Annual Report for Fiscal Year Ending January 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis are meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts of cash flows from operations and outside resources, liquidity and certain other factors that may affect future results so as to allow investors to better view our company from management's perspective. The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and financing, includes forward-looking statements that involve risks and uncertainties. Carefully review the "Forward-Looking Statements" and "Risk Factors" sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a multi-national enterprise that leverages our proprietary data visualization technologies to design, develop, manufacture, distribute, and service a broad range of products that acquire, store, analyze, and present data in multiple formats. We organize our structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. We market and sell our products and services through the following two segments:

On May 4, 2024, we entered into an agreement to acquire MTEX, a Portugal-based manufacturer of digital mid-market printing equipment and supplies that addresses a wide variety of markets primarily targeting color printing of rigid and flexible packaging, labeling, apparel, footwear and more. We have reported MTEX as a part of our PI segment since the May 6, 2024 closing date of that transaction. On August 4, 2022, we completed the acquisition of Astro Machine, an Illinois-based manufacturer of printing equipment, including label printers, over printers, tabbers, conveyors, and envelope feeders. Astro Machine is reported as part of our PI segment beginning with the third quarter of fiscal 2023. Refer to Note 2, "Acquisitions," in our consolidated financial statements included elsewhere in this report for further details on both of these acquisitions.

On July 26, 2023, we adopted a restructuring plan (the "2024 Restructuring Plan") for our PI segment that transitioned a portion of the printer manufacturing within that segment from our facility in Rhode Island to our Astro Machine facility located in Illinois, ceased the sale of certain of our older, lower-margin or low-volume PI segment products and made targeted reductions to our workforce. As part of the 2024 Restructuring Plan, we also consolidated certain of our international PI sales and distribution facilities and streamlined our channel partner network. The total cost of this plan was $2.5 million, comprised primarily of non-cash charges related to inventory write-offs and facility exit costs, and cash charges related to severance-related costs. Additionally, in connection with our 2024 Restructuring Plan, we identified the need to address quality and reliability issues in certain models of our PI printers as a result of faulty ink provided by one of our larger suppliers. We identified approximately 150 printers sold to our customers that were affected by the faulty ink and in order to remedy these issues and maintain solid customer relationships, during the second quarter of fiscal 2024, we initiated a program to retrofit all of the affected printers sold to our customers (the "2024 Product Retrofit Program"). The costs associated with this program were $0.6 million, which included the cost of parts, labor and travel, and were included in cost of revenue in our consolidated income statement for the year ended January 31, 2024. As of January 31, 2024, both the 2024 Restructuring Plan and the 2024 Product Retrofit Program were completed and concluded. Refer to Note 20, "Restructuring," in our consolidated financial statements included elsewhere in this report for further details.

We market and sell our products and services globally through a diverse distribution structure of direct sales personnel, manufacturers' representatives, OEMs, and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets. Our growth strategy centers on organic growth through product innovation made possible by research and development initiatives, as well as strategic acquisitions that fit into or complement existing core businesses. In fiscal

2025, 2024, and 2023, revenue from customers in various geographic areas outside the United States, primarily in Western Europe, Canada and Asia, amounted to $61.8 million, $63.3 million, and $59.0 million, respectively.

We maintain an active program of product research and development. We spent approximately $6.6 million in fiscal 2025, $6.9 million in fiscal 2024 and $6.8 million in fiscal 2023, on Company-sponsored product development. We are committed to continuous product development as essential to our organic growth and expect to continue our focus on research and development efforts in fiscal 2026 and beyond.

We also continue to invest in sales and marketing initiatives by expanding and improving the existing sales force and using various marketing campaigns to achieve our goals of sales growth and increased profitability.

Results of Operations

Fiscal 2025 compared to Fiscal 2024

The following table presents the revenue of each of our segments, as well as the percentage of total revenue and change from the prior year.

Net revenue in fiscal 2025 was $151.3 million, a 2.2% increase compared to net revenue of $148.1 million for fiscal 2024. Current year revenue through domestic channels was $89.5 million, an increase of 5.6% from prior year domestic revenue of $84.8 million. International revenue of $61.8 million for fiscal 2025 decreased 2.4% compared to prior year international revenue of $63.3 million. Fiscal 2025 international revenue reflects an unfavorable foreign exchange rate impact of $0.3 million, compared to a favorable foreign exchange rate impact of $0.4 million in fiscal 2024. Our 2024 acquisition of MTEX contributed $4.2 million in international revenue in fiscal 2025.

Hardware revenue in fiscal 2025 was $44.6 million, a $4.8 million or 9.7% decrease compared to fiscal 2024 hardware revenue of $49.4 million due to decreased hardware sales in both the T&M and PI segments. Compared to fiscal 2024 and excluding $2.2 million of hardware sales from our newly acquired MTEX business, current year hardware sales in the PI segment decreased $7.0 million or 14.1%. The decrease in PI hardware sales was in both Astro Machine and Trojan Label. Astro Machine's key customer, a distributor, announced a new design for their "Mail and Envelope" printer that was faster, included a wider format and used water-based pigments versus water-based dyes for superior quality. The newly designed printer was pre-released to the marketplace by the distributor before its specifications were finalized and was intended to replace the distributor's previous design that was also manufactured by Astro Machine. The distributor's pre-release announcement caused their customers to delay purchases of existing printers as they awaited the new enhanced printer. Unfortunately, the distributor also made a series of changes to the new printer that delayed the selling of the new printers until January 2025. The combination of the delay in customer purchases of the existing printers as they waited for the release of the new printers, and the delays in the release of the new printer driven by design modifications caused hardware sales to decrease by $1.7 million as compared to fiscal 2024. In addition, Astro Machine's black and white printer sales decreased by $1.4 million due to a supply disruption of specialized motors. Astro Machine's suppliers were able to deliver the motors late in fiscal 2025, allowing the black and white printer deliveries to resume at normal levels. Sales of TrojanLabel's large-format over-printers decreased year-over-year by $1.5 million due to a competitor introducing a new model that impacted our market share in Europe. We are addressing this challenge with new superior technology in our MTEX product line scheduled for release in the first half of fiscal 2026. T&M hardware sales decreased 6.5% or $1.8 million compared to the prior year. The decline was in the Aerospace printer and networking products was due to a delayed defense order of approximately $2.2 million and delays in commercial aircraft printer orders of $0.7 million due to a strike a major airplane manufacturer. These declines were partially offset by volume increases in overall aircraft printer orders. In the T&M product line, data recorder sales were down year over year by $1.1 million, as the products are typically used for defense and other niche applications and do not follow a regular replacement cycle.

Revenue from supplies in fiscal 2025 was $81.4 million, a 2.7% or $2.2 million increase compared to fiscal 2024 supplies revenue of $79.3 million, as supplies revenue increased in both the PI and T&M segments in the current year, but primarily due to an increase in sales of our Trojan Label brand inks and printheads of $3.1 million or 23.8%, Astro Machine's $0.8 million or 12.1% increase relating to increased sales of both printheads and inks and the contribution of supplies sales from MTEX of $1.4 million, all in the PI segment. Also contributing to the increase in the current year's supplies revenue was an increase in paper revenue for the aerospace printer product line in the T&M segment of $0.8 million. Partially offsetting the growth in supplies revenue was a decline in

QuickLabel supplies sales in the PI segment of $3.9 million, as sales of these supplies were impacted by obsolete and end of life products along with lower ink sales on certain ink-jet printers.

Service and other revenue in fiscal 2025 was $25.2 million, a $5.8 million or 30.1% increase compared to fiscal 2024 service and other revenue of $19.4 million. The increase is primarily due to a $6.0 million or 51.9% increase in parts and repairs revenue in the aerospace printer product line in the T&M segment. This was due to a large backlog of replacement parts that were shipped during the current year and an increased use of the printers due to the higher number of commercial flights.

Gross profit was $52.7 million for fiscal 2025, reflecting a $1.1 million or 2.2% increase compared to fiscal 2024 gross profit of $51.6 million. Our gross profit margin of 34.9% in fiscal 2025 remained consistent with our fiscal 2024 gross profit margin. The increase in gross profit dollars in the current year compared to the prior year was due to the MTEX gross profit contribution of $0.5 million and the $2.2 million increase in the T&M segment gross profit, offset by a decrease in PI segment gross profit, excluding the MTEX impact, of $1.8 million related to sales volume. Note that the fiscal 2024 gross profit margin included $2.1 million of restructuring costs and $0.7 million of product retrofit costs that did not repeat in the current year.

Operating expenses for the current year were $61.4 million, representing a 43.3% increase from the prior year's operating expenses of $42.8 million. Current year operating expenses included a $13.4 million goodwill impairment charge related to the under performance of the MTEX acquisition. Originally, we expected MTEX to achieve $8.0 million to $10.0 million in revenues for the period of May 2024 through January 2025, however, during this period, MTEX generated only $4.2 million of revenue. Due to the actual and expected underperformance of MTEX relative to our original expectations, we performed a strategic review of the MTEX operation, which ultimately led to the conclusion that the goodwill in our PI segment was impaired. Refer to Note 4, "Intangible Assets and Goodwill," in our consolidated financial statements included elsewhere in this report for further details. Included in operating expenses are selling and marketing expenses of $25.6 million in fiscal 2025, an increase of 4.6% from the prior year amount of $24.4 million. The increase in selling and marketing expenses for the current year is primarily due to an increase in wages, travel and entertainment, and advertising and trade show expenses, partially offset by the impact of restructuring costs that were unique to the prior year. General and administrative expenses increased 37.6% to $15.8 million in the current year compared to $11.5 million in the prior year primarily due to an increase in outside services fees, which includes MTEX acquisition costs of $1.2 million. Also contributing to the increase in general and administrative expenses were CFO transition costs of $0.4 million and increases in employee wages and benefits, and advertising and trade show expenses. Research & development ("R&D") costs in fiscal 2025 of $6.6 million decreased 4.3% from fiscal 2024, as decreases in employee wages and bonuses were partially offset by increases in outside consulting and service expenses. The R&D spending level for fiscal 2025 represents 4.4% of net revenue, compared to the prior year level of 4.7%.

Other expense in fiscal 2025 was $3.6 million compared to $2.7 million in fiscal 2024. Current year other expense includes $3.2 million of interest expense on our debt and revolving credit facilities and net other expense of $0.8 million, partially offset by a net foreign exchange gain of $0.3 million. Prior year other expense included interest expense on debt and revolving credit facility of $2.7 million and net foreign exchange loss of $0.1 million, partially offset by other income of $0.1 million.

We recognized $2.2 million of income tax expense for the current fiscal year, resulting in an effective tax rate of (17.9)% compared to 22.7% in fiscal 2024. The decrease in the effective tax rate in fiscal 2025 from fiscal 2024 is primarily related to the decrease in pre-tax book income and federal income tax provision associated with the goodwill impairment and MTEX losses, the decrease in return to provision adjustments, and the decrease in the valuation allowance associated with China losses. This decrease was partially offset by other factors increasing the effective tax rate, such as the valuation allowance recorded on Portuguese tax credits, goodwill impairment recorded on MTEX for the PI reporting segment, and transaction costs associated with the MTEX acquisition.

Net loss for fiscal 2025 was $14.5 million, or $1.93 per diluted share. The results for this period were impacted by an inventory step up cost of $0.2 million ($0.2 million net of tax or $ 0.02 per diluted share) and transaction costs of $1.2 million ($0.9 million net of tax or $0.12 per diluted share), both related to the MTEX acquisition and CFO transition charges of $0.4 million ($0.3 million net of tax or $0.04 per diluted share). Net income for fiscal 2024 was $4.7 million, or $0.63 per diluted share. The results for fiscal 2024 were impacted by expense of $2.6 million ($2.0 million net of tax or $0.27 per diluted share) related to the 2024 Restructuring Plan and expense of $0.6 million ($0.5 million net of tax or $0.07 per diluted share) related to the 2024 Product Retrofit Program.

Fiscal 2024 compared to Fiscal 2023

For a comparison of our results of operations for the fiscal years ended January 31, 2024, and January 31, 2023, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, filed with the SEC on April 12, 2024.

Segment Analysis

We report two segments consistent with our product revenue groups: PI and T&M. Segment performance is evaluated based on the operating segment's profit before corporate and financial administration expenses. The following table summarizes selected financial information by segment.

Product Identification

During the second quarter of the current year we acquired MTEX, a Portugal-based manufacturer of digital printing equipment. Since the closing of that transaction on May 6, 2024, MTEX has been reported as a part of our PI segment. Although we remain excited about the opportunities created by MTEX's complementary product portfolio and anticipate improved overall business and enhanced customer service as we integrate MTEX's advanced technology across other areas of our product portfolio, the integration of MTEX has been more time-consuming and resource-intensive than we originally anticipated. Additionally, in the course of integrating MTEX into our operations, we have discovered certain facts that we believe may constitute breaches of the representations and warranties included in the definitive agreements governing our acquisition of MTEX. We are continuing to investigate these matters and are seeking remedies from the seller under those agreements. In the current year, MTEX had an operating loss of $16.9 million on revenue of $4.2 million. MTEX's operating loss includes a $13.4 million charge related to goodwill impairment. Corporate expense for the current year includes $1.2 million of general and administrative expenses that are not allocated to any segment, related to the acquisition of MTEX.

Subsequent to year end, on March 20, 2025, we announced our restructuring actions for fiscal 2026, which include the reduction of approximately 10% of the Company's global workforce, primarily in the PI segment, and the realignment of our underperforming MTEX operation in Portugal. As part of this initiative, we have cut approximately 70% of the MTEX product portfolio, phasing out low-volume, low-profit and developmental models in the nascent fabric printing market to focus more resources on much higher-margin products that capitalize on our supplies business. In addition, all MTEX sales, marketing and customer support functions have been integrated into our global teams. We anticipate our restructuring actions to generate $3.0 million in annualized savings. Refer to Note 24, "Subsequent Events," in our consolidated financial statements included elsewhere in this report for further details.

Revenue from the PI segment decreased 1.6% in fiscal 2025, with revenue of $102.3 million compared to revenue of $104.0 million in the prior year. The current year decrease in revenue is primarily attributable to the delayed release of an OEM printer within our Astro Machine product line. These printers were initially slated for release in the third quarter of fiscal 2025, but due to post order customer changes more development and development time were incurred and shipments did not begin until the fourth quarter of fiscal 2025. Also contributing to the decline in current year sales was the decrease in legacy hardware sales and QuickLabel supply revenue. The decline in current quarter revenue was partially offset by an increase in supplies sales in the Trojan Label product line and the contribution of $4.2 million from MTEX hardware, supply and parts revenues. PI current year segment operating loss was $4.0 million, which includes a $13.4 million charge for goodwill impairment and a $0.2 million inventory step-up, both related to the MTEX business and reflects a profit margin of (3.9)%. Prior year segment operating profit was $10.1 million which includes $3.1 million in costs related to the 2024 Restructuring Plan and the 2024 Product Retrofit Program, with a related profit margin of 9.7%. The decrease in the current year PI segment operating profit and margin is primarily due to higher costs in the fiscal 2025 period, in part associated with the MTEX acquisition, product mix, lower sales volume in Europe and the delayed Astro Machine product release.

Test & Measurement

Revenue from the T&M segment was $48.9 million for fiscal 2025, an 11.1% increase compared to revenue of $44.0 million in the prior year. The increase in revenue for the current year was primarily attributable to increased parts and repairs revenue in our aerospace product lines, including a large backlog of replacement parts that were shipped during the current year. Also contributing to the current year increase was an increase in sales of aerospace supplies. T&M revenue in fiscal 2025 and 2024 was also impacted by $0.8 million and $1.3 million, respectively, of revenue recognized as the result of successful claims for component cost increases for

printer shipments to one customer as described in Note 3, "Revenue Recognition," in our consolidated financial statements included elsewhere in this report. The current year T&M segment revenue increase was partially offset by a decline in hardware sales in both the aerospace printer and data recorder product lines. T&M current year segment operating profit was $11.1 million resulting in a 22.8% profit margin compared, to the prior year segment operating profit of $10.2 million and related operating profit margin of 23.2%. The increased profit and decrease in margins were primarily attributable to higher revenue from high-margin product lines, partially offset by increased manufacturing, period costs and operating expenses in fiscal 2025.

Liquidity and Capital Resources

Overview

Historically, our primary sources of short-term liquidity have been cash generated from operating activities and borrowings under our revolving credit facility. These sources have also typically funded the majority of our capital expenditures. We have funded acquisitions by borrowing under bank credit facilities.

We believe cash flow generation from operations and available unused credit capacity under our revolving credit facility will support our anticipated needs. Additionally, as discussed below, we amended the terms of our credit agreement with Bank of America to finance our acquisition of MTEX. In fiscal 2026 (after required debt amortization and payment of minimum guaranteed royalty payments to Honeywell), we plan to focus on reduction of debt outstanding under our credit agreement.

In connection with our acquisition of MTEX, on May 6, 2024, we entered into a Third Amendment to Amended and Restated Credit Agreement (the "Third Amendment") with Bank of America, N.A., as lender (the "Lender"). The Third Amendment amended the Amended and Restated Credit Agreement dated as of July 30, 2020, as amended by the First Amendment to Amended and Restated Credit Agreement, dated as of March 24, 2021, the LIBOR Transition Amendment, dated as of December 14, 2021, the Second Amendment to Amended and Restated Credit Agreement dated as of August 4, 2022, and the Joinder Agreement relating to Astro Machine dated as of August 26, 2022 (as so amended, the "Existing Credit Agreement"; the Existing Credit Agreement as amended by the Third Amendment, the "Amended Credit Agreement"), between AstroNova, Inc. as the borrower, Astro Machine as a guarantor, and the Lender.

At January 31, 2025 our cash and cash equivalents were $5.1 million. As of January 31, 2025, $20.5 million was borrowed and outstanding under our revolving credit facility with Bank of America and $4.5 million was available for borrowing under that revolving credit facility. Additionally, MTEX has a EUR 0.5 million ($0.5 million) available line of credit with Caixa Central de Crédito Agricola Mutuo. This credit line was established in December 2023 and is renewable every six months. There was EUR 0.4 million ($0.4 million) borrowed and outstanding on this line of credit as of January 31, 2025.

Indebtedness

Term Loans and Revolving Credit Facility

The Amended Credit Agreement requires that the Term A-2 Loan be paid in quarterly installments on the last day of each of our fiscal quarters through April 30, 2027 in the principal amount of EUR 583,333 each, and the entire then-remaining principal balance of the Term A-2 Loan is required to be paid on August 4, 2027. The Amended Credit Agreement requires that the remaining balance of the Term Loan be paid in quarterly installments on the last day of each of our fiscal quarters through April 30, 2027 in the principal amount of $675,000 each, and the entire then remaining principal balance of the Term Loan is required to be paid on August 4, 2027. We may voluntarily prepay the Term A-2 Term Loan or the Term Loan, in whole or in part, from time to time without premium or penalty (other than customary breakage costs, if applicable). We may repay borrowings under the revolving credit facility at any time without premium or penalty (other than customary breakage costs, if applicable), but in any event no later than August 4, 2027, and any outstanding revolving loans thereunder will be due and payable in full, and the revolving credit facility will terminate, on such date. We may reduce or terminate the revolving credit facility at any time, subject to certain thresholds and conditions, without premium or penalty.

The loans under the Amended Credit Agreement are subject to certain mandatory prepayments, subject to various exceptions, from net cash proceeds from certain dispositions of property, certain issuances of equity, certain issuances of additional debt and certain extraordinary receipts.

Amounts repaid under the revolving credit facility may be reborrowed, subject to our continued compliance with the Amended Credit Agreement. No amount of the Term A-2 Loan or the Term Loan that is repaid may be reborrowed.

The Term A-2 Loan bears interest at a rate per annum equal to the EURIBOR rate as defined in the Amended Credit Agreement, plus a margin that varies within a range of 1.60% to 2.50% based on our consolidated leverage ratio. The Term Loan and revolving credit loans bear interest at a rate per annum equal to, at our option, either (a) the Term SOFR rate as defined in the Amended Credit Agreement (or, in the case of revolving credit loans denominated in Euros or another currency other than U.S. Dollars, the applicable

quoted rate), plus a margin that varies within a range of 1.60% to 2.50% based on our consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal fund rate plus 0.50%, (ii) Bank of America's publicly announced prime rate, (iii) the Term SOFR rate plus 1.00%, or (iv) 0.50%, plus a margin that varies within a range of 0.60% to 1.50% based on our consolidated leverage ratio. In addition to certain other fees and expenses that we are required to pay to the Lender, we are required to pay a commitment fee on the undrawn portion of the revolving credit facility that varies within a range of 0.15% and 0.35% based on our consolidated leverage ratio.

We must comply with various customary financial and non-financial covenants under the Amended Credit Agreement. The financial covenants under the Amended Credit Agreement consist of a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio, certain of the provisions of which were modified by the Third Amendment; the minimum consolidated asset coverage ratio under the Existing Credit Agreement was eliminated by the Third Amendment. The primary non-financial covenants limit our and our subsidiaries' ability to incur future indebtedness, to place liens on assets, to pay dividends or distributions on our or our subsidiaries' capital stock, to repurchase or acquire our or our subsidiaries' capital stock, to conduct mergers or acquisitions, to sell assets, to alter our or our subsidiaries' capital structure, to make investments and loans, to change the nature of our or our subsidiaries' business, and to prepay subordinated indebtedness, in each case subject to certain exceptions and thresholds as set forth in the Amended Credit Agreement, certain of which provisions were modified by the Third Amendment. As of January 31, 2025, we were not in compliance with the Amended Credit Agreement as a result of our failure to comply with the maximum consolidated leverage ratio and the minimum consolidated fixed charge coverage ratio in effect for our fiscal measurement period ended January 31, 2025.

The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the Amended Credit Agreement upon the occurrence of any of various customary events of default, which include, among other events, the following (which are subject, in some cases, to certain grace periods): failure to pay when due any principal, interest or other amounts in respect of the loans, breach of any of our covenants or representations under the loan documents, default under any other of our or our subsidiaries' significant indebtedness agreements, a bankruptcy, insolvency or similar event with respect to us or any of our subsidiaries, a significant unsatisfied judgment against us or any of our subsidiaries, or a change of control.

Our obligations under the Amended Credit Agreement continue to be secured by substantially all of our personal property assets (including a pledge of the equity interests we hold in ANI Scandinavia ApS, AstroNova GmbH, AstroNova SAS and the Purchaser), subject to certain exceptions, and by a mortgage on our owned real property in West Warwick, Rhode Island, and are guaranteed by, and secured by substantially all of the personal property assets of, Astro Machine.

Equipment Loan

In January 2024, we entered into a secured equipment loan facility agreement with Banc of America Leasing & Capital, LLC and borrowed the principal amount of $0.8 million thereunder for the financing of our purchase of production equipment. The loan matures on January 23, 2029 and bears interest at a fixed rate of 7.06%. Under this loan agreement, equal monthly payments including principal and interest of $16,296 will be paid through the maturity of the loan on January 23, 2029.

Assumed Financing Obligations of MTEX

In connection with the purchase of MTEX, we assumed certain existing financing obligations of MTEX that remain outstanding as of January 31, 2025. The long-term debt obligations of MTEX that remain outstanding include a term loan (the "MTEX Term Loan") pursuant to the agreement dated December 22, 2023 (the "MTEX Term Loan Agreement") between MTEX and Caixa Central de Crédito Agricola Mutuo. The MTEX Term Loan provides for a term loan in the principal amount of EUR 1.5 million ($1.6 million) requiring monthly principal and interest payments totaling EUR 17,402 ($18,795) commencing in October 2024 and continuing through maturity on December 21, 2033, and bears interest at a fixed rate of 6.022% per annum.

MTEX has also received government assistance in the form of interest-free loans from government agencies located in Portugal (the "MTEX Government Grant Term Loans"). The MTEX Government Grant Term Loans are to be repaid to the applicable government agencies and are classified as long-term debt. The balance of the MTEX Government Grants Term Loans as of January 31, 2025 is $0.9 million. The MTEX Government Grant Term Loans provide interest-free financing so long as monthly principal payments are made. In the event that MTEX and the applicable government agency renegotiate the payment dates, interest will be calculated according to a rate determined by the government agency as of the date of renegotiation and added to the outstanding

principal payments. The MTEX Government Grants Term Loans outstanding as of January 31, 2025 mature at different dates through January 2027.

Additionally, we assumed short-term financing obligations of MTEX, of which $0.6 million remain outstanding as of January 31, 2025, including letters of credit, maturing term loans, and financing arrangements for working capital classified as debt.

Subsequent Event - Credit Agreement Amendment and Waiver

On March 20, 2025, we entered into a Fourth Amendment to Amended and Restated Credit Agreement (the "Fourth Amendment") with Bank of America, which further amended the Amended Credit Agreement (as so amended, the "Further Amended Credit Agreement").

The Further Amended Credit Agreement modified the remaining quarterly installments in which the outstanding balance of the existing Term Loan must be paid; the outstanding principal balance of the Term Loan as of the effective date of the Fourth Amendment was $9,450,000. Under the Further Amended Credit Agreement, such remaining quarterly installments must be paid on the last day of each of our fiscal quarters through April 30, 2027 in the principal amount of (i) in the case of the installments for the fiscal quarters ending April 30, 2025 through January 31, 2026, $325,000 each, (ii) in the case of the installments for the fiscal quarters ending April 30, 2026 through January 31, 2027, $725,000 each, and (iii) in the case of the installment for the fiscal quarter ending April 30, 2027, $950,000; the entire then outstanding principal balance of the Term Loan is required to be paid on August 4, 2027. We continue to have the right to voluntarily prepay the Term Loan, in whole or in part, from time to time without premium or penalty (other than customary breakage costs, if applicable).

The remaining repayment installments of the existing Term A-2 Loan were not modified by the Fourth Amendment; the outstanding principal balance of the Term A-2 Loan as of the effective date of the Fourth Amendment was EUR 12,250,000 . The amount and availability and repayment terms of the existing $25.0 million revolving credit facility available to us under the Further Amended Credit Agreement were not modified by the Fourth Amendment; the outstanding principal balance under the revolving credit facility as of the effective date of the Fourth Amendment was $21.7 million.

The Further Amended Credit Agreement modified the applicable interest rate margins payable with respect to the Term Loan, the Term A-2 Loan and the revolving credit facility loans and modified the commitment fee payable with respect to the undrawn portion of the revolving credit facility. Under the Further Amended Credit Agreement, the Term Loan and revolving credit facility loans bear interest at a rate per annum equal to, at our option, either (a) the Term SOFR rate as defined in the Further Amended Credit Agreement (or, in the case of revolving credit loans denominated in Euros or another currency other than U.S. Dollars, the applicable quoted rate), plus a margin that varies within a range of 1.60% to 2.85% based on our consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal fund rate plus 0.50%, (ii) Bank of America's publicly announced prime rate (iii) the Term SOFR Rate plus 1.00%, or (iv) 0.50%, plus a margin that varies within a range of 0.60% to 1.85% based on our consolidated leverage ratio. Under the Further Amended Credit Agreement, the Term A-2 Loan bears interest at a rate per annum equal to the EURIBOR rate as defined in the Further Amended Credit Agreement, plus a margin that varies within a range of 1.60% to 2.85% based on our consolidated leverage ratio. Under the Further Amended Credit Agreement, the commitment fee that we are required to pay on the undrawn portion of the revolving credit facility under the Further Amended Credit Agreement varies within a range of 0.15% and 0.40% based on our consolidated leverage ratio.

We must comply with various customary financial and non-financial covenants under the Further Amended Credit Agreement, certain provisions of which covenants were modified by the Fourth Amendment. The financial covenants under the Further Amended Credit Agreement consist of a maximum consolidated leverage ratio, a minimum consolidated fixed charge coverage ratio that is tested commencing with the measurement period ending with the fiscal quarter ending January 31, 2026, and an interim minimum consolidated fixed charge coverage ratio that is tested for certain measurement periods ending April 30, 2025, July 31, 2025 and October 31, 2025; the interim minimum consolidated fixed charge coverage ratio was added by the Fourth Amendment, and certain provisions of the existing financial covenants were modified by the Fourth Amendment.

Pursuant to the Fourth Amendment, the Lender waived the events of default that had occurred under the Amended Credit Agreement as a result of our failure to comply with the maximum consolidated leverage ratio and the minimum consolidated fixed charge coverage ratio in effect thereunder for our fiscal measurement period ended January 31, 2025.

Cash Flow

The statements of cash flows for the years ended January 31, 2025, 2024, and 2023, are included on page F-8 of this Annual Report on Form 10-K. Net cash provided by operating activities was $4.8 million in fiscal 2025 compared to net cash provided by operating activities of $12.4 million in the previous year. The decrease in net cash provided by operations for the current year is primarily due to lower net income and a decrease in cash provided by working capital, as the changes in accounts receivable, inventory, income taxes, deferred revenue and accounts payable and accrued expenses for the current year decreased cash by $0.3 million in fiscal 2025 compared to an increase in cash of $0.7 million in the prior year. Cash provided by operating activities for fiscal 2024 was impacted by $2.0 million of non-cash restructuring costs.

Our accounts receivable balance decreased to $21.2 million at January 31, 2025, compared to $23.1 million at January 31, 2024. Excluding the impact of the MTEX acquisition, accounts receivable decreased $2.9 million from prior year end. The days sales outstanding decreased to 51 days at year end compared to 52 days at the end of fiscal 2024.

The year-end inventory balance increased to $47.9 million at January 31, 2025 versus $46.4 million at January 31, 2024. Excluding the impact of the MTEX acquisition, inventories decreased $1.6 million from the prior year end. Inventory days on hand increased to 175 days at the end of the current year from 168 days at the prior year end.

Net cash used by investing activities for fiscal 2025 was $20.3 million, which includes $19.1 million related to the acquisition of MTEX and $1.2 million for capital expenditures. This compares to fiscal 2024 cash used by investing activities of $0.9 million for capital expenditures.

Net cash provided by financing activities for fiscal 2025 was $15.4 million. Cash provided by financing activities for fiscal 2025 primarily includes $15.1 million of proceeds from our debt borrowings and $11.5 million of borrowing under the revolving credit facility, offset by $9.0 million of principal payments on our long term debt and guaranteed royalty obligation payments of $1.9 million. Cash used by financing activities for fiscal 2024 includes $7.0 million of net repayment activity under the revolving credit facility, $2.1 million of principal payments on our long term debt and guaranteed royalty obligation payments of $1.7 million.

Fiscal 2024 compared to Fiscal 2023

For a comparison of our cash flow for the fiscal years ended January 31, 2024, and January 31, 2023, see "Part II, Item 7. Management's Discussion and Analysis of Liquidity and Capital Resources" in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, filed with the SEC on April 12, 2024.

Contractual Obligations, Commitments and Contingencies

As of January 31, 2025, we had contractual obligations related to lease arrangements, debt and royalty obligation arrangements and purchase commitments.

The lease arrangements are for certain of our facilities at various locations worldwide. As of January 31, 2025, we had fixed lease payment obligations of $2.3 million, with $0.4 million due within 12 months. Refer to Note 11, "Leases," in our audited consolidated financial statements included in this Annual Report on Form 10-K for further details.

Debt arrangements under our Amended Credit Agreement with Bank of America, N.A., consist of a Term Loan with an outstanding principal balance of $9.5 million at January 31, 2025, of which $2.7 million is due within the 12 months after that date; a Euro-denominated A-2 Term Loan with an outstanding principal balance of $12.7 million at January 31, 2025, of which $2.4 million is due within the 12 months after that date, and a revolving credit facility with an outstanding principal loan balance of $20.5 million at January 31, 2025. We also have an outstanding amount of $0.7 million for our secured equipment loan facility, of which $0.2 million is due within the 12 months after such date. Additionally, we have $3.4 million of debt outstanding at January 31, 2025 related to debt we assumed as part of the May 2024 MTEX acquisition, of which $1.4 million is due within 12 months. For additional details regarding our long-term debt obligations, see Note 8, "Credit Agreement and Long Term Debt," in our audited consolidated financial statements included in this Annual Report on Form 10-K.

We are subject to a guaranteed minimum royalty payment obligation over the next five years pursuant to the Honeywell Agreements, which, at January 31, 2025 included a balance due of $2.5 million, with $1.4 million due within 12 months. Refer to Note 10, "Royalty Obligations," in our audited consolidated financial statements included in this Annual Report on Form 10-K for further details.

In order to meet our manufacturing demands and, in some cases, lock in particular pricing structures for specific goods used in manufacturing, we enter into purchase commitments with our suppliers. At January 31, 2025, our purchase commitments totaled $29.0 million, with $27.4 million due within 12 months, some of which are non-cancelable. Subsequent to year end we entered into a three-year purchase commitment agreement with one of our vendors for a total of $5.2 million, of which $1.7 million is due within the next 12 months.

We are also subject to contingencies, including legal proceedings and claims arising out of our business that cover a wide range of matters, such as: contract and employment claims; workers' compensation claims; product liability claims; warranty claims; and claims related to modification, adjustment or replacement of component parts of units sold. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, we believe that the aggregate amount of such liabilities, if any, in excess of the amounts provided, or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations. It is possible, however, that our results of operations for any future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements. These judgments and estimates are based on our historical experience, current trends and information available from other sources, as appropriate. We do not believe there is a great likelihood that materially different amounts would be reported using different assumptions pertaining to the accounting policies described below, however, if actual conditions differ from the assumptions used in our judgments, our financial results could be materially different from our estimates.

We believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements:

Revenue Recognition: We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, "Revenue from Contracts with Customers." Under ASC 606, based on the nature of our contracts, we recognize most of our revenue upon shipment, which is when the performance obligation has been satisfied.

Our accounting policies relating to the recognition of revenue under ASC 606 require management to make estimates, determinations and judgments based on historical experience and on various other assumptions, which include (i) the existence of a contract with the customer, (ii) the identification of the performance obligations in the contract, (iii) the value of any variable consideration in the contract, (iv) the standalone selling price of multiple obligations in the contract, for the purpose of allocating the consideration in the contract, and (v) determining when a performance obligation has been met. Recognition of revenue based on incorrect judgments, including the identification of performance obligation arrangements as well as the pattern of delivery for those services, could result in inappropriate recognition of revenue, or incorrect timing of revenue recognition, which could have a material effect on our financial condition and results of operations.

We recognize revenue for non-recurring engineering (NRE) fees, as necessary, for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue.

Infrequently, we receive requests from customers to hold products purchased from us for the customers' convenience. We recognize revenue for such bill and hold arrangements in accordance with the guidance provided by ASC 606, which requires the transaction to meet the following criteria in order to determine that the customer has obtained control: (a) the reason for the bill and hold is substantive, (b) the product has separately been identified as belonging to the customer, (c) the product is currently ready for physical transfer to the customer, and (d) we do not have the ability to use the product or direct it to another customer.

Allowance for Doubtful Accounts: Accounts receivable consists primarily of receivables from our customers arising from the sale of our products. We actively monitor our exposure to credit risk through the use of credit approvals and credit limits. Accounts receivable is presented net of reserves for doubtful accounts.

We estimate the collectability of our receivables and establish allowances for accounts receivable that we estimate to be uncollectible. We base these allowances on our historical collection experience, the length of time our accounts receivable are outstanding and the financial condition of individual customers. In situations where we are aware of a specific customer's inability to meet its financial obligation, such as in the case of a bankruptcy filing, we assess the need for a specific reserve for bad debts. We believe that our procedure for estimating such amounts is reasonable and historically has not resulted in material adjustments in subsequent periods. Bad debt expense was less than 1% of net sales in each of fiscal 2025 and 2024.

Warranty Claims: We offer warranties on some of our products. We establish a reserve for estimated costs of warranties at the time the product revenue is recognized. This reserve requires us to make estimates regarding the amounts necessary to settle future and existing claims using historical data on products sold as of the balance sheet date. The length of the warranty period, the product's failure rates, and the customer's usage affect estimated warranty cost. If actual warranty costs differ from our estimated amounts, future results of operations could be affected adversely. Warranty cost is recorded as cost of revenue, and the reserve balance recorded as an accrued expense. While we maintain product quality programs and processes, our warranty obligation is affected by product failure rates and the related corrective costs. If actual product failure rates and/or corrective costs differ from the estimates, we revise our estimated warranty liability accordingly.

Inventories: Inventories are stated at the lower of average and standard cost or net realizable value. Cost is determined using an average cost method that approximates the first-in, first-out (FIFO) method. The process for evaluating and recording obsolete and excess inventory provisions consists of analyzing the inventory supply on hand and estimating the net realizable value of the inventory

based on historical experience, current business conditions and anticipated future revenue. We believe that our procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to actual experience.

Income Taxes: A valuation allowance is established when it is "more-likely-than-not" that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence must be considered, including our performance, the market environment in which we operate, length of carryforward periods, existing revenue backlog and future revenue projections. If actual factors and conditions differ materially from the estimates made by management, the actual realization of the net deferred tax assets or liabilities could vary materially from the amounts previously recorded. At January 31, 2025, we had provided valuation allowances for future tax benefits resulting from certain domestic and foreign R&D tax credits, foreign tax credit carryforwards, and China net operating losses, all of which are expected to expire unused.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions. Although guidance on the accounting for uncertain income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what we have estimated, our income tax expense could be materially impacted.

Business Combinations: We account for business acquisitions under the acquisition method of accounting in accordance with ASC 805, "Business Combinations," where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates that, if known, would have affected the measurement of the amounts recognized as of the acquisition date. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. As a result, actual results may differ from these estimates. During the measurement period, we may record adjustments to acquired assets and assumed liabilities, with corresponding offsets to goodwill. Upon the conclusion of a measurement period, any subsequent adjustments are recorded to earnings.

Goodwill and Intangible Assets: We recognize goodwill in accordance with ASC 350, Intangibles-Goodwill and Other ("ASC 350"). Goodwill is the excess of cost of an acquired entity over the fair value amounts assigned to assets acquired and liabilities assumed in a business combination and is not amortized.

Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or a business unit one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. Components within an operating segment can be aggregated as a single reporting unit if they have similar economic characteristics. Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in revenue, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is first quantitatively assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is required for the reporting unit. Additionally, we can elect to forgo the qualitative assessment and perform the quantitative test.

The quantitative assessment compares the fair value of the reporting unit with its carrying value. If a quantitative assessment is required, we estimate the fair value of our reporting units using a combination of both an income approach based upon a discounted cash flow model and a market approach. The income approach provides a fair value estimate based upon the reporting unit's expected long-term operating cash flow performance. The income approach requires the use of many assumptions and estimates including future revenue, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates. In addition, we use the market approach, which compares the reporting unit to publicly traded companies and transactions involving similar business, to support the conclusions based upon the income approach. Based on the results of the quantitative assessment, if the fair value of the reporting unit exceeds the carrying value of the net assets, including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit's net assets, including goodwill, exceeds the fair value of the reporting unit, then we record an impairment charge based on that difference. We have recognized a goodwill impairment of $13.4 million for our PI segment for the fiscal year ended January 31, 2025. Refer to Note 4, " Intangible Assets and Goodwill" in our consolidated financial statements included elsewhere in this report for further details.

We recognize intangibles assets in accordance with ASC 350. Acquired intangible assets subject to amortization are stated at fair value and are amortized using the straight-line method over the estimated useful lives of the assets. Intangible assets that are

subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be recorded for the excess of the carrying value over the fair value, which is determined by the discounting of future cash flows. No impairment of intangible assets was identified for the years ended January 31, 2025 or January 31, 2024.

Share-Based Compensation: Compensation expense for time-based restricted stock units is measured at the grant date and recognized ratably over the vesting period. We determine the fair value of time-based and performance-based restricted stock units based on the closing market price of our common stock on the grant date. The recognition of compensation expense associated with performance-based restricted stock units requires judgment in assessing the probability of meeting the performance goals, as well as defined criteria for assessing achievement of the performance-related goals. For purposes of measuring compensation expense, the number of shares ultimately expected to vest is estimated at each reporting date based on management's expectations regarding the relevant performance criteria. The performance shares begin vesting only upon the achievement of the performance criteria. The achievement of the performance goals can impact the valuation and associated expense of the restricted stock units. The assumptions used in accounting for the share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if circumstances change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Recent Accounting Pronouncements

Reference is made to Note 1, "Summary of Significant Accounting Policies," in our audited consolidated financial statements included elsewhere in this report.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our primary financial market risks consist of foreign currency exchange rates risk and the impact of changes in interest rates that fluctuate with the market on our variable rate credit borrowings under our existing credit agreement.

Foreign Currency Exchange Risk

The functional currencies of our foreign subsidiaries and branches are the local currencies-the British Pound in the U.K., the Canadian Dollar in Canada, the Danish Kroner in Denmark, the Chinese Yuan in China, and the Euro in France, Germany and Portugal. We are exposed to foreign currency exchange risk as the functional currency financial statements of foreign subsidiaries are translated to U.S. dollars. The assets and liabilities of our foreign subsidiaries having a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate prevailing at the balance sheet date, and at an average exchange rate for the reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is recorded as a component of accumulated other comprehensive income (loss) in shareholders' equity. The reported results of our foreign subsidiaries will be influenced by their translation into U.S. dollars by currency movements against the U.S. dollar. Our primary currency translation exposure is related to our subsidiaries that have functional currencies denominated in Danish Kroner and the Euro. A hypothetical 10% change in the rates used to translate the results of our foreign subsidiaries would result in an increase or decrease in our consolidated net income of $1.9 million for the year ended January 31, 2025.

Transactional exposure arises where transactions occur in currencies other than the functional currency. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the balance sheet date and the resulting gains and losses are reported as foreign exchange gain (loss) in the consolidated statements of income. Foreign exchange losses resulting from transactional exposure were $0.5 million for the year ended January 31, 2025.

Interest Rate Risk

At January 31, 2025, our total indebtedness primarily consists of an outstanding principal amount of $9.5 million of USD term loan variable-rate debt, $12.7 million of Euro term loan variable-rate debt, and an outstanding principal balance of $20.5 million under our revolving credit facility, which bears interest at a variable rate. At January 31, 2025, the USD term loan and our revolving credit facility debt bears interest at the SOFR rate as defined in the Amended Credit Agreement plus a margin that varies between 1.60% and 2.50% based on our consolidated leverage ratio and the Euro term loan bears interest at a rate per annum equal to the EURIBOR rate as defined in the Amended Credit Agreement, plus a margin that varies within a range of 1.60% to 2.50% based on our consolidated leverage ratio. During fiscal 2025, the weighted average interest rate on our variable rate debt was 6.71%, and the weighted average interest rate on our revolving credit facility debt was 7.28%. The impact on our results of operations of a 100 basis point change in the interest rates on the outstanding balance of our variable-rate term debt and revolving credit facility debt would be approximately $0.4 million annually.