Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes, both of which are included in Part I, Item 1 of this report. The Company's critical accounting policies are included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2022.
Forward-Looking Statements
This report contains statements concerning the Company's expectations, plans, objectives, future financial performance, and other statements that are not historical facts. These statements may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify forward-looking statements by words such as "anticipate," "estimate," "forecast," "expect," "believe," "should," "could," "would," "plan," "may," "intend," "estimate," "prospect," "goal," "will," "predict," "potential," or other similar words. Forward-looking statements contained in this report, including elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations," are based on current expectations and our actual results may differ materially from those projected in any forward-looking statements. In addition, the Company participates in an industry that is subject to rapidly changing conditions and there are numerous factors that could cause the Company to experience a decline in sales and/or earnings or deterioration in financial condition. Factors that could cause actual results to differ materially from those in forward-looking statements made in this report include but are not limited to:
•the loss of or a reduction in business from one or more of our key customers;
•negative developments in the macro-economic factors that impact our performance such as the U.S. housing market, general economy, unemployment rates, interest rates and consumer sentiment and the impact of such developments on our and our customers' business, operations, and access to financing;
•competition from other manufacturers and the impact of such competition on pricing and promotional levels;
•an inability to obtain raw materials in a timely manner or fluctuations in raw material, transportation, and energy costs, including due to inflation;
•a failure to attract and retain certain members of management or other key employees or other negative labor developments, including increases in the cost of labor;
•an inability to develop new products or respond to changing consumer preferences and purchasing practices;
•increased buying power of large customers and the impact on our ability to maintain or raise prices;
•a failure to effectively manage manufacturing operations, alignment, and capacity or an inability to maintain the quality of our products;
•the impairment of goodwill, other intangible assets, or our long-lived assets;
•information systems interruptions or intrusions or the unauthorized release of confidential information concerning customers, employees, or other third parties;
•the cost of compliance with, or liabilities related to, environmental or other governmental regulations or changes in governmental or industry regulatory standards, especially with respect to health and safety and the environment;
•risks associated with the implementation of our growth, digital transformation, and platform design strategies;
•risks related to sourcing and selling products internationally and doing business globally, including the imposition of tariffs or duties on those products, and increased transportation costs and delays;
•unexpected costs resulting from a failure to maintain acceptable quality standards;
•changes in tax laws or the interpretations of existing tax laws;
•the impact of COVID-19 on our business, the global and U.S. economy, and our employees, customers, suppliers, and logistics system;
•the occurrence of significant natural disasters, including earthquakes, fires, floods, hurricanes, or tropical storms;
•the unavailability of adequate capital for our business to grow and compete; and
•limitations on operating our business as a result of covenant restrictions under our indebtedness, and our ability to pay amounts due under our credit facilities and our other indebtedness.
Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained in this report, including elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and also in the Company's most recent Annual Report on Form 10-K for the fiscal year ended April 30, 2022, filed with the SEC, including under Item 1A, "Risk Factors," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 7A, "Quantitative and Qualitative Disclosures about Market Risk." While the Company believes that these risks are manageable and will not adversely impact the long-term performance of the Company, these risks could, under certain circumstances, have a material adverse impact on its operating results and financial condition.
Any forward-looking statement that the Company makes in this report speaks only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors as a result of new information, future events or otherwise, except as required by law.
Overview
American Woodmark Corporation manufactures and distributes kitchen, bath, and home organization products for the remodeling and new home construction markets. Its products are sold on a national basis directly to home centers and builders and through a network of independent dealers and distributors. As of October 31, 2022, the Company operated 17 manufacturing facilities in the United States and Mexico and eight primary service centers and one distribution center located throughout the United States.
The three-month period ended October 31, 2022 was the Company's second quarter of its fiscal year that ends on April 30, 2023 ("fiscal 2023").
Financial Overview
The Company's remodeling-based business was impacted by the following trends during the second quarter of fiscal 2023:
•The median price per existing home sold rose during the second calendar quarter of 2022 compared to the same period one year ago by 8.7% according to data provided by the National Association of Realtors, and existing home sales decreased 21.4% during the second calendar quarter of 2022 compared to the same period in the prior year;
•The unemployment rate decreased to 3.7% as of October 2022 compared to 4.6% as of October 2021 according to data provided by the U.S. Department of Labor; additionally, the unemployment rate increased slightly from 3.6% in April 2022;
•Mortgage interest rates increased with a thirty-year fixed mortgage rate of approximately 7.1% in October 2022, an increase of approximately 390 basis points compared to the same period in the prior year, according to Freddie Mac;
•Consumer sentiment as tracked by Thomson Reuters/University of Michigan decreased from 71.7 in October 2021 to 59.9 in October 2022; and
•The inflation rate as of October 2022 was 7.7%, compared to 6.2% in October 2021 and 8.3% in April 2022 according to data provided by the U.S. Department of Labor.
The Company believes there is no single indicator that directly correlates with cabinet remodeling market activity. For this reason, the Company considers other factors in addition to those discussed above as indicators of overall market activity including credit availability, home owner equity, and housing affordability.
The Company's total net sales increased 23.9% during the second quarter and 23.3% during the first half of fiscal 2023 compared to the same prior-year period.
The Company's remodeling sales, which consist of our independent dealer and distributor channel sales and home center retail sales, increased 17.5% during the second quarter and 18.6% during the first half of fiscal 2023 compared to the same prior-year periods. Our independent dealer and distributor channel increased by 46.2% during the second quarter and 41.1% during the first half of fiscal 2023 compared to the comparable prior-year periods. Our home center channel increased by 10.3% during the second quarter and 12.7% during the first half of fiscal 2023 compared to the comparable prior-year periods.
New construction sales increased 33.3% in the second quarter and 30.3% during the first half of fiscal 2023, compared to the same periods of fiscal 2022. The Company believes that fluctuations in single-family housing starts are the best indicator of new construction cabinet activity. Assuming a sixty to ninety day lag between housing starts and the installation of cabinetry, single-family housing starts decreased 15.8% during the second quarter over the comparable prior year period, according to the U.S. Department of Commerce. In comparison, housing completions increased 7.0% during the second quarter of fiscal 2023 over the comparable prior year period, according to U.S. Department of Commerce. The Company believes we are continuing to see a temporary shift to extend the lag from 90 days to 120 days or longer.
The Company earned net income of $28.8 million for the second quarter of fiscal 2023, compared with $2.0 million in the same period of the prior year, and earned net income of $48.9 million for the first six months of fiscal 2023, compared with $5.0 million in the same period of the prior year.
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | October 31, | | October 31, |
(in thousands) | | 2022 | | 2021 | | Percent Change | | 2022 | | 2021 | | Percent Change |
| | | | | | | | | | | | |
Net sales | | $ | 561,499 | | | $ | 453,163 | | | 23.9 | % | | $ | 1,104,392 | | | $ | 895,744 | | | 23.3 | % |
Gross profit | | $ | 98,734 | | | $ | 51,614 | | | 91.3 | % | | $ | 185,481 | | | $ | 104,960 | | | 76.7 | % |
Selling and marketing expenses | | $ | 24,651 | | | $ | 21,484 | | | 14.7 | % | | $ | 50,417 | | | $ | 44,372 | | | 13.6 | % |
General and administrative expenses | | $ | 32,101 | | | $ | 24,623 | | | 30.4 | % | | $ | 62,281 | | | $ | 48,357 | | | 28.8 | % |
Net Sales. Net sales were $561.5 million for the second quarter of fiscal 2023, an increase of 23.9% compared with the second quarter of fiscal 2022. For the first half of fiscal 2023, net sales were $1,104.4 million, reflecting a 23.3% increase compared to the same period of fiscal 2022. The Company experienced growth in all sales channels during the second quarter and first half of fiscal 2023 primarily due to the impact of price increases.
Gross Profit. Gross profit margin for the second quarter of fiscal 2023 was 17.6% compared with 11.4% for the same period of fiscal 2022. Gross profit margin for the first half of fiscal 2023 was 16.8% compared with 11.7% for the same period of fiscal 2022. Gross profit margin in the second quarter and first six months of the current fiscal year was positively impacted by increased net sales and productivity, which were partially offset by higher material and logistics costs which are starting to stabilize.
Selling and Marketing Expenses. Selling and marketing expenses were 4.4% of net sales in the second quarter of fiscal 2023, compared with 4.7% for the same period of fiscal 2022. Selling and marketing expenses were 4.6% of net sales in the first half of fiscal 2023, compared with 5.0% for the same period of fiscal 2022.
General and Administrative Expenses. General and administrative expenses were 5.7% of net sales in the second quarter of fiscal 2023, compared with 5.4% of net sales in the second quarter of fiscal 2022. General and administrative expenses were 5.6% of net sales in the first half of fiscal 2023, compared with 5.4% of net sales in the second quarter of fiscal 2022. The increase in general and administrative expenses as a percentage of net sales during the second quarter and first half of fiscal 2023 was driven by higher employee incentive costs, partially offset by leverage created by higher sales.
Effective Income Tax Rates. The effective income tax rates for the three- and six-month periods ended October 31, 2022 was 25.2% and 25.1%, respectively, compared with 12.1% and 23.1% in the comparable periods in the prior fiscal year. The effective rates were higher than the 21.0% U.S. statutory rate for the three- and six-month periods ended October 31, 2022 primarily due to state income taxes. The effective rate for the periods ended October 31, 2022 was higher than the comparable periods in the prior fiscal year primarily due to a favorable uncertain tax position reversal booked in the prior periods.
Non-GAAP Financial Measures. We have reported our financial results in accordance with U.S. generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below.
A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP is set forth below.
Management believes that these non-GAAP financial measures provide an additional means of analyzing the current period's results against the corresponding prior period's results. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company's reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin
We use EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin in evaluating the performance of our business, and we use each in the preparation of our annual operating budgets and as indicators of business performance and profitability. We believe EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance.
We define Adjusted EBITDA as net income adjusted to exclude (1) income tax expense, (2) interest expense, net, (3) depreciation and amortization expense, (4) amortization of customer relationship intangibles, (5) expenses related to the acquisition of RSI Home Products, Inc. ("RSI acquisition") and the subsequent restructuring charges that the Company incurred related to the acquisition, (6) non-recurring restructuring charges, (7) stock-based compensation expense, (8) gain/loss on asset disposals, (9) change in fair value of foreign exchange forward contracts, and (10) pension settlement charges. We believe Adjusted EBITDA, when presented in conjunction with comparable GAAP measures, is useful for investors because management uses Adjusted EBITDA in evaluating the performance of our business.
We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.
Adjusted EPS per diluted share
We use Adjusted EPS per diluted share in evaluating the performance of our business and profitability. Management believes that this measure provides useful information to investors by offering additional ways of viewing the Company's results by providing an indication of performance and profitability excluding the impact of unusual and/or non-cash items. We define Adjusted EPS per diluted share as diluted earnings per share excluding the per share impact of (1) expenses related to the RSI acquisition and the subsequent restructuring charges that the Company incurred related to the RSI acquisition, (2) non-recurring restructuring charges, (3) the amortization of customer relationship intangibles, (4) pension settlement charges, and (5) the tax benefit of RSI acquisition expenses and subsequent restructuring charges, the net gain on debt forgiveness and modification and the amortization of customer relationship intangibles and trademarks. The amortization of intangible assets is driven by the RSI acquisition and will recur in future periods. Management has determined that excluding amortization of intangible assets from our definition of Adjusted EPS per diluted share will better help it evaluate the performance of our business and profitability and we have also received similar feedback from some of our investors.
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Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin |
| | Three Months Ended | | Six Months Ended |
| | October 31, | | October 31, |
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Net income (GAAP) | | $ | 28,784 | | | $ | 2,030 | | | $ | 48,854 | | | $ | 5,011 | |
Add back: | | | | | | | | |
Income tax expense | | 9,679 | | | 280 | | | 16,370 | | | 1,509 | |
Interest expense, net | | 4,422 | | | 2,360 | | | 8,475 | | | 4,533 | |
Depreciation and amortization expense | | 12,334 | | | 12,921 | | | 24,764 | | | 25,946 | |
Amortization of customer relationship intangibles | | 11,417 | | | 11,417 | | | 22,834 | | | 22,834 | |
EBITDA (Non-GAAP) | | $ | 66,636 | | | $ | 29,008 | | | 121,297 | | | 59,833 | |
Add back: | | | | | | | | |
Acquisition and restructuring related expenses (1) | | 20 | | | 20 | | | 40 | | | 40 | |
Non-recurring restructuring charges (2) | | — | | | (3) | | | — | | | 310 | |
Pension settlement, net | | (6) | | | — | | | (245) | | | — | |
| | | | | | | | |
Change in fair value of foreign exchange forward contracts (3) | | (818) | | | 520 | | | (580) | | | 170 | |
| | | | | | | | |
Stock-based compensation expense | | 1,754 | | | 1,216 | | | 3,389 | | | 2,393 | |
Loss on asset disposal | | 37 | | | 36 | | | 214 | | | 151 | |
Adjusted EBITDA (Non-GAAP) | | $ | 67,623 | | | $ | 30,797 | | | 124,115 | | | 62,897 | |
| | | | | | | | |
Net Sales | | $ | 561,499 | | | $ | 453,163 | | | $ | 1,104,392 | | | $ | 895,744 | |
Net income margin (GAAP) | | 5.1 | % | | 0.4 | % | | 4.4 | % | | 0.6 | % |
Adjusted EBITDA margin (Non-GAAP) | | 12.0 | % | | 6.8 | % | | 11.2 | % | | 7.0 | % |
(1) Acquisition and restructuring related expenses are comprised of expenses related to the RSI acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition.
(2) Non-recurring restructuring charges are comprised of expenses incurred related to the permanent layoffs due to COVID-19 and the closure of the manufacturing plant in Humboldt, Tennessee.
(3) In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The changes in the fair value of the forward contracts are recorded in other (income) expense, net in the operating results.
A reconciliation of Adjusted EBITDA and Adjusted EBITDA margin as projected for fiscal 2023 is not provided because we do not forecast net income (loss) as we cannot, without unreasonable effort, estimate or predict with certainty various components of net income (loss).
Adjusted EBITDA. Adjusted EBITDA for the second quarter of fiscal 2023 was $67.6 million or 12.0% of net sales compared to $30.8 million or 6.8% of net sales for the same quarter of the prior fiscal year. Adjusted EBITDA for the first half of fiscal 2023 was $124.1 million or 11.2% of net sales compared to $62.9 million or 7.0% of net sales for the same quarter of the prior fiscal year. The increase in Adjusted EBITDA for the second quarter and first half of fiscal 2023 is primarily due to increased net income due to higher net sales driven by pricing actions and increased efficiencies.
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Reconciliation of Net Income to Adjusted Net Income |
| | Three Months Ended | | Six Months Ended |
| | October 31, | | October 31, |
(in thousands, except share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Net income (GAAP) | | $ | 28,784 | | | $ | 2,030 | | | $ | 48,854 | | | $ | 5,011 | |
Add back: | | | | | | | | |
Acquisition and restructuring related expenses | | 20 | | | $ | 20 | | | 40 | | | 40 | |
| | | | | | | | |
Non-recurring restructuring charges | | — | | | $ | (3) | | | — | | | 310 | |
Pension settlement, net | | (6) | | | $ | — | | | (245) | | | — | |
Amortization of customer relationship intangibles | | 11,417 | | | $ | 11,417 | | | 22,834 | | | 22,834 | |
| | | | | | | | |
Tax benefit of add backs | | (2,961) | | | $ | (3,100) | | | (5,861) | | | (6,167) | |
Adjusted net income (Non-GAAP) | | $ | 37,254 | | | $ | 10,364 | | | $ | 65,622 | | | $ | 22,028 | |
| | | | | | | | |
Weighted average diluted shares (GAAP) | | 16,657,454 | | | 16,605,911 | | | 16,638,741 | | | 16,662,791 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
EPS per diluted share (GAAP) | | $ | 1.73 | | | $ | 0.12 | | | $ | 2.94 | | | $ | 0.30 | |
Adjusted EPS per diluted share (Non-GAAP) | | $ | 2.24 | | | $ | 0.62 | | | $ | 3.94 | | | $ | 1.32 | |
Outlook. The impact on our financial results from material and logistical constraints in addition to the availability, retention, and cost of labor continue to be uncertain. The Company's net sales were up 23.9% and 23.3% during the second quarter and first half of fiscal 2023, respectively, and we expect full year fiscal 2023 sales to be low double-digit growth rate in net sales versus fiscal year 2022. We expect our EBITDA margin for the full year fiscal 2023 to be low double digits. We will continue our investment back into the business by increasing our capital investment rate to a range of 3.0 to 3.5% of net sales. As a reminder, these investments will range from the continuation of our Enterprise Resource Planning journey to get on the cloud, digital investments in our customer experience, reinvesting in our manufacturing facilities, specifically the expansion of our Hamlet, NC facility, and a new manufacturing plant in Mexico and automation efforts to help reduce labor dependencies, improve quality and increase capacity. We are choosing to make these additional investments into our core business which will help position the company for improved sales opportunities in our stock platform and enhance our margins in the future.
The Company continues to track several metrics, including but not limited to housing starts, housing completions, existing home sales, mortgage interest rates, new jobs growth, GDP growth and consumer confidence, which it believes are leading indicators of overall demand for kitchen and bath cabinetry.
Additional risks and uncertainties that could affect the Company's results of operations and financial condition are discussed elsewhere in this report, including under "Forward-Looking Statements," and elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022, including under Item 1A. "Risk Factors," Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk."
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $44.8 million at October 31, 2022, representing an $22.5 million increase from its April 30, 2022 levels primarily due to $55.4 million cash provided by operations in the first six months of fiscal 2023 compared with cash used by operations of $10.2 million in the same period of the prior year, $9.5 million in payments to acquire property, plant, and equipment, and $21.2 million of net debt repayments. The increase in the Company's cash from operating activities was driven primarily by an increase in net income and cash inflows from accrued compensation and related expenses, customer receivables, inventories, accrued marketing expenses and other accrued expenses, partially offset by cash outflows from accounts payable and prepaid expenses and other assets. At October 31, 2022, total long-term debt (including current maturities) was $488.6 million. The Company's ratio of long-term debt to total capital was 37.0% at October 31, 2022, compared with 39.6% at April 30, 2022.
The Company's main source of liquidity is its cash and cash equivalents on hand and generally cash generated from its operating activities. The Company can also borrow up to $500 million under the Revolving Facility. Approximately $239.4 million was available under this facility as of October 31, 2022.
On April 22, 2021, the Company amended and restated the Prior Credit Agreement. The amended and restated credit agreement (the "A&R Credit Agreement") provides for a $500 million revolving loan facility with a $50 million sub-facility for the issuance of letters of credit (the "Revolving Facility") and a $250 million term loan facility (the "Term Loan Facility"). Also on April 22, 2021, the Company borrowed the entire $250 million under the Term Loan Facility and approximately $264 million under the Revolving Facility to fund, in part, the repayment in full of the amounts then outstanding under the Prior Credit Agreement and the complete redemption of its 4.875% Senior Notes due 2026. The Company is required to repay the Term Loan Facility in specified quarterly installments. The Revolving Facility and Term Loan Facility mature on April 22, 2026.
The A&R Credit Agreement includes certain financial covenants that require the Company to maintain (i) a "Consolidated Interest Coverage Ratio" of no less than 2.00 to 1.00 and (ii) a "Total Net Leverage Ratio" of no greater than 4.00 to 1.00, subject, in each case, to certain limited exceptions.
The A&R Credit Agreement includes certain additional covenants, including negative covenants that restrict the ability of the Company and certain of its subsidiaries to incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of its assets or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the A&R Credit Agreement. The negative covenants further restrict the ability of the Company and certain of its subsidiaries to make certain restricted payments, including, in the case of the Company, the payment of dividends and the repurchase of common stock, in certain limited circumstances. We were in compliance with all the covenants under the A&R Credit Agreement as of October 31, 2022.
As of October 31, 2022, $231.3 million was outstanding on the Term Loan Facility and $249.3 million was outstanding under the Revolving Facility. As of October 31, 2022, the applicable margin with respect to base rate loans and LIBOR loans was 0.50% and 1.50%, respectively, and the commitment fee was 0.15%.
See Note K — Loans Payable and Long-Term Debt for further information around our indebtedness and compliance with covenants.
The Company's investing activities primarily consist of investment in property, plant and equipment and promotional displays. Net cash used for investing activities was $11.0 million in the first six months of fiscal 2023, compared with $27.1 million in the comparable period of fiscal 2022.
During the first six months of fiscal 2023, net cash used by financing activities was $22.0 million, compared with $45.8 million in the comparable period of the prior fiscal year. The decrease in cash used during the first half of fiscal 2023 was primarily driven by the repurchase of common stock of $25.0 million in the prior year.
On May 25, 2021, the Company's Board of Directors (the "Board") authorized a stock repurchase program of up to $100 million of the Company's common shares. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms the Company deems appropriate and subject to the Company's cash requirements for other purposes, compliance with the covenants under the A&R Credit Agreement, and other factors management deems relevant. The authorization does not obligate the Company to acquire a specific number of shares during any period, and the authorization may be modified, suspended or discontinued at any time at the discretion of the Board. Management generally expects to fund any share repurchases using available cash and cash generated from operations. Repurchased shares will become authorized but unissued common shares. The Company did not repurchase any of its common shares during the second quarter or first six months of fiscal 2023. As of October 31, 2022, $75.0 million of funds remained available from the amounts authorized by the Board to repurchase the Company's common stock.
Cash flow from operations combined with accumulated cash and cash equivalents on hand are expected to be more than sufficient to support forecasted working capital requirements, service existing debt obligations and fund capital expenditures for the remainder of fiscal 2023.
Seasonal and Inflationary Factors
Our business has been subject to seasonal influences, with higher sales typically realized in our first and fourth fiscal quarters. General economic forces and changes in our customer mix have reduced seasonal fluctuations in revenue over the past few years. The costs of the Company's products are subject to inflationary pressures and commodity price fluctuations. The Company has generally been able, over time, to recover the effects of inflation and commodity price fluctuations through sales price increases.
Critical Accounting Policies
The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to the Company's critical accounting policies as disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2022.