The unaudited interim Condensed Consolidated Financial Statements of Kewaunee Scientific Corporation (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading.

The preparation of the interim Condensed Consolidated Financial Statements requires management to make certain estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates.

The Company includes restricted cash along with the cash balance for presentation in the Condensed Consolidated Statements of Cash Flows. The reconciliation between the Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of Cash Flows is as follows:

The Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the Company's revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company's revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract.

A summary of net sales transferred to customers over time and at a point in time for the periods ended JulyOctober 31, 2023 and JulyOctober 31, 2022 is as follows (in thousands):

The closing balances of contract assets included $13,621,000$13,015,000 in accounts receivable and $928,000$506,000 in other assets at JulyOctober 31, 2023. The opening balance of contract assets arising from contracts with customers included $13,459,000 in accounts receivable and $1,191,000 in other assets at April 30, 2023. The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $7,067,000$4,919,000 at JulyOctober 31, 2023 and $4,097,000 at April 30, 2023. The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue which are disclosed in the Condensed Consolidated Balance Sheets and in the Notes to the Condensed Consolidated Financial Statements. In general, the Company receives payments from customers based on a billing schedule established in its contracts. Unbilled receivables represent amounts earned which have not yet been billed in accordance with contractually stated billing terms and are included in receivables on the Condensed Consolidated Balance Sheets. Receivables are recorded when the right to consideration becomes unconditional and the Company has a right to invoice the customer. Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract. Approximately 100% of the contract liability balances at April 30, 2023 and JulyOctober 31, 2023 are expected to be recognized as revenue during the respective succeeding 12 months.

The Company measures inventory using the first-in, first-out method at the lower of cost or net realizable value. Inventories consisted of the following (in thousands):

The Company's International subsidiaries' inventories were $2,902,000$2,918,000 at JulyOctober 31, 2023 and $2,740,000 at April 30, 2023 and are included in the above tables.

The Company's financial instruments consist primarily of cash and equivalents, mutual funds, short-term borrowings, and the cash surrender value of life insurance policies. The carrying value of these assets and liabilities approximates their fair value. The following tables summarize the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of JulyOctober 31, 2023 and April 30, 2023 (in thousands):

At April 30, 2023, advances of $3.5 million were outstanding under the Company's Revolving Credit Facility. Amounts available under the Revolving Credit Facility were $10.3 million at April 30, 2023. The borrowing rate under the Revolving Credit Facility was 9.02% as of April 30, 2023. The Company's International subsidiaries had a balance outstanding at April 30, 2023 of $39,000 in short-term borrowings related to overdraft protection and short-term loan arrangements. At April 30, 2023, the Company was in compliance with all of the financial covenants under its Revolving Credit Facility.

At JulyOctober 31, 2023, there wereadvances of $5.0 million were outstanding under the Revolving Credit Facility, with remaining borrowing capacity under the Revolving Credit Facility of $8.3$7.4 million. The borrowing rate under the Revolving Credit Facility was 9.33%9.53% as of JulyOctober 31, 2023. In addition, the Company's International subsidiaries have a balance outstanding of $54,000$855,000 in short-term borrowings related to overdraft protection and short-term loan arrangements. As of Julyarrangements at October 31, 2023, the2023. The Company was in compliance with all of the financial covenants under its Revolving Credit Facility.Facility as of October 31, 2023.

The Sale Agreement was finalized on March 24, 2022 and coincided with the Company and CAI Investments Medical Products I Master Lessee LLC ("Lessor") entering into a lease agreement. The lease arrangement is for a 20-year term, with four renewal options of five years each. Under the terms of the lease agreement, the Company’s initial basic rent is approximately $158,000 per month, with annual increases of approximately 2% each year of the initial term.

The Company accounted for the Sale-Leaseback Arrangement as a financing transaction as the lease agreement was determined to be a finance lease due to the significance of the present value of the lease payments, using a discount rate of 4.75% to reflect

the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date. In measuring the lease payments for the present value analysis, the Company elected the practical expedient to combine the lease component (the leased facilities) with the non-lease component (property management provided by the Buyer/Lessor) into a single lease component.

The presence of a finance lease indicates that control of the property has not transferred to the Buyer/Lessor and, as such, the transaction was deemed a failed sale-leaseback and accounted for as a financing arrangement. As a result of this determination, the Company is viewed as having received the sale proceeds from the Buyer/Lessor in the form of a hypothetical loan collateralized by its leased facilities. The hypothetical loan is payable as principal and interest in the form of “lease payments” to the Buyer/Lessor. As such, the Company will not derecognize the property from its books for accounting purposes until the lease ends. No gain or loss was recognized under GAAP related to the Sale-Leaseback Arrangement.

As of JulyOctober 31, 2023, the carrying value of the financing liability was $28,617,000,$28,459,000, net of $692,000$677,000 in debt issuance costs, of which $659,000$677,000 was classified as current on the Consolidated Balance Sheet with $27,958,000$27,782,000 classified as long-term. As of April 30, 2023, the carrying value of the financing liability was $28,774,000, net of $708,000 in debt issuance costs, of which $642,000 was classified as current on the Consolidated Balance Sheet with $28,132,000 classified as long-term. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method. Interest expense associated with the financing arrangement was $325,000$322,000 and $332,000$330,000 for the three months ended JulyOctober 31, 2023 and JulyOctober 31, 2022, respectively. Interest expense associated with the financing arrangement was $647,000 and $662,000 for the six months ended October 31, 2023 and October 31, 2022, respectively.

The Company will depreciate the building down to zero over the 20-year assumed economic life of the Property so that at the end of the lease term, the remaining carrying amount of the financing liability will equal the carrying amount of the land of $41,000.

Remaining future cash payments related to the financing liability as of JulyOctober 31, 2023 are as follows:

The Company recognizes lease assets and lease liabilities reflecting the rights and obligations created by operating type leases for real estate and equipment in both the U.S. and internationally and financing leases for a truckvehicles and IT equipment in the U.S. At JulyOctober 31, 2023 and April 30, 2023, right-of-use assets totaled $8,612,000$8,393,000 and $9,170,000, respectively. Operating cash paid to settle lease liabilities was $639,000$1,282,000 and $524,000$1,026,000 for the threesix months ended JulyOctober 31, 2023 and JulyOctober 31, 2022, respectively. The Company's leases have remaining lease terms of up to 98 years. In addition, some of the leases may include options to extend the leases for up to 5 years or options to terminate the leases within 1 year. Operating lease expenses were $867,000$847,000 and $1,714,000 for the three and six months ended JulyOctober 31, 2023, inclusive of period cost for short-term leases, not included in lease liabilities, of $228,000.$204,000 and $432,000. Operating lease expenses were $835,000$900,000 and $1,734,000 for the three and six months ended JulyOctober 31, 2022, inclusive of period cost for short-term leases, not included in lease liabilities, of $311,000.$398,000 and $708,000.

At JulyOctober 31, 2023, the weighted average remaining lease term for the capitalized operating leases was 4.94.6 years and the weighted average discount rate was 5.0%5.1%. For the financing leases, the weighted average remaining lease term was 2.95.0 years and the weighted average discount rate was 6.7%8.5%. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of those lease payments. The Company uses the implicit rate when readily determinable.

Future minimum lease payments under non-cancelable leases as of JulyOctober 31, 2023 were as follows:

Basic earnings per share is based on the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the assumed exercise of outstanding options and the conversion of restricted stock units ("RSUs") under the Company's various stock compensation plans, except when RSUs and options have an antidilutive effect. There were 33,70019,200 and 104,14194,930 antidilutive RSUs and options outstanding at JulyOctober 31, 2023 and JulyOctober 31, 2022, respectively. The following is a reconciliation of basic to diluted weighted average common shares outstanding (in thousands):

The Company recognizes compensation costs related to stock options and other stock awards granted by the Company as operating expenses over their vesting period.

In June 2023, the Company granted 87,220 RSUs under the 2017 Omnibus Incentive Plan ("2017 Plan"). These RSUs include both a service and a performance component, vesting over a three-year period. The recognized expense is based upon the vesting period for service criteria and estimated attainment of the performance criteria at the end of the three-year period, based on the ratio of cumulative days of service to total days over the three-year period. The Company recorded stock-based compensation expense under the 2017 Plan of $241,000 and $414,000 during the three and six months ended JulyOctober 31, 2023 of $173,000 with the remaining estimated stock-based compensation expense of $2,032,000$1,791,000 to be recorded over the remaining vesting periods. The Company recorded stock-based compensation expense under the 2017 Plan of $196,000 and $327,000 during the three and six months ended October 31, 2022.

In August 2023, the stockholders approved the 2023 Omnibus Incentive Plan ("2023 Plan"), which enables the Company to grant equity-based awards, with potential recipients including directors, consultants, and employees. This plan replaces the 2017 Plan. No new awards will be granted under the prior plans. All outstanding options granted under the prior plans remain subject to, and will be settled upon exercise under, the prior plans. At the date of approval of the 2023 Plan, there were 64,633 shares available for issuance under the prior plan. These shares and any outstanding awards that subsequently cease to be subject to such awards are available under the 2023 Plan. The 2023 Plan also increased the total number of shares reserved for issuance under the Company's equity compensation plans by 310,000, for a total of 374,633 shares reserved for issuance under the 2023 Plan. The Company did not issue any RSUs under the 2023 Plan during the three months ended JulyOctober 31, 2022 of $131,000. 2023.

Directors' fees paid with shares of common stock in lieu of cash in accordance with Director compensation guidelines were $10,000 and $41,000 for the threesix month periods ended JulyOctober 31, 2023 and JulyOctober 31, 2022, respectively, and were also included in the stock-based compensation on the Condensed Consolidated Statements of Cash Flows.

Income tax expense of $897,000$2,015,000 and $379,000$2,912,000 was recorded for the three and six months ended JulyOctober 31, 2023, respectively. Income tax expense of $570,000 and July$949,000 was recorded for the three and six months ended October 31, 2022, respectively. The effective tax rate was 26.3%41.6% and (111.5)%35.3% for the three and six months ended JulyOctober 31, 2023, and July 31, 2022, respectively. The effective tax rate for the current three months ended July 31, 2023and six month periods reflects the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21%, combined with expected current year tax expense for the Company's domestic operations and estimated increases in excess of the change in domestic valuation allowance required for the fiscal year. In addition, the income tax expense recorded for the three and six months ended October 31, 2023 was unfavorably impacted by additional foreign tax expense of $534,000 related to India tax matters. This one-time expense is related to management's decision to discontinue management fees, citing challenges associated with the Indian tax authority and cost benefit analysis. The effective tax rate was 125.0% and 818.1% for the three and six months ended JulyOctober 31, 2022, reflected the impact ofrespectively. The prior year effective tax rate was influenced by foreign operations andtaxed at varying rates, as well as the recordinginclusion of a valuation allowance against the deferred tax assetassets, which resulted inled to the eliminationnullification of any U.S. income tax benefit for pretaxpre-tax losses incurred duringin the period.corresponding periods.

In August 2019, the Company revoked its indefinite reinvestment of foreign unremitted earnings position in compliance with ASC 740 "Income Taxes" and terminated its indefinite reinvestment of unremitted earnings assertion for the Singapore and

The Company has non-contributory defined benefit pension plans covering substantially all domestic salaried and hourly employees. These plans were amended as of April 30, 2005; no further benefits have been, or will be, earned under the plans, subsequent to the amendment date, and no additional participants will be added to the plans. There were no Company contributions paid to the plans for the three and six months ended JulyOctober 31, 2023 and JulyOctober 31, 2022. The Company assumed an expected long-term rate of return of 7.75% for the periods ended JulyOctober 31, 2023 and JulyOctober 31, 2022.

Pension expense consisted of the following (in thousands):

The Company's operations are classified into two business segments: Domestic and International. The Domestic business segment principally designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The International business segment, which consists of the Company's foreign subsidiaries, provides products and services, including facility design, detailed engineering, construction, and project management from the planning stage through testing and commissioning of laboratories. Intersegment transactions are recorded at normal profit margins. All intercompany balances and transactions have been eliminated. Certain corporate expenses shown below have not been allocated to the business segments.

The following tables provide financial information by business segment and unallocated corporate expenses for the periods ended JulyOctober 31, 2023 and 2022 (in thousands):

Sales for the quarter were $49,839,000, an$50,436,000, a decrease from sales of $50,123,000$54,564,000 in the comparable period of the prior year. Domestic sales for the quarter were $35,420,000,$34,185,000, down 5.5%10.0% from sales of $37,468,000$37,991,000 in the comparable period of the prior year. The decrease in Domestic sales was predominantly related to the reduction of installation revenue related to the Company's decision to no longer sell directly to end users, which typically included installation services. International sales for the quarter were $14,419,000, up 13.9%$16,251,000, relatively flat when compared to sales of $16,573,000 in the comparable period of the prior year.

Sales for the six months ended October 31, 2023 were $100,275,000, a decrease from sales of $12,655,000$104,687,000 in the comparable period of the prior year. Domestic sales for the period were $69,605,000, down 7.8% from sales of $75,459,000 in the comparable period of the prior year. The decrease in Domestic sales was predominantly related to the reduction of installation revenue related to the Company's decision to no longer sell directly to end users, which typically included installation services. International sales for the period were $30,670,000, up 4.9% from sales of $29,228,000 in the comparable period of the prior year. International sales increased when compared to the prior year period due to the delivery of several large projects that were booked in the prior fiscal year.

The Company's order backlog was $140.8$146.3 million at JulyOctober 31, 2023, as compared to $174.0$157.8 million at JulyOctober 31, 2022, and $147.9 million at April 30, 2023.

The gross profit margin for the three months ended JulyOctober 31, 2023 was 23.9%26.7% of sales, as compared to 12.4%15.9% of sales in the comparable quarter of the prior year. The gross profit margin for the six months ended October 31, 2023 was 25.3% of sales, as compared to 14.2% of sales in the comparable prior year period. The increase in gross profit margin percentage for the three and six months ended JulyOctober 31, 2023 is primarily being generated from Domestic operations. TheSpecifically, the increase is primarily driven by improved manufacturing productivity, cost containment actions, and the pricing of new orders in response to higher raw material input costs when compared to the prior year period, during which 25% of Domestic revenue related to direct orders that, in aggregate, were delivered at a loss for the Company.periods.

Operating expenses for the three months ended JulyOctober 31, 2023 were $8,106,000,$8,359,000, or 16.3%16.6% of sales, as compared to $6,592,000,$7,946,000, or 13.2%14.6% of sales, in the comparable period of the prior year. Operating expenses for the six months ended October 31, 2023 were $16,465,000, or 16.4% of sales, as compared to $14,538,000, or 13.9% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended JulyOctober 31, 2023 was primarily due to increases in SG&A wages, benefits, incentive and stock based compensation of $635,000 and increases in international operating expenses of $317,000, partially offset by decreases in consulting and professional fees of $324,000 and other taxes and fees of $163,000. The increase in operating expenses for the six months ended October 31, 2023 was primarily due to increases in SG&A wages, benefits, incentive and stock-based compensation of $823,000,$1,458,000, bad debt expense primarily related to a single job dispute of $102,000, travel and entertainment expenses of $102,000,$193,000, and increases in international operating expenses of $170,000.$486,000, partially offset by decreases in consulting and professional fees of $371,000 and other taxes and fees of $82,000.

Interest expense, net was $430,000$372,000 and $802,000 for the three and six months ended JulyOctober 31, 2023, respectively, as compared to $384,000$370,000 and $754,000, respectively, for the comparable periodperiods of the prior year. The changes in interest expense were due to changes in the levels of bank borrowings and interest rates.

Non-controlling interests related to the Company's subsidiaries not 100% owned by the Company decreased net earnings by $41,000$98,000 and $139,000 for the three and six months ended JulyOctober 31, 2023, respectively, as compared to $28,000,$129,000 and $157,000, respectively, for the comparable periodperiods of the prior year. The change in the net earnings attributable to the non-controlling interest in the current period was due to changes in earnings (losses) of the subsidiaries in the related period.

Net earnings was $2,474,000,$2,732,000, or $0.86$0.93 per diluted share, for the three months ended JulyOctober 31, 2023, compared to a net loss of $747,000,$243,000, or $(0.27)$(0.09) per diluted share, in the prior year period. Net earnings was $5,206,000, or $1.79 per diluted share, for the six months ended October 31, 2023, as compared to a net loss of $990,000, or $(0.35) per diluted share, in the prior year period.

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

The Company had working capital of $49,291,000$52,144,000 at JulyOctober 31, 2023, compared to $47,867,000 at April 30, 2023. The ratio of current assets to current liabilities was 2.1-to-1.02.3-to-1.0 at JulyOctober 31, 2023, compared to 2.2-to-1.0 at April 30, 2023.

The Company's ability to predict future demand for its products continues to be limited given its role as subcontractor or supplier to dealers for subcontractors. Demand for the Company's products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under construction. The Company's earnings are also impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace and costs of raw materials, including steel, wood, and epoxy resin.

The Company is operating more efficiently than in the past due to its ability to focus solely on supporting its dealers and distribution channel partners domestically while continuing to provide turnkey solutions in the international markets it serves. The improved focus of the organization, combined with a strong global management team, a healthy backlog, improved manufacturing capabilities, and end-use markets that continue to prioritize investment in projects that require the products Kewaunee designs and manufactures, positions the Company well.

(a) Evaluation of disclosure controls and procedures

An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of JulyOctober 31, 2023. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that, as of JulyOctober 31, 2023, the Company's disclosure controls and procedures were adequate and effective and

(b) Changes in internal controls

There was no significant change in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.