Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company's 2025 Annual Report onForm 10-Kcontains 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, 2025. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 2025. The analysis of results of operations compares the three and nine months ended January 31, 2026 with the comparable period of the prior year.
Acquisition of Nu Aire, Inc.
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.
Nu Aire is renowned for its manufacturing of biological safety cabinets, airflow products, CO2 incubators, ultralow freezers, animal handling equipment, pharmacy compounding isolators, and related parts and accessories. Their products serve a diverse range of industries, including life sciences, healthcare, pharmacy, education, food and beverage, and industrial sectors.
The acquisition of Nu Aire presents a unique opportunity for the Company to combine its robust capabilities with a recognized market leader whose product portfolio and well-developed channel strategy complement the Company's existing offerings. This acquisition expands the Company's capabilities, allowing the combined organization to better meet the diverse needs of end-users in laboratory furnishings. Additionally, Nu Aire has established distribution partners in regions where the Company has not previously had a presence. This move accelerates the Company's vision of becoming the market leader in the design and manufacturing of laboratory furniture and technical products essential for outfitting laboratories.
Critical Accounting Estimates
In the ordinary course of business, the Company may make estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ significantly from those estimates. There have been no material changes to the Company's determination of its most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations, and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain, from those described inPart II, Item 7of the Company's 2025 Annual Report on Form 10-K under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" beyond those set forth below.
Results of Operations
Sales for the quarter were $69,399,000, an increase from sales of $67,167,000 in the comparable period of the prior year. Domestic sales for the quarter were $50,953,000, down 2.0% when compared to sales of $51,976,000 in the comparable period of the prior year. Domestic sales remained relatively flat when compared to the prior year. International sales for the quarter were $18,446,000, up 21.4% when compared to sales of $15,191,000 in the comparable period of the prior year. International sales increased when compared to the prior year period due to higher billings, principally in the Indian market.
Sales for the nine months ended January 31, 2026 were $210,599,000, an increase from sales of $163,324,000 in the comparable period of the prior year. Domestic sales for the period were $160,529,000, up 29.6% from sales of $123,908,000 in the comparable period of the prior year. The increase in Domestic sales was due to the acquisition of Nu Aire, as discussed above, which was included in the prior year comparable results for only a portion of the nine month period. International sales for the period were $50,070,000, up 27.0% from sales of $39,416,000 in the comparable period of the prior year. The increase in International sales was primarily driven by increased billings, as noted above.
The Company's order backlog was $183.2 million at January 31, 2026, as compared to $221.6 million at January 31, 2025, and $214.6 million at April 30, 2025.
The gross profit margin for the three months ended January 31, 2026 was 26.7% of sales, as compared to 27.4% of sales in the comparable quarter of the prior year. The gross profit margin for the nine months ended January 31, 2026 was 28.1% of sales, as compared to 27.4% of sales in the comparable period of the prior year. The change in gross profit margin percentage for the nine months ended January 31, 2026 was primarily driven by the acquisition of Nu Aire on November 1, 2024. Additionally,
domestic segment profitability in the three months ended January 31, 2026 was impacted by lower manufacturing volumes across the laboratory construction portion of the business as well as changes in product mix.
Operating expenses for the three months ended January 31, 2026 were $15,963,000, or 23.0% of sales, as compared to $16,129,000, or 24.0% of sales, in the comparable period of the prior year. Operating expenses for the nine months ended January 31, 2026 were $47,696,000, or 22.6% of sales, as compared to $35,560,000, or 21.8% of sales, in the comparable period of the prior year. Operating expenses for the three months ended January 31, 2026 remained relatively flat. The increase in operating expenses for the nine months ended January 31, 2026 was primarily due to the acquisition of Nu Aire. The increase in operating expenses was also impacted by increases in SG&A wages, benefits, incentive and stock-based compensation of $1,008,000 and international operating expenses of $682,000, partially offset by decreases in consulting and professional fees of $1,106,000.
Interest expense was $1,112,000 and $3,231,000 for the three and nine months ended January 31, 2026, respectively, as compared to $1,137,000 and $2,051,000 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.
Income tax expense of $528,000 and income tax benefit of $108,000 were recorded for the three months ended January 31, 2026 and 2025, respectively. Income tax expense of $2,204,000 and $1,000,000 were recorded for the nine months ended January 31, 2026 and 2025, respectively. The effective income tax rate for the three and nine months ended January 31, 2026 was 32.9% and 24.6%, respectively, as compared to (8.5)% and 13.1% for the three and nine months ended January 31, 2025, respectively. The effective tax rate for the current three and nine 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 nine months ended January 31, 2026 was favorably impacted by a discrete tax benefit of $303,000 resulting from the issuance of stock through the vesting of restricted stock units during the first quarter. The comparable prior year period also included a one-time tax benefit related to the remeasurement of deferred tax assets following the Nu Aire acquisition. The acquisition changed the Company's weighted average state tax rate, resulting in a favorable deferred tax assets adjustment. On July 4, 2025, the U.S. government enacted Public Law No. 119-21, commonly known as the One Big Beautiful Bill Act ("OBBBA"), which includes a broad range of tax reform provisions affecting businesses. Since OBBBA was enacted on July 4, 2025, the Company has evaluated its provisions and reflected the impact of the bonus amortization acceleration under Section 174 of the Internal Revenue Code in its income tax provision for the nine months ended January 31, 2026. The enactment impacts the Company's effective tax rate and deferred tax balances for the period. The Company continues to evaluate other provisions of the legislation; however, no additional material impacts have been identified as of January 31, 2026. SeeNote N,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 decreased net earnings by $384,000 and $543,000 for the three and nine months ended January 31, 2026, respectively, as compared to $29,000 and $81,000, respectively, 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 (losses) of the subsidiaries in the related period.
Net earnings was $692,000, or $0.23 per diluted share, for the three months ended January 31, 2026, compared to net earnings of $1,354,000, or $0.45 per diluted share, in the prior year period. Net earnings was $6,230,000, or $2.09 per diluted share, for the nine months ended January 31, 2026, compared to net earnings of $6,555,000, or $2.20 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, 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 (seeNote C, Nu Aire Acquisitionfor 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.
The Company had working capital of $54,793,000 at January 31, 2026, compared to $64,651,000 at April 30, 2025. The ratio of current assets to current liabilities was 2.1-to-1.0 at January 31, 2026, compared to 2.2-to-1.0 at April 30, 2025.
The Company's operating activities provided cash of $13,173,000 during the nine months ended January 31, 2026. Net cash provided by operating activities was primarily driven by operations and decreases in receivables of $8.2 million, partially offset
by decreases in accounts payable and other accrued expenses of $5.4 million, and decreases in deferred revenue of $2.0 million. During the nine months ended January 31, 2026, the Company used net cash of $3,009,000 in investing activities related to capital expenditures. The Company's financing activities used net cash of $16,376,000 during the nine months ended January 31, 2026, primarily related to the servicing of the Company's long-term debt arrangements and the payment of employee taxes withheld for stock-based compensation. Additionally, on December 4, 2025, the Company entered into a First Amendment to Loan Agreement with PNC and completed the Seller Note Repayment. SeeNote H, Long-term Debt and Other Credit Arrangements, for more details.
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 costs of raw materials, including steel, wood, and epoxy resin.
Kewaunee's third quarter results for fiscal year 2026 align with the expectations previously communicated regarding volatility in project delivery timeliness and with historical trends, whereby the Company's third quarters are often impacted by the holiday schedule in the United States, a general slowdown of construction schedules in the winter months, and customers looking to wrap up construction projects prior to calendar year-end. This trend was further exacerbated by significant geopolitical and economic uncertainty. However, the softness of the construction-related portion of Kewaunee's business has been offset by the addition of Nu Aire's end-user containment products, validating the Company's ongoing growth and diversification strategy.
The Company remains committed to its focus on growth and continuing strategic investments in the people, processes, and technology that will support and enable this growth in a sustainable manner.
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 Annual 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: our ability to realize the benefits anticipated as a result of the Nu Aire acquisition; competitive and general economic conditions, 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. 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 difference might be significant and harmful to our stockholders' interest. Many important factors that could cause such differences are described under the caption "Risk Factors" inItem 1Ain the Company's 2025 Annual Report on Form 10-K and inItem 1Aof Part II in this Quarterly Report on Form 10-Q, 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.