Virco Announces Preliminary Fourth Quarter and Full-Year 2022 Results

Virco Mfg. Corporation reported preliminary, unaudited financial results for the fourth quarter—and full year-ended January 31, 2022 (“fiscal 2022”).

Preliminary net sales were $40.1 million in the fourth quarter of fiscal 2022, an increase of 119% from $18.3 million in the same period of the prior fiscal year.

Preliminary pre-tax loss was $5.2 million for the fourth quarter of fiscal 2022, compared to a pre-tax loss of $6.5 million for the same period of the prior fiscal year. Unrecovered material cost increases combined with higher costs associated with material costs, freight and logistic costs had a negative impact on operating margins, largely offsetting the doubling of revenue.

Order rates and demand for school furniture remain strong. In the fourth quarter, typically a slow time for orders in the seasonal cycle for school furniture, orders were up 65% compared to the same period of the prior year. This led to a record backlog at year-end. Order rates in the early months of fiscal year ending January 31, 2023 (“fiscal 2023”) have expanded the backlog even further, into record territory compared to the past twenty years. As of March 31, 2022, fiscal year-to-date shipments plus unshipped backlog (“Shipments + Backlog”), the Company’s preferred measure of current and future business activity, was $85.1 million. This compares to $52.1 million and $44.8 million on March 31, 2021 and 2020, respectively. The backlog component of this measure was $67.8 million, compared to $35.8 million and $32.7 million on March 31, 2021 and 2020, respectively. For fiscal 2022, order rates increased by 39%, returning to levels last seen immediately before China was admitted to the World Trade Organization in 2001.

Robert Virtue, Chairman and CEO of Virco, said: “As expected, we had a very strong finish to fiscal 2022 with net sales more than doubling from the fourth quarter of fiscal 2021. We have been able to successfully add staff in order to increase our production levels to support the strong demand we are seeing, and the increased efficiencies we are getting from our operations led to improvement to both gross margin and SG&A as a percentage of net sales compared to the fourth quarter of fiscal 2021. Our pricing for fiscal 2023 has been adjusted upward and reflects the higher material and freight costs we are seeing due to inflationary pressures, which should enable us to offset the margin pressure that we experienced throughout most of fiscal 2022. We believe this will allow more of our revenue growth to have a positive impact on profitability going forward.”

Doug Virtue, President of Virco, added: “We continue to successfully capitalize on robust market conditions resulting from higher levels of funding for public schools, as well as the competitive advantage we have from our domestic production and distribution model that is enabling us to consistently take market share from overseas competitors who we believe cannot consistently match our quality, innovation, and reliability. As of March 31, 2022, our fiscal year-to-date Shipments + Backlog was 63% higher than at the same point last year and incoming orders are at the highest level in nearly 20 years. We also continue to see services increase as a percentage of our net sales, which positively impacts our profitability. Given the strong demand that we are seeing, we believe that we are well positioned to deliver improved financial performance in fiscal 2023, while the longer-term shift back to domestic producers and suppliers continues to accelerate and creates a favorable environment for generating profitable growth in the coming years. We also recently extended our $70.0 million working capital credit facility with PNC Bank, giving us the liquidity to capitalize on our strong operating foundation.”

Fourth Quarter Fiscal 2022 Financial Results

The following are our preliminary unaudited results for the quarter ended January 31, 2022:

Preliminary net sales were $40.1 million for the fourth quarter of fiscal 2022, an increase of 119% from $18.3 million for the same period of the prior fiscal year.

Gross margin was 26.5% for the fourth quarter of fiscal 2022, compared with 24.8% in the same period of the prior fiscal year. The increase in gross margin was primarily attributable to the higher level of revenue, which increase absorption of fixed manufacturing costs. This improvement was partially offset by higher raw material costs and transportation expenses.

Selling, general, administrative and other expenses (SG&A) was $15.2 million for the fourth quarter of fiscal 2022, compared to $10.3 million in the same period of the prior fiscal year. The increase in SG&A expense was attributable to a combination of higher freight costs on shipments to customers as well as higher selling expense, most of which was related to the higher level of shipments and revenue. As a percent of revenue, SG&A declined from 56.4% of revenue in the fourth quarter of the prior year to 38.0% in the fourth quarter of fiscal 2022.

Interest expense was $216,000 in the fourth quarter of fiscal 2022, compared with $221,000 in the same period of the prior fiscal year.

Preliminary pre-tax loss was $5.2 million for the fourth quarter of 2022, compared with a pre-tax loss of $6.5 million for the same period of the prior fiscal year. The improvement in the pre-tax loss for the seasonally light fourth quarter was due primarily to higher revenue, partially offset by unrecovered raw material and freight costs.

Income tax expense was $11.1 million for the fourth quarter of fiscal 2022, compared with an income tax benefit of $1.0 million in the same period of the prior year. This change reflects a non-cash valuation allowance related to the Company’s expectation of realizing deferred tax benefits, as will be described more thoroughly in the Company’s Form 10-K filing for fiscal 2022.

Fiscal Year 2022 Financial Results

The following are our preliminary unaudited results for the year ended January 31, 2022:

Preliminary net sales were $184.8 million for the 12 months ended January 31, 2022, an increase of 21% from $152.8 million for the same period of the prior fiscal year. The increase in net sales was primarily attributable to completion of new school construction projects that had been delayed by the pandemic, augmented by additional stimulus from federal and state government. Management also believes it took market share from overseas competitors experiencing longer delays in product availability and shipping times.

Gross margin was 33.0% for the 12 months ended January 31, 2022, compared with 36.0% in the same period of the prior fiscal year. The decrease in gross margin was primarily attributable to higher raw material and inbound freight costs.

SG&A was $61.3 million for the 12 months ended January 31, 2022, compared with $54.2 million in the same period of the prior fiscal year. The increase in SG&A expense was primarily attributable to higher freight costs to customers as well as higher selling costs resulting from the increase in shipments and revenue. As a percentage of revenue, SG&A declined to 33.1% in fiscal 2022 from 35.5% in fiscal 2021 due to the inherent efficiencies achieved through higher volume with the Company’s vertical operating model.

Interest expense was $1.2 million for the 12 months ended January 31, 2022, compared with $1.5 million in the same period of the prior fiscal year. The decline in interest expense was primarily attributable to a lower level of debt financing compared to the prior year period, despite the overall increase in revenue.

Preliminary pre-tax loss was $3.7 million for the 12 months ended January 31, 2022, compared to a pre-tax loss of $3.0 million for the same period of the prior fiscal year. The increase in pre-tax loss was primarily attributable to higher raw material and freight costs. These costs have been addressed with inflation-adjustment clauses in the Company’s public procurement contracts, and Management believes that a return to traditional operating margins is possible in the upcoming fiscal year 2023.

Income tax expense was $11.4 million for the 12 months ended January 31, 2022, compared with income tax benefit of $0.7 million for the same period of the prior fiscal year. Changes in income tax were attributable to a non-cash valuation allowance against the Company’s deferred tax assets, as will be described more thoroughly in the Company’s Form 10-K filing for fiscal 2022.