period of the prior year. Domestic sales for the period were $123,908,000, up 22.2% from sales of $101,379,000 in the comparable period of the prior year. The increase in Domestic sales was primarily driven by the incorporation of Nu Aire's post-acquisition results, as well as higher manufacturing volumes than the prior year period. International sales for the period were $39,416,000, down 13.7% from sales of $45,674,000 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 have pushed out the timing of deliveries.

Previous wording

The Company's order backlog was $184.4 million at October 31, 2024, as compared to $146.3 million at October 31, 2023, and $155.6 million at April 30, 2024.

Current wording

The Company's order backlog was $221.6 million at January 31, 2025, as compared to $152.3 million at January 31, 2024, and $155.6 million at April 30, 2024.

Previous wording

The gross profit margin for the three months ended October 31, 2024 was 29.2% of sales, as compared to 26.7% of sales in the comparable quarter of the prior year. The gross profit margin for the six month ended October 31, 2024 was 27.5% of sales, as compared to 25.3% of sales in the comparable quarter of the prior year period. The increase in gross profit margin percentage for the three and six months ended October 31, 2024 was primarily driven by enhanced manufacturing productivity, effective cost-containment measures, and continued benefits related to the Company's strategic go-to-market decision, made in a prior fiscal year, to stop selling direct.

Current wording

The gross profit margin for the three months ended January 31, 2025 was 27.4% of sales, as compared to 25.7% of sales in the comparable quarter of the prior year. The gross profit margin for the nine months ended January 31, 2025 was 27.4% of sales, as compared to 25.4% of sales in the comparable quarter of the prior year period. The increase in gross profit margin percentage for the three months ended January 31, 2025 was primarily driven by the acquisition of Nu Aire on November 1, 2024, combined with enhanced manufacturing productivity and effective cost-containment measures. The increase in gross profit margin percentage for the nine months ended January 31, 2025 was driven by enhanced manufacturing productivity, effective cost-containment measures, and continued benefits related to the Company's strategic go-to-market decision, made in a prior fiscal year, to stop selling direct.

Previous wording

Operating expenses for the three months ended October 31, 2024 were $9,518,000, or 19.9% of sales, as compared to $8,359,000, or 16.6% of sales, in the comparable period of the prior year. Operating expenses for the six months ended October 31, 2024 were $19,431,000, or 20.2% of sales, as compared to $16,465,000 or 16.4% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended October 31, 2024 was primarily due to increases in consulting and professional fees of $1,241,000, and corporate governance expenses of $335,000 partially offset by decreases in international operating expenses of $434,000, SG&A wages, benefit, incentive and stock-based compensation of $168,000, and bad debt expense of $48,000. The increase in operating expenses for the six months ended October 31, 2024 was primarily due to increases in consulting and professional fees of $1,853,000, SG&A wages, benefits, incentive and stock-based compensation of $563,000, corporate governance expenses of $368,000, and depreciation expense of $28,000, partially offset by decreases in bad debt expense of $162,000 and international operating expenses of $138,000. The increases in consulting and professional fees for both the three- and six-month periods were primarily attributed to one-time costs associated with the acquisition of Nu Aire and costs incurred related to Sarbanes-Oxley 404(b) compliance readiness.

Current wording

Operating expenses for the three months ended January 31, 2025 were $16,129,000, or 24.0% of sales, as compared to $8,223,000, or 17.6% of sales, in the comparable period of the prior year. Operating expenses for the nine months ended January 31, 2025 were $35,560,000, or 21.8% of sales, as compared to $24,688,000 or 16.8% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended January 31, 2025 was largely related to the acquisition of Nu Aire. The increase in operating expenses from the comparable period was also impacted by increases in consulting and professional fees of $829,000, international operating expenses of $777,000, SG&A wages, benefits, incentive and stock-based compensation of $597,000, and corporate governance expenses of $264,000. The increase in operating expenses for the nine months ended January 31, 2025 was primarily due to the acquisition of Nu Aire, with additional impacts driven by increases in consulting and professional fees of $2,326,000, SG&A wages, benefits, incentive and stock-based compensation of $1,160,000, international operating expenses of $639,000, and corporate governance expenses of $632,000. The increases in consulting and professional fees for both the three- and nine-month periods were primarily attributed to costs associated with the acquisition and integration of Nu Aire and costs incurred related to Sarbanes-Oxley 404(b) compliance readiness.

Previous wording

Interest expense was $442,000 and $914,000 for the three and six months ended October 31, 2024, respectively, as compared to $372,000 and $802,000, 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 was $1,137,000 and $2,051,000 for the three and nine months ended January 31, 2025, respectively, as compared to $411,000 and $1,213,000, respectively, for the comparable periods of the prior year. The changes in interest expense were due to changes in the levels of bank and other borrowings and interest rates.

Previous wording

Income tax expense of $916,000 and $2,015,000 was recorded for the three months ended October 31, 2024 and 2023, respectively. Income tax expense of $1,108,000 and $2,912,000 was recorded for the six months ended October 31, 2024 and 2023, respectively. The effective income tax rate for the three and six months ended October 31, 2024 was 23.3% and 17.4%, as compared to 41.6% and 35.3% for the three and six months ended October 31, 2023, respectively. The effective tax rate for the current three and six months 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 six months ended October 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 first quarter. See Note L, Income Taxes, of the Notes to Condensed Consolidated Financial Statements for additional information.

Current wording

Income tax benefit of $108,000 and income tax expense of $982,000 were recorded for the three months ended January 31, 2025 and 2024, respectively. Income tax expense of $1,000,000 and $3,894,000 were recorded for the nine months ended January 31, 2025 and 2024, respectively. The effective income tax rate for the three and nine months ended January 31, 2025 was (8.5)% and 13.1%, as compared to 27.9% and 33.1% for the three and nine months ended January 31, 2024, respectively. The effective tax rate for the current three and nine months 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 nine months ended January 31, 2025 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 first quarter. See Note N, 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 $7,000 and $52,000 for the three and six months ended October 31, 2024, respectively, as compared to $98,000 and $139,000, 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 $29,000 and $81,000 for the three and nine months ended January 31, 2025, respectively, as compared to $12,000 and $151,000, 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.

Previous wording

Net earnings was $3,008,000, or $1.01 per diluted share, for the three months ended October 31, 2024, compared to net earnings of $2,732,000, or $0.93 per diluted share, in the prior year period. Net earnings was $5,201,000, or $1.75 per diluted share, for the six months ended October 31, 2024, compared to net earnings of $5,206,000, or $1.79 per diluted share, in the prior year period.

Current wording

Net earnings was $1,354,000, or $0.45 per diluted share, for the three months ended January 31, 2025, compared to net earnings of $2,521,000, or $0.85 per diluted share, in the prior year period. Net earnings was $6,555,000, or $2.20 per diluted share, for the nine months ended January 31, 2025, compared to net earnings of $7,727,000, or $2.64 per diluted share, in the prior year period.

Previous wording

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

Current wording

Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our previous Mid Cap Revolving Credit Facility. The Company terminated the Mid Cap Revolving Credit Facility on September 30, 2024. In conjunction with the Nu Aire acquisition (see Note C, Nu Aire Acquisition for additional details), the Company entered into a new Revolving Credit Facility with PNC, which is available on an ongoing basis to supplement our sources of liquidity as needed. Additionally, certain machinery and equipment are financed by non-cancellable operating and financing leases. The Company believes that these sources will be sufficient to support ongoing business requirements in the current fiscal year, including capital expenditures.

Previous wording

The Company had working capital of $59,965,000 at October 31, 2024, compared to $56,037,000 at April 30, 2024. The ratio of current assets to current liabilities was 2.6-to-1.0 at October 31, 2024, compared to 2.4-to-1.0 at April 30, 2024.

Current wording

The Company had working capital of $58,441,000 at January 31, 2025, compared to $56,037,000 at April 30, 2024. The ratio of current assets to current liabilities was 2.2-to-1.0 at January 31, 2025, compared to 2.4-to-1.0 at April 30, 2024.

Previous wording

The Company's operating activities provided cash of $7,642,000 during the six months ended October 31, 2024, primarily from operations, decreases in receivables of $3.2 million, decreases in inventories of $2.0 million, and increases in deferred revenue of $1.9 million, partially offset by decreases in accounts payable and other accrued expenses of $3.9 million and the change in other, net of $2.0 million, of which $1.1 million related to an increase in prepaid expenses and other current assets. During the six months ended October 31, 2024, the Company used net cash of $961,000 in investing activities, all of which was used for capital expenditures. The Company's financing activities used cash of $2,886,000 during the six months ended October 31, 2024, primarily related to the termination of the Company's Revolving Credit Facility on September 30, 2024. See Note F, Long-term Debt and Other Credit Arrangements, for more details. On November 1, 2024, the Company entered into a new Loan Agreement and issued Seller Notes as part of the acquisition of Nu Aire. See Note P, Subsequent Events, for more details.

Current wording

The Company's operating activities provided cash of $5,376,000 during the nine months ended January 31, 2025. Excluding the impacts of the Nu Aire acquisition, net cash provided by operating activities was primarily driven by operations, decreases in inventories of $2.9 million, and increases in deferred revenue of $2.5 million, partially offset by decreases in receivables of $1.8 million, decreases in accounts payable and other accrued expenses of $4.9 million and the change in other, net of $2.7 million, of which $1.3 million related to an increase in prepaid expenses and other current assets. During the nine months ended January

Previous 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 acquisition of Nu Aire further presents a unique opportunity for Kewaunee to expand its capabilities and presence domestically. The improved focus of the organization, combined with the acquisition of Nu Aire, 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 acquisition of Nu Aire further expands Kewaunee's capabilities and presence domestically. The improved focus of the organization, combined with the acquisition of Nu Aire, a strong global management team, robust 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.