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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended October 31, 2024
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-16497
MOVADO GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
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New York |
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13-2595932 |
(State or Other Jurisdiction of Incorporation or Organization) |
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(IRS Employer Identification No.) |
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650 From Road, Ste. 375 Paramus, New Jersey |
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07652-3556 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(201) 267-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
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MOV |
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New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for that past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,’’ “accelerated filer,’’ “smaller reporting company,’’ and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of December 2, 2024 were 15,684,480 and 6,458,376 respectively.
MOVADO GROUP, INC.
Index to Quarterly Report on Form 10-Q
October 31, 2024
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Page |
Part I |
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Financial Information (Unaudited) |
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Item 1. |
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Consolidated Balance Sheets at October 31, 2024, January 31, 2024 and October 31, 2023 |
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3 |
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Consolidated Statements of Operations for the three and nine months ended October 31, 2024 and October 31, 2023 |
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4 |
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Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended October 31, 2024 and October 31, 2023 |
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5 |
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Consolidated Statements of Cash Flows for the nine months ended October 31, 2024 and October 31, 2023 |
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6 |
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Notes to Consolidated Financial Statements |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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20 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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29 |
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Item 4. |
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Controls and Procedures |
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30 |
Part II |
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Other Information |
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Item 1. |
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Legal Proceedings |
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31 |
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Item 1A. |
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Risk Factors |
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31 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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31 |
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Item 5. |
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Other Information |
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32 |
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Item 6. |
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Exhibits |
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33 |
Signature |
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34 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
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October 31, |
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January 31, |
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October 31, |
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2024 |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
181,548 |
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$ |
262,059 |
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$ |
200,965 |
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Trade receivables, net |
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139,163 |
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104,472 |
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135,523 |
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Inventories |
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168,929 |
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148,031 |
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171,966 |
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Other current assets |
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22,625 |
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17,962 |
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18,856 |
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Income taxes receivable |
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7,922 |
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11,354 |
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11,135 |
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Total current assets |
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520,187 |
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543,878 |
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538,445 |
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Property, plant and equipment, net |
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20,480 |
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19,436 |
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19,458 |
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Operating lease right-of-use assets |
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88,892 |
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82,661 |
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84,212 |
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Deferred and non-current income taxes |
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43,767 |
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43,016 |
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44,814 |
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Other intangibles, net |
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6,192 |
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7,493 |
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7,688 |
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Other non-current assets |
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86,358 |
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72,598 |
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68,780 |
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Total assets |
$ |
765,876 |
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$ |
769,082 |
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$ |
763,397 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
29,429 |
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$ |
32,775 |
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$ |
22,998 |
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Accrued liabilities |
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51,245 |
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38,695 |
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57,165 |
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Accrued payroll and benefits |
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12,541 |
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7,591 |
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10,317 |
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Current operating lease liabilities |
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18,851 |
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15,696 |
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15,885 |
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Income taxes payable |
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9,760 |
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18,318 |
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20,024 |
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Total current liabilities |
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121,826 |
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113,075 |
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126,389 |
|
Deferred and non-current income taxes payable |
|
1,188 |
|
|
|
8,234 |
|
|
|
7,966 |
|
Non-current operating lease liabilities |
|
79,410 |
|
|
|
76,396 |
|
|
|
76,929 |
|
Other non-current liabilities |
|
57,028 |
|
|
|
52,420 |
|
|
|
49,195 |
|
Total liabilities |
|
259,452 |
|
|
|
250,125 |
|
|
|
260,479 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares issued |
|
— |
|
|
|
— |
|
|
|
— |
|
Common Stock, $0.01 par value, 100,000,000 shares authorized; 29,174,709, 29,004,001 and 28,879,497 shares issued and outstanding, respectively |
|
292 |
|
|
|
290 |
|
|
|
289 |
|
Class A Common Stock, $0.01 par value, 30,000,000 shares authorized; 6,458,376, 6,483,116 and 6,483,116 shares issued and outstanding |
|
64 |
|
|
|
64 |
|
|
|
64 |
|
Capital in excess of par value |
|
243,311 |
|
|
|
239,062 |
|
|
|
236,438 |
|
Retained earnings |
|
458,660 |
|
|
|
470,317 |
|
|
|
465,919 |
|
Accumulated other comprehensive income |
|
90,323 |
|
|
|
92,335 |
|
|
|
81,727 |
|
Treasury Stock, 13,490,483, 13,328,095 and 13,282,860 shares, respectively, at cost |
|
(289,067 |
) |
|
|
(285,270 |
) |
|
|
(283,998 |
) |
Total Movado Group, Inc. shareholders' equity |
|
503,583 |
|
|
|
516,798 |
|
|
|
500,439 |
|
Noncontrolling interest |
|
2,841 |
|
|
|
2,159 |
|
|
|
2,479 |
|
Total equity |
|
506,424 |
|
|
|
518,957 |
|
|
|
502,918 |
|
Total liabilities and equity |
$ |
765,876 |
|
|
$ |
769,082 |
|
|
$ |
763,397 |
|
See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Nine Months Ended October 31, |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Net sales |
$ |
182,727 |
|
|
$ |
187,686 |
|
|
$ |
478,709 |
|
|
$ |
492,981 |
|
Cost of sales |
|
84,331 |
|
|
|
85,358 |
|
|
|
218,435 |
|
|
|
219,364 |
|
Gross profit |
|
98,396 |
|
|
|
102,328 |
|
|
|
260,274 |
|
|
|
273,617 |
|
Selling, general and administrative |
|
91,846 |
|
|
|
81,636 |
|
|
|
247,383 |
|
|
|
232,378 |
|
Operating income |
|
6,550 |
|
|
|
20,692 |
|
|
|
12,891 |
|
|
|
41,239 |
|
Non-operating income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
1,522 |
|
|
|
1,632 |
|
|
|
5,571 |
|
|
|
4,194 |
|
Interest expense |
|
(144 |
) |
|
|
(135 |
) |
|
|
(372 |
) |
|
|
(361 |
) |
Income before income taxes |
|
7,928 |
|
|
|
22,189 |
|
|
|
18,090 |
|
|
|
45,072 |
|
Provision for income taxes (Note 10) |
|
2,495 |
|
|
|
4,519 |
|
|
|
5,733 |
|
|
|
9,938 |
|
Net income |
|
5,433 |
|
|
|
17,670 |
|
|
|
12,357 |
|
|
|
35,134 |
|
Less: Net income attributable to noncontrolling interests |
|
383 |
|
|
|
281 |
|
|
|
695 |
|
|
|
568 |
|
Net income attributable to Movado Group, Inc. |
$ |
5,050 |
|
|
$ |
17,389 |
|
|
$ |
11,662 |
|
|
$ |
34,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share: |
|
|
|
|
|
|
|
|
|
|
|
Weighted basic average shares outstanding |
|
22,283 |
|
|
|
22,209 |
|
|
|
22,280 |
|
|
|
22,222 |
|
Net income per share attributable to Movado Group, Inc. |
$ |
0.23 |
|
|
$ |
0.78 |
|
|
$ |
0.52 |
|
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share: |
|
|
|
|
|
|
|
|
|
|
|
Weighted diluted average shares outstanding |
|
22,559 |
|
|
|
22,677 |
|
|
|
22,627 |
|
|
|
22,641 |
|
Net income per share attributable to Movado Group, Inc. |
$ |
0.22 |
|
|
$ |
0.77 |
|
|
$ |
0.52 |
|
|
$ |
1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Nine Months Ended October 31, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Net income |
|
$ |
5,433 |
|
|
$ |
17,670 |
|
|
$ |
12,357 |
|
|
$ |
35,134 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain/(loss) on investments, net of tax provision/(benefit) of $1, ($3), $8 and ($13), respectively |
|
|
4 |
|
|
|
(9 |
) |
|
|
24 |
|
|
|
(38 |
) |
Amortization of prior service cost, net of tax provision of $3, $4, $10 and $12, respectively |
|
|
13 |
|
|
|
15 |
|
|
|
37 |
|
|
|
45 |
|
Foreign currency translation adjustments |
|
|
2,266 |
|
|
|
(10,066 |
) |
|
|
(2,247 |
) |
|
|
256 |
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss)/income before reclassification, net of tax (benefit)/provision of ($37), $56, $1 and $51, respectively |
|
|
(186 |
) |
|
|
284 |
|
|
|
4 |
|
|
|
260 |
|
Amounts reclassified from accumulated other comprehensive income/(loss), net of tax provision/(benefit) of $76, ($61), $33 and ($18), respectively |
|
|
388 |
|
|
|
(307 |
) |
|
|
170 |
|
|
|
(91 |
) |
Total other comprehensive income/(loss), net of taxes |
|
|
2,485 |
|
|
|
(10,083 |
) |
|
|
(2,012 |
) |
|
|
432 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) attributable to noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
383 |
|
|
|
281 |
|
|
|
695 |
|
|
|
568 |
|
Foreign currency translation adjustments |
|
|
(1 |
) |
|
|
(136 |
) |
|
|
(13 |
) |
|
|
(247 |
) |
Total comprehensive income attributable to noncontrolling interests |
|
$ |
382 |
|
|
$ |
145 |
|
|
$ |
682 |
|
|
$ |
321 |
|
Total comprehensive income attributable to Movado Group, Inc. |
|
$ |
7,536 |
|
|
$ |
7,442 |
|
|
$ |
9,663 |
|
|
$ |
35,245 |
|
See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31, |
|
|
2024 |
|
|
2023 |
|
Cash flows from operating activities: |
|
|
|
|
|
Net income |
$ |
12,357 |
|
|
$ |
35,134 |
|
Adjustments to reconcile net income to net cash (used in)/provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
6,960 |
|
|
|
7,278 |
|
Transactional losses |
|
594 |
|
|
|
204 |
|
Provision for inventories and accounts receivable |
|
4,489 |
|
|
|
3,803 |
|
Deferred income taxes |
|
(1,582 |
) |
|
|
(2,032 |
) |
Stock-based compensation |
|
4,094 |
|
|
|
5,529 |
|
Other |
|
265 |
|
|
|
754 |
|
Changes in assets and liabilities: |
|
|
|
|
|
Trade receivables |
|
(37,026 |
) |
|
|
(42,027 |
) |
Inventories |
|
(24,697 |
) |
|
|
10,758 |
|
Other current assets |
|
(4,675 |
) |
|
|
4,107 |
|
Accounts payable |
|
(3,709 |
) |
|
|
(7,492 |
) |
Accrued liabilities |
|
11,974 |
|
|
|
12,336 |
|
Accrued payroll and benefits |
|
4,994 |
|
|
|
(7,039 |
) |
Income taxes receivable |
|
8,374 |
|
|
|
(4,494 |
) |
Income taxes payable |
|
(19,855 |
) |
|
|
(10,014 |
) |
Other non-current assets |
|
(3,141 |
) |
|
|
1,293 |
|
Other non-current liabilities |
|
(43 |
) |
|
|
(730 |
) |
Net cash (used in)/provided by operating activities |
|
(40,627 |
) |
|
|
7,368 |
|
Cash flows from investing activities: |
|
|
|
|
|
Capital expenditures |
|
(6,368 |
) |
|
|
(6,627 |
) |
Long-term investments |
|
(5,467 |
) |
|
|
(2,040 |
) |
Trademarks and other intangibles |
|
(86 |
) |
|
|
(113 |
) |
Net cash used in investing activities |
|
(11,921 |
) |
|
|
(8,780 |
) |
Cash flows from financing activities: |
|
|
|
|
|
Dividends paid |
|
(23,319 |
) |
|
|
(45,399 |
) |
Stock repurchases |
|
(2,628 |
) |
|
|
(2,349 |
) |
Distribution of noncontrolling interest earnings |
|
— |
|
|
|
(780 |
) |
Stock awards and options exercised and other changes |
|
(1,101 |
) |
|
|
(73 |
) |
Net cash used in financing activities |
|
(27,048 |
) |
|
|
(48,601 |
) |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
|
(917 |
) |
|
|
(377 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
(80,513 |
) |
|
|
(50,390 |
) |
Cash, cash equivalents, and restricted cash at beginning of year |
|
262,814 |
|
|
|
252,179 |
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
182,301 |
|
|
$ |
201,789 |
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents, and restricted cash: |
|
|
|
|
|
Cash and cash equivalents |
$ |
181,548 |
|
|
$ |
200,965 |
|
Restricted cash included in other non-current assets |
|
753 |
|
|
|
824 |
|
Cash, cash equivalents, and restricted cash |
$ |
182,301 |
|
|
$ |
201,789 |
|
See Notes to Consolidated Financial Statements
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying interim unaudited Consolidated Financial Statements have been prepared by Movado Group, Inc. (the “Company”), in a manner consistent with that used in the preparation of the annual audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2024 (the “2024 Annual Report on Form 10-K”). The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The Consolidated Balance Sheet data at January 31, 2024 is derived from the audited annual financial statements, which are included in the Company’s 2024 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07 "Improvements to Reportable Segment Disclosures" which requires expanded disclosures about an entity's reportable segments, including more enhanced information about a reportable segment's expenses, interim segment profit or loss, and how an entity's chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024. ASU 2023-07 should be adopted on a retrospective basis. Early adoption is permitted. The Company plans to adopt ASU 2023-07 in the fourth quarter of fiscal year 2025 and the adoption will result in additional segment-related footnote disclosures within the notes to the Consolidated Financial Statements.
In December 2023, the FASB issued ASU 2023-09 "Improvements to Income Tax Disclosures" which requires expanded income tax disclosures primarily related to an entity's effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and should be adopted on a prospective basis. Early adoption is permitted. The Company is currently evaluating this ASU to determine the timing and impact of adoption on its Consolidated Financial Statements and related disclosures.
NOTE 3 - COST-SAVINGS INITIATIVE
During the third quarter of fiscal year 2025, in light of the ongoing challenging consumer-spending environment, the Company committed to a cost-savings initiative to reduce operating expenses through headcount reductions, bringing them more in line with sales.
During the third quarter of fiscal year 2025, the Company recorded to date $2.7 million in severance and payroll related charges which are included in Selling, general and administrative in the Consolidated Statements of Operations for the three and nine months ended October 31, 2024. The amounts are included in the Watch and Accessory segment with $1.5 million in the United States locations and $1.2 million in the International locations.
The Company expects the severance and payroll related expenses to be paid out within the next twelve months. $0.3 million was paid during the third quarter of fiscal 2025 and the remaining $2.4 million is included in Accrued payroll and benefits in the Consolidated Balance Sheet at October 31, 2024.
NOTE 4 – EARNINGS PER SHARE AND CASH DIVIDENDS
The Company presents net income attributable to Movado Group, Inc. after adjusting for noncontrolling interests, as applicable, per share on a basic and diluted basis. Basic earnings per share is computed using weighted-average shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.
The number of shares used in calculating basic and diluted earnings per share is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Nine Months Ended October 31, |
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
22,283 |
|
|
|
22,209 |
|
|
|
22,280 |
|
|
|
22,222 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
Stock awards and options to purchase shares of common stock |
|
276 |
|
|
|
468 |
|
|
|
347 |
|
|
|
419 |
|
Diluted |
|
22,559 |
|
|
|
22,677 |
|
|
|
22,627 |
|
|
|
22,641 |
|
For the three months ended October 31, 2024 and 2023, approximately 751,000 and 497,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the nine months ended October 31, 2024 and 2023, approximately 694,000 and 671,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.
During the nine months ended October 31, 2024, the Company has declared and paid a total of three separate cash dividends of $0.35 per share aggregating to $23.3 million. During the nine months ended October 31, 2023, the Company declared and paid three separate cash dividends of $0.35 per share and a special cash dividend of $1.00 per share aggregating to $45.4 million.
NOTE 5 – INVENTORIES
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2024 |
|
|
January 31, 2024 |
|
|
October 31, 2023 |
|
Finished goods |
|
$ |
139,501 |
|
|
$ |
117,909 |
|
|
$ |
141,109 |
|
Component parts |
|
|
25,802 |
|
|
|
26,386 |
|
|
|
27,217 |
|
Work-in-process |
|
|
3,626 |
|
|
|
3,736 |
|
|
|
3,640 |
|
|
|
$ |
168,929 |
|
|
$ |
148,031 |
|
|
$ |
171,966 |
|
NOTE 6 – DEBT AND LINES OF CREDIT
The Company and its U.S. and Swiss subsidiaries (collectively, the "Borrowers") are parties to an Amended and Restated Credit Agreement originally dated October 12, 2018 (as subsequently amended, the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). The Credit Agreement provides for a $100.0 million senior secured revolving credit facility (the “Facility”) and has a maturity date of October 28, 2026. The Facility includes a $15.0 million letter of credit subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings by the Swiss Borrower, with provisions for uncommitted increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and conditions. The Credit Agreement contains affirmative and negative covenants binding on the Company and its subsidiaries that are customary for credit facilities of this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity investments, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates (in each case, subject to various exceptions).
The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower, except that the Swiss Borrower is not liable for, nor does it guarantee, the obligations of the U.S. Borrowers. In addition, the Borrowers' obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the U.S. Borrowers' assets other than certain excluded assets. The Swiss Borrower does not provide collateral to secure the obligations under the Facility.
As of both October 31, 2024, and October 31, 2023, there were no amounts of loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3 million at both October 31, 2024 and October 31, 2023. At October 31, 2024, the letters of credit have expiration dates through June 2, 2025. As of both October 31, 2024, and October 31, 2023, availability under the Facility was $99.7 million.
The Company had weighted average borrowings under the Facility of zero during both the three and nine months ended October 31, 2024 and 2023, respectively.
The Company's Swiss subsidiary maintains unsecured lines of credit with a Swiss bank that are subject to repayment upon demand. As of October 31, 2024, and 2023, these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.5 million and $7.1 million, respectively. As of October 31, 2024, and 2023, there were no borrowings against these lines. As of October 31, 2024 and 2023, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.4 million and $1.5 million, respectively, in various foreign currencies, of which $0.8 million and $0.8 million ($0.1 million was refunded in November 2023), respectively, was a restricted deposit as it relates to lease agreements.
Cash paid for interest, including unused commitments fees, was $0.2 million for both the nine month periods ended October 31, 2024 and October 31, 2023 and amortization of debt fees was $0.2 million for both the nine month periods ended October 31, 2024 and October 31, 2023.
NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS
The Company addresses certain financial exposures that include the use of derivative financial instruments. The Company enters into foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates. As of October 31, 2024, the Company's net forward contracts hedging portfolio designated as qualified cash flow hedging instruments consisted of 9.0 million Euros equivalent with various expiry dates ranging through November 27, 2024. The net gain or loss on the derivatives is reported as a component of accumulated other comprehensive income/(loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings using the same revenue or expense category that the hedged item impacted. The Company also enters into foreign currency forward contracts not designated as qualified hedges in accordance with ASC 815, Derivatives and Hedging. As of October 31, 2024, the Company’s net forward contracts hedging portfolio not designated as qualified hedges consisted of 7.3 million Chinese Yuan equivalent, 30.0 million Swiss Francs equivalent, 29.6 million U.S. dollars equivalent, 24.0 million Euros equivalent and 4.8 million British Pounds equivalent with various expiry dates ranging through April 10, 2025. Changes in the fair value of these derivatives are recognized in earnings in the period they arise. Net gains or losses related to these forward contracts are included in cost of sales, selling and general and administrative expenses in the Consolidated Statements of Operations. The cash flows related to these foreign currency contracts are classified in operating activities.
The following table presents the fair values of the Company's derivative financial instruments included in the Consolidated Balance Sheets as of October 31, 2024, January 31, 2024 and October 31, 2023 (in thousands):
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Asset Derivatives |
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Liability Derivatives |
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Balance Sheet Location |
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October 31, 2024 Fair Value |
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January 31, 2024 Fair Value |
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October 31, 2023 Fair Value |
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Balance Sheet Location |
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October 31, 2024 Fair Value |
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January 31, 2024 Fair Value |
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October 31, 2023 Fair Value |
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Derivatives designated as hedging instruments: |
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Foreign Exchange Contracts |
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Other Current Assets |
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$ |
219 |
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$ |
26 |
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$ |
— |
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Accrued Liabilities |
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$ |
— |
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$ |
11 |
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$ |
5 |
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Total Derivative Instruments |
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$ |
219 |
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$ |
26 |
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$ |
— |
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$ |
— |
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$ |
11 |
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$ |
5 |
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Asset Derivatives |
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Liability Derivatives |
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Balance Sheet Location |
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October 31, 2024 Fair Value |
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January 31, 2024 Fair Value |
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October 31, 2023 Fair Value |
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Balance Sheet Location |
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October 31, 2024 Fair Value |
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January 31, 2024 Fair Value |
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October 31, 2023 Fair Value |
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Derivatives not designated as hedging instruments: |
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Foreign Exchange Contracts |
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Other Current Assets |
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$ |
154 |
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$ |
528 |
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$ |
— |
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Accrued Liabilities |
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$ |
77 |
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$ |
— |
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$ |
650 |
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Total Derivative Instruments |
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$ |
154 |
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$ |
528 |
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$ |
— |
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$ |
77 |
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$ |
— |
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$ |
650 |
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As of October 31, 2024, January 31, 2024 and October 31, 2023, the balance of net deferred gains on derivative financial instruments designated as cash flow hedges included in accumulated other comprehensive income/(loss) were $0.2 million, $43,000 and ($2,000), respectively. For the three months ended October 31, 2024, and October 31, 2023, the Company reclassified ($0.4) million and $0.3 million, respectively, from accumulated other comprehensive (loss)/income to Net sales in the Consolidated Statements of Operations.
For the nine months ended October 31, 2024, and October 31, 2023, the Company reclassified ($0.2) million and $0.1 million, respectively, from accumulated other comprehensive (loss)/income to Net sales in the Consolidated Statements of Operations. No ineffectiveness has been recorded for the three and nine months ended October 31, 2024.
See Note 8 - Fair Value Measurements for fair value and presentation in the Consolidated Balance Sheets for derivatives.
NOTE 8 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:
•Level 1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
•Level 3 – Unobservable inputs based on the Company’s assumptions.
The guidance requires the use of observable market data if such data is available without undue cost and effort.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of October 31, 2024 and 2023 and January 31, 2024 (in thousands):
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Fair Value at October 31, 2024 |
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Balance Sheet Location |
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