Filed 2025-05-01 · Period ending 2025-01-31 · 38,587 words · SEC EDGAR
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# Perma-Pipe International Holdings, Inc. (PPIH) — 10-K
**Filed:** 2025-05-01
**Period ending:** 2025-01-31
**Accession:** 0001437749-25-014095
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/914122/000143774925014095/)
**Origin leaf:** 863b4393fb79ef1305cc5a9789799f6913060b3fe9e4c0684b6971052b9d0dc6
**Words:** 38,587
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Table of Contents
UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-K**
| | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
**For the fiscal year ended January 31, 2025**
**OR**
| | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
**For the transition period from ___________ to ____________**
Commission File No. 001-32530
**Perma-Pipe International Holdings, Inc.**
(Exact name of registrant as specified in its charter)
*| Delaware | 36-3922969 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 25025 I-45, Suite 200, The Woodlands, Texas | 77380 | |
| (Address of principal executive offices) | (Zip Code) | |
| (281) 598-6222 | | |
| (Registrant's telephone number, including area code) | | |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | |
| Common Stock, $.01 par value per share | PPIH | The NasdaqStock Market LLC | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submittedpursuant 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 submitsuch files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
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 has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (the exclusion of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant) was $71,626,601 based on the closing sale price of $9.49 per share as reported on the NasdaqGlobal Market on July 31,2024.
The number of shares of the registrant's common stock outstanding atApril 21, 2025was7,982,568.
Table of Contents
**DOCUMENTS INCORPORATED BY REFERENCE**
Portions of the registrant's definitive proxy statement for its2025 annual meeting of stockholders, which will be filed with the Securities and Exchange Commission within 120 days after January 31, 2025, are incorporated by reference in Part III of this Annual Report on Form 10-K.
Table of Contents
**Perma-Pipe International Holdings, Inc.**
**FORM 10-K**
**For the fiscal year endedJanuary 31, 2025**
**TABLE OF CONTENTS**
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PARTI |
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ITEM1. |
Business |
2 |
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ITEM1A. |
Risk Factors |
5 |
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ITEM1B. |
Unresolved Staff Comments |
9 |
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ITEM 1C. |
Cybersecurity |
10 |
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ITEM2. |
Properties |
11 |
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ITEM3. |
Legal Proceedings |
11 |
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ITEM4. |
Mine Safety Disclosures |
11 |
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PARTII |
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ITEM5. |
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
12 |
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ITEM6. |
[Reserved] |
13 |
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ITEM7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
13 |
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ITEM7A. |
Quantitative and Qualitative Disclosures About Market Risk |
20 |
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ITEM8. |
Financial Statements and Supplementary Data |
20 |
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ITEM9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
20 |
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ITEM9A. |
Controls and Procedures |
21 |
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ITEM9B. |
Other Information |
22 |
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ITEM 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
22 |
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PARTIII |
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ITEM10. |
Directors, Executive Officers and Corporate Governance |
23 |
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ITEM11. |
Executive Compensation |
23 |
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ITEM12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
23 |
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ITEM13. |
Certain Relationships and Related Transactions, and Director Independence |
23 |
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ITEM 14. |
Principal AccountantFees and Services |
23 |
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PARTIV |
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ITEM15. |
Exhibits and Financial Statement Schedules |
23 |
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ITEM 16. |
Form 10-K Summary |
57 |
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Signatures |
58 |
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Table of Contents
**PART I**
**Cautionary Statements Regarding Forward Looking Information**
Certain statements contained in this Annual Report on Form 10-K, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely," and "probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors, including, but not limited to, the following:
**Market Condition Risks**
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fluctuations in the price of oil and natural gas and its impact on customer order volume for the Company's products; |
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the Companys ability to purchase raw materials at favorable prices and to maintain beneficial relationships with its suppliers, which could result in a shortage of supply, or increased pricing; |
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decreases ingovernment spending on projects using the Companys products, and challenges to the Companys customers liquidity and access to capital funds; |
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**Financial Risks**
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the Companys ability to maintain compliance with debt covenants, repay its debtand renew expiring credit facilities; |
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the Company's ability to maintain sustained levels of profitability or positive cash flows in the future; |
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the Companys ability to effectively execute its strategic plan and achieve sustained profitability and positive cash flows; |
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the Company's ability to collect a long-term account receivable related to a project in the Middle East; |
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the Company's ability to interpret and adapt to changes in tax regulations and legislation; |
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the Companys ability to use itsnetoperatinglosscarryforwards; |
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the Company's inability to establish and maintain effective internal control over financial reporting; |
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changes in estimates which could result in a reduction or elimination of previously recorded revenues and profit in connection with "over time" revenue recognition; |
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**Business Condition Risks**
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the timing of order receipt, execution, delivery and acceptancefor the Companys products; |
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the Companys ability to successfully negotiate progress-billing arrangements for its large contracts; |
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aggressive pricing by existing competitors and the entrance of new competitors in the markets in which the Company operates; |
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the Companys ability to manufacture products free of latent defects and to recover from suppliers who may provide defective materials to the Company; |
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reductions or cancellations of orders included in the Companys backlog; |
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risks and uncertainties specific to the Company's international business operations; |
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**General Risks**
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the Companys ability to attract and retain senior management and key personnel; |
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the Companys ability to achieve the expected benefits of its growth initiatives; and |
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the impact of cybersecurity threats on the Companys information technology systems. |
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1
Table of Contents
**ITEM1. BUSINESS**
Perma-Pipe International Holdings, Inc., collectively with its subsidiaries ("PPIH", the"Company", "we", "our" or the "Registrant"), is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. The Company was incorporated in Delaware on October 12, 1993. The Company's common stock is traded on the Nasdaq Global Market and reported under the ticker symbol "PPIH". The Company's fiscal year ends on January 31. Years, resultsand balances described as 2025,2024and2023are for the fiscal year ending January 31,2026and the fiscal yearsended January 31,2025and2024, respectively.
**PRODUCTS AND SERVICES**
The Company engineers, designs, manufactures and sells specialty piping systems and leak detection systems. Specialty piping systems include: (i) insulated and jacketed district heating and cooling piping systems for efficient energy distribution from central energy plants to multiple locations, (ii) primary and secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products,(iii) the coating and/or insulation of oil and gas gathering and transmission pipelines, and (iv) liquid and powder based anti-corrosion coatings applied both to the external and internal surfaces of steel pipe, including shapes such asbends, reducers, tees, and other spools/fittings used in pipelines for the transportation of oil andgas products and potable water. The Company's leak detection systems are sold with its piping systems or on a stand-alone basis to monitor areas where fluid intrusion may contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services or damage equipment or property.
The Company frequently engineers and custom fabricates to job site dimensions and incorporates provisions for thermal expansion due to cycling temperatures. Most of the Company's piping systems are produced for underground installations and, therefore, require trenching, which is the responsibility of the general contractor, and completed by unaffiliated installation contractors.
The Companys piping systems are typically sold as a part ofdiscrete projects, and customer demand can vary by reporting period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
**Operating Facilities.***The Company operates its business from the following locations:
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Perma-Pipe, Inc. |
Perma-Pipe Middle East LLC |
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Rolling Meadows, IL |
Abu Dhabi, United Arab Emirates |
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New Iberia, LA |
Perma-Pipe Middle East FZC |
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Lebanon, TN |
Fujairah, United Arab Emirates |
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Perma-Pipe Canada, Ltd. |
Perma-Pipe Saudi Arabia, LLC |
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Camrose, Alberta, Canada |
Perma-Pipe Gulf Arabia, LLC |
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Vars, Ontario, Canada |
Dammam, Kingdom of Saudi Arabia |
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Perma-Pipe Egypt for Metal Fabrication and Insulation Industries (Perma-Pipe Egypt) S.A.E. |
Riyadh, Kingdom of Saudi Arabia |
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Beni Suef, Egypt |
Medina, Kingdom of Saudi Arabia |
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Perma-Pipe India Pvt. Ltd |
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Gandhidham, India |
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***Customers and sales channels.*** The Company's customer base is industrially and geographically diverse. In the United States, the Company employs inside and outsidesales managers who use and assist a network of independent manufacturers' representatives, none of whom sellproducts that are competitive with the Company's piping systems. The Company employs a direct sales force to market and sell products and services in Canada, India, Egypt,and acrossseveral countries in the Middle East.On a country-by-country basis, and where advantageous, the Company uses an agent networkto assist in marketing and selling the Company's products and services.
For the years endedJanuary 31, 2025and 2024, no one customer accounted for greater than 10% of the Company's consolidated net sales.
As of January 31, 2025and2024,no onecustomer accounted for greater than10%of accounts receivable.
***Backlog.***The Companys backlog onJanuary 31, 2025 was $138.1million, compared to $68.4million onJanuary 31, 2024, most of which is expected to be completed within the year ending January 31,2026. The increase in the backlog was the result of new awards year-over-year in excess of completed projects during the year inNorth America and the Middle East.The Company defines backlog as the expected total revenue value resulting from confirmed customer purchase orders that have not yet been recognized as revenue. However, by industry practice, orders may be canceled or modified at any time. In the event of a cancellation, the customer is normally responsible for all finished goods produced or shipped, all direct and indirect costs incurred, and also for a reasonable allowance for anticipated profits. No assurance can be given that these amounts will be recovered after cancellation. Any cancellation or delay in orders may result in lower than expected revenues from the Company's reported backlog. Additionally, as a result of the Company's contracts having a duration of less than one year, a practical expedient was applied regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.
***Intellectual property.*** The Company owns various patents covering its piping and electronic leak detection systems, as well as for some of the features of its sensor cables. These patents are not material to the Company either individually or in the aggregate because the Company believes its sales would not be materially reduced if patent protection was not available. The Company owns numerous trademarks connected with its piping and leak detection systems throughout the world.
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***Suppliers.*** The basic raw materials used in production are pipes and tubes made of carbon steel, steel alloys, copper, ductile iron, or polymers and various chemicals such as polyols, isocyanate, urethane resin, polyethylene, and fiberglass, which are mostly purchased in bulk quantities. The Company believes there are currently adequate supplies and sources of availability of these needed raw materials.
The sensor cables used in the Company's leak detection and location systems are manufactured to the Company's specifications by companies regularly engaged in manufacturing such cables. The Company assembles the monitoring component of its leak detection and location systems from components purchased from many sources.
Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company routinely experiences delays and increased prices for raw materials used in the Company'sproduction processes. To mitigate these impacts, the Company has implemented several strategies, includingpurchasing from alternative suppliers andplanning for material purchasesfurther in advance to ensure the Company hasmaterialswhen needed. The Companyalso adjusts its pricing to customers to offset the impacts of the raw material price increases. These impacts are expected to continue throughout2025, and the resulting future disruptions to the Companys operationsare uncertain.
***Competition.*** The piping systems market is highly competitive. The Company believes that quality, service, engineering design capabilities and support, a comprehensive product line, timely execution, plant location and price are key competitive factors in theindustry. The Company also believes it has a more comprehensive product line than any competitor.
***Research and Development.***The Company's research and development efforts primarilyfocuson activities and development to meet product specifications mandated by its customers and the industry.
***Environmental impacts.*** The Company provides insulated pipe for district energy systems.A district energy system is a highly efficient way to provide heating or cooling to buildings. A central plant produces steam or chilled water that flows through insulated pipes to buildings. The goal of a district energy system is to centralize production to deliver energy efficiency, reduce operating costs, and useless equipment compared to individual buildings with their own boilers and chillers. In addition, district heating and cooling plants can provide better pollution control than localized boilers and cooling equipment.
**EMPLOYEES**
As of January 31, 2025, the Company had approximately175 full-time employees working in the United States, of which approximately79 were undertwo collective bargaining agreements expiring onApril 30, 2027and May 5, 2025. As of January 31, 2025, there were approximately575 full-time employees working at the Company's international locations. The Company considers its relationship with its employees to be good.
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**INFORMATION ABOUT OUR EXECUTIVE OFFICERS**
The following table sets forth information regarding the executive officers of the Company as of May 1, 2025:
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Executive officer of the |
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Name |
Offices and Positions; Age |
Company since |
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David J. Mansfield |
Director, Chief Executive Officer; Age 65 |
2016 |
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Saleh Sagr |
President; Age 55 |
2025 |
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Matthew E. Lewicki |
Vice President and Chief Financial Officer; Age 42 |
2023 |
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**David J. Mansfield:**Chief Executive Officer("CEO")and member of the Board of Directorssince November 2016. From 2015 to 2016, Mr. Mansfield served as Chief Financial Officer ("CFO") of Compressor Engineering Corp. & CECO Pipeline Services Co., which provides products and services to the gas transmission, midstream, gas processing, and petrochemical industries. In this position, he had overall responsibility for the groups financial affairs, including the development and execution of turnaround plans and the successful negotiation of a corporate refinancing. From 2009 to 2014, Mr. Mansfield served as CFO and as Acting CEO of Pipestream, Inc., a venture capital-owned technology development company providing a suite of products to the oil and gas pipeline industry. From 1992 to 2009, Mr. Mansfield was employed with Bredero Shaw, the worlds largest provider of protective coatings for the oil and gas pipeline industry, most recently as Vice President Strategic Planning. During his tenure with Bredero Shaw, Mr. Mansfield served in numerous roles including Vice President Controller, and Commercial General Manager, Europe, Africa & the former Soviet Union region, and played a key role in strategy development and merger and acquisition activities as the company grew from annual revenues of $100 million to over $900 million. He is a Fellow member of the Association of Chartered Certified Accountants.
**Saleh Sagr:** Appointed President in April 2025 and has previously served as the Companys Senior Vice President of the MENA region since June 2021, where he was responsible for overseeing operations in the U.A.E., Saudi Arabia, India, and Egypt. He joined the Company in May 2019 as Vice President of the MENA region. Prior to joining Perma-Pipe, Mr. Sagr served as General Manager for Global Anti Corrosion Techniques Co. Ltd, in Saudi Arabia, a Saudi pipeline company he co-founded in 2005. From 1995to 2005, Mr. Sagr held various positions for BrederoShaw, such as engineering, startups, and operations management.
**Matthew E. Lewicki:**Vice President andCFO sinceOctober 2023 and previously served as Chief Accounting Officer from May 2023 to October 2023. From 2019to 2023, Mr. Lewickiserved as Corporate Controllerof HMT Holdings Corp, Inc.,aglobal oil and gas manufacturing and infrastructure services company, consisting of the manufacturing ofabove-ground storage tanks and associated materials, oilfield maintenance and repair services, and inspection services. In this position, Mr. Lewicki was responsible for the consolidated financial affairs of the worldwide organization, including financial strategy, mergers and acquisitions, and treasury management. From 2013to 2019, Mr. Lewickiserved as Senior Manager of Financial Planning and Reporting for Quanta Services, Inc., a Fortune 300electric, oil and gas, and telecommunications infrastructure services company. In this role, Mr. Lewicki was responsible for overseeing financial reporting and SEC compliance, and financial planning and analysis, which consisted of strategic planning, budgeting, forecasting, mergers and acquisition integration, and investment strategy. He began his career in public accounting at Deloitte and is a Certified Public Accountant in the State of Texas.
**AVAILABLE INFORMATION**
The Company files with, and furnishes to, the Securities and Exchange Commission ("SEC")reports, including annual meeting materials, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as amendments thereto. The Company maintains a website,
www.permapipe.com, where these reports and related materials are available free of charge as soon as reasonably practicable after the Company electronically files with, or furnishes such materialto, the SEC. The information on the Company's website is not part of this Annual Report on Form 10-K and is not incorporated into this or any other filings by the Company with the SEC.
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**ITEM1A. RISK FACTORS**
The Company's business, financial condition, results of operations and cash flows are subject to various risks, including, but not limited to, those set forth below, which could cause actual results to vary materially from recent results or from anticipated future results. These risk factors should be considered together with information included elsewhere in this Annual Report on Form 10-K.
**Market Condition Risks**
***The Company'soperations and earnings may be significantly affected by changes inoil and gas prices***. Oil and gas pricesdepend on local, regional, and global events or conditions that affect supply and demand. Any material decline in oil or gas prices could have a material adverse effect on the demand for the Company's products,its operations and financial condition.
***The Company may be unable to purchase raw materials at favorable prices, or maintain beneficial relationships with its suppliers, which could result in a shortage of supply, or increased pricing***
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There can be no assurance regarding the availability of supply for key components of the Company's products. The lack of supply of these components could result in an adverse effect on the financial condition of the Company.The steel industry in particular is highly cyclical in nature, and at times, pricing can be highly volatile due to a number of factors beyond the Company's control. The Companyutilizes escalation clauses and bid expiration dates to mitigate theimpact of this volatility on its earnings.This volatility may negatively impact market conditions thusreducing project activity and the Company's results of operations.If the United Statesor other countries in which the Company operates imposetariffs on imports of raw materials, including steel, used in the Company's operations, could have anadverse impact on the Company's business.
The Company regularly updatesits quoting system for the movements in raw material pricesand seeks to recover price differentials through increases in the selling price of the Company's products; however, the Company maynot always be successful, andany increase in raw material prices that is not offset by an increase in the Company's prices that is accepted by customers could have an adverse effect on the Company's business, results of operations, financial position and cash flows.In addition, if the Company is unable to acquire timely raw material supplies, it may need to decline opportunities, which could also have an adverse effect on the Company's business, results of operations, financial position and cash flows.
Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company could experience delays and increased prices for raw materials used in production processes. To mitigate these impacts, the Company has implemented several strategies, includingpurchasing from alternative suppliers andplanning for material purchasesfarther in advance to ensure the Company has materialswhen needed. The Company also adjusts its pricing to customers to offset the impacts of the raw material price increases. The Company is unable to predict the duration of the current inflationary environment, raw material supply shortages and transportation delays, and the resulting future disruptions to the Companys operations are uncertain.
***Decreases in government spending on projects using the Companys products, and challenges to the Companys customers liquidity and availability of capital funds, may adversely impact demand for the Companys products.***Decreases in government spending on projects using the Company's products can have a negative impact on the Company's sales volumes.Uncertainty about economic market conditions poses risks that the Company's customers may postpone spending for capital improvement and maintenance projects in response to tighter credit markets or negative financial news, which could have a material adverse effect on the demand for the Company's products.
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**Financial Risks**
**The Company may be unable to*****maintain compliance with existing debt covenants,*****repay its debtor renew its expiring international credit facilities.**There is arisk that the Company may not be able to remain in compliance with its credit agreement covenants. If there were an event of default under the Company's current revolving credit facilities, the lenders could cause all amounts outstanding with respect to that debt to be due and payable immediately. The Company cannot assure that its cash flow will be sufficient to fully repay amounts due under any of the financing arrangements, if accelerated upon an event of default, or, that the Company would be able to repay, refinance or restructure the payments under any such arrangements. Complying with the covenants under the Company's domestic and/or foreign revolving credit facilities may limit management's discretion by restricting options such as:
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incurring additional debt; |
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entering into transactions with affiliates; |
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making investments or other restricted payments; |
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paying dividends, capital returns,intercompany obligations and other forms of repatriation; and |
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creating liens. |
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The Company has approximately $2.0million becoming due in the year ending January 31,2026under its various foreign revolving lines of credit. The Companys credit arrangements used by its Middle Eastern subsidiaries are renewed on an annual basis. In addition to these credit arrangements, the Company also obtains financing in the Middle East on a project-by-project basis. The Companyhas insignificant borrowingsbecoming due in the yearending January 31,2026 under its project financing agreements. While the Company believes that it will be able to renew its Middle East credit arrangements and will have continued access to individual project financing, there is no assurance that such arrangements will be renewed or made available in similar amounts oron similar terms and conditions as the current arrangements, or that such individual project financing will be available for projects that the Company is interested in pursuing in the future.
Any replacement credit arrangements outside of the United States may further limit the Companys ability to repatriate funds from abroad. Repatriation of funds from certain countries may become limited based upon regulatory restrictions or unfeasible economically because of the taxation of funds when moved to another subsidiary or to the parent company. In addition, any refinancing, replacement or additional financing the Company may obtain could contain similar or more restrictive covenants than those currently applicable to the Company. The Companys ability to comply with any covenants may be adversely affected by general economic conditions, political decisions, industry conditions and other events beyond managements control.
***The Companymay be unable to maintainsustained levels ofprofitability or positive cash flows in the future.***There is noguarantee that the Company will be able to maintainprofitability or positive cash flows in the future. The Companys inability to successfully maintainprofitability and positive cash flows may result in it experiencing a serious liquidity deficiency resulting in material adverse consequences that could threaten its viability.
**The Company extended credit to a customer for a project in the Middle East in 2013 and, if the Company is unable to collect this account receivable, its future profitability could be adversely impacted.**One of the Companys accounts receivable in the total amount of $1.8 million and $2.2 millionas ofJanuary 31, 2025 and 2024, respectively, has been outstanding for several years. As of January 31, 2025, the entirebalance representsa retention assetthat is payable upon the commissioning of the system. Due to thelong-termnature of the receivable, $1.2 million and $1.4million wereincluded in other long-term assetsas of January 31, 2025 and 2024, respectively. The Company completed all of its deliverables in 2015 under the related contract, but the system has not yet been commissioned by the customer as additional activities must be completed prior to the overall system completion and commissioning. Nevertheless, the Company continues to actively engage in ongoing collection efforts with the customer to ensure full payment of open balances, and at various times throughout2024and 2023, the Company received a partial payment to settle $0.4million and $0.6million of the customer's outstanding balances, respectively, including an additional $0.5 million that was received subsequent to the end of the year. Additionally, the Company has been engaged by the customer to perform additional work in2025under customary trade credit termsthatsupportthe continued cooperation between the Company and the customer. As a result, the Companydid not reserve any allowance against thisoutstanding receivable as ofJanuary 31, 2025. However, if the Companys efforts to collect on this account are not successful, the Company may recognize an allowance for all, or substantially all, ofany suchuncollected amounts.
***The Company may be impacted by interpretations and changes in tax regulations and legislation which could adversely affect the Company's results of operations.***Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company operates are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or benefit, and income tax assets or liabilities. Tax rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by the Company that may be challenged by the applicable taxation authorities upon audit.Although the Company believes its assumptions, judgements and estimates are reasonable, changes in tax laws or the Company's interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in the Company'sconsolidated financial statements.
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**The Company****s ability to use its****net****operating****loss****carryforwards and certain other tax attributes may be limited.**The Companysnetoperatingloss carryforwards (NOLs) in the U.S. could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. As of January 31, 2025, the Company had $23.8million of gross federal NOLs and $21.9 million of gross state NOLs available to offset the Companys future taxable income. Of the gross federal NOLamount, $16.4 million will begin to expire between tax years2036 and2037 and the remainder has an indefinite carryforward. The state NOLs expire at various dates from2025to 2044. In addition, the Company's abilityto use its NOLs may be limited inthe event of future changes in its stock ownership. As a result, if the Company earns net taxable income, the Companys ability to use its pre-change NOLs to offset U.S. federal taxable income may be subject to limitations, which could potentially result in a future tax liability ofthe Company. In addition, at the state level, there may be periods in the future during which the use of NOLs is suspended or otherwise limited, which could result in a state tax liability which would otherwise not arise.
***The Companys inabilityto establish and maintain effective internal control over financial reporting could harm its business and financial results.***The Companys management is responsible for establishing and maintaining effective internal control over financial reporting. However, there arematerial weaknesses in internal controls such that our internal control over financial reporting has been determined not to be effective.Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that the Company would prevent or detect a misstatement of its financial statements or fraud. If we are not able to remediate the material weaknesses and maintain effective internal control over financial reporting, our business and financial results could be harmed.
***The Company may experience changes in estimates which could resultin a reduction or elimination of previously recorded revenues and profit in connection with "over time" revenue recognition.***Certain of the Company'scontracts recognize revenues usingperiodic recognition of income. For these contracts, the Company uses the "over time" accounting method. This methodology allows revenue and profits to be recognized proportionally over the life of a contract by comparing the amount of the cost incurred to date against the total amount of cost expected to be incurred. The effect of revisions to revenue and total estimated cost is recorded when amounts are known or can be reasonably estimated. Revisions can occur at any time and could be material. On a historical basis, management believes that reasonably reliable estimates of the progress towards completion on long-term contracts have been made. However, given the uncertainties associated with these types of contracts, it is possible for actual cost to vary from estimates previously made, which may result in reductions or reversals of previously recorded revenue and profits.
7
[Table of Contents](#toc)
**Business Condition Risks**
***Delays in the timing of order receipt, execution, deliveryand acceptancefor the Companys productsgenerally negatively impact the Companys operating results.***The Company's operating results in any reporting period could benegatively impacted as a result of delays in the timing of project execution.
***The Company may not be able to successfully negotiate progress-billing arrangements for its large contracts, which could adversely impact the Companys working capital needs, cash flowsand credit risk.***The Company sells systems and products under contracts that allow the Company to either bill upon the completion of certain agreed upon milestones, or upon actual shipment of the system or product.The Company attempts to negotiate progress-billing milestones on large contracts to help manage its working capital and cash flows, and to reduce the credit risk associated with these large contracts.Consequently, changes in accepted billing terms of contracts could impact the Company's requirements for working capital and cash flows.
***Aggressive pricing by existing competitors and the entrance of new competitors in the markets in which the Company operates could drive down the Company's profits and reduce the Company's revenue.***The Company's business is highly competitive. Some of the Company's competitors are large organizationswith access to considerable financial resources. Additionally, many of the Company's products are also subject to competition from alternative technologies and alternative products. In periods of declining demand, the Company's fixed cost structure may limit its ability to cut costs, which may be a competitive disadvantage compared to companies with more flexible cost structures, or may result in reduced operating margins, operating losses and negative cash flows.
***The Company may be subject to claims for damages for defective products.*** The Company warrants its products to be free of certain defects. The Company has, from time to time, had claims alleging defects in its products. The Company mayexperience material product liability claims in the future and it could incur significant costs to defend such claims. While the Company currently has product liability insurance that it believes to be sufficient, the Company cannot be certain that its product liability insurance coverage will be adequate for liabilities that may be incurred in the future or that such coverage will continue to be available to the Company on commercially reasonable terms. Any claims relating to defective products that result in liabilities exceeding the Company's insurance coverage could have a material adverse effect on the Company's business, results of operations, financial positionand cash flows.
***The Company may not be able to recover costs and damages from vendors that supply defective materials*****.** The Company may receive defective materials from its vendors that are incorporated into the Company's products during the manufacturing process. While the Company mitigates this risk through contract terms, traceability and specifications, and has recourse to recover from vendors the costs to repair, remake or replace defective products, such costs could be greater than the amount thatcan be recovered. Such excess costs could have an adverse effect on the Company's business,results of operations, financial positionand cash flows.
***Product and service orders included in the Companys backlog may be reduced or cancelled.***The Company defines backlog as the revenue value resulting from confirmed customer purchase orders that have not yet been recognized as revenue. Orders may be canceled or modified at any time. In the event of a cancellation, the customer is normally responsible for all finished goods produced or shipped, all direct and indirect costs incurred and also for a reasonable allowance for anticipated profits. No assurance can be given that these amounts will be recovered after cancellation. Any reduction or cancellation of orders may result in revenues that arelower than expected.
***The Company's results of operations could be adversely affected by changes in international regulations and other activities ofgovernmentagencies related to the Company******s operations*****.** International sales represent a significant portion of the Company's total sales. The Company's sales to foreign customers were66.6%and65.6% in the years endedJanuary 31, 2025 and 2024, respectively.The Company's anticipated growth and profitability may require increasingforeign sales volume and may necessitate further international expansion. The Company's results of operations could be adversely affected by changes in trade, monetary and fiscal policies, laws and regulations, other activities of governments, agencies and similar organizations, and other factors. These factors include, but are not limited to, changes in a country's or region's economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights, changes in the regulatory or legal environment, restrictions on currency exchange activities, burdensome taxes and tariffs and other trade barriers.We cannot predict the impact of changes in foreign policies adopted by the currentU.S. administration will have on our business. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced international sales and reduced profitability associated with such sales. In addition, these risks can include delaysin collectionof accounts receivable. Because the Company conducts a significant portion of its business activities in the Gulf Cooperation Council ("GCC"), the political and economic events of the countries that comprise the GCC can have a material effect on the Companys business, results of operations, financial condition, and cash flows.
Due to the international scope of the Companys operations, it is subject to a complex system of commercial and trade regulations around the world. The Companys foreign subsidiaries are governed by laws, rules and business practices that differ from those of the United States. If the activities of these entities do not comply with U.S. laws or business practices or the Companys Code of Business Conduct, then violations of these laws may result in severe criminal or civil sanctions, which could disrupt the Companys business, and result in an adverse effect on the Companys reputation, business and results of operations or financial condition. The Company cannot predict the nature, scope, or effect of future regulatory requirements to which its operations might be subject or the manner in which existing laws might be administered or interpreted.
8
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**General Risks**
***The Company may be unable toretain its senior management and key personnel.***The Company's ability to meet its strategic and financial goals will depend to a significant extent on the continued contributions of its senior management and key personnel, or the successful transition of responsibilities of departing senior management and key personnel. Future success will also depend in large part on the Company's ability to identify, attract, motivate, effectively utilize and retain highly qualified managerial, sales, marketing and technical personnel. The loss of senior management or other key personnel or the inability to identify, attract and retain qualified personnel in the future could make it more difficult to manage the Company's business and could adversely affect operations and financial results.
***The Company may not be able to achieve the expected benefits from its growth initiatives.***The Company's cyclical or general expansion may result in unanticipated adverse consequences, including significant strain on management, operations and financial systems, as well as on the Company's ability to attract and retain competent employees. In the future, the Company may seek to grow its business by investing in new or existing facilities, making acquisitions, entering partnerships and joint ventures, or constructing new facilities, which could introduce additional risks, including:
|
|
|
strain on working capital; |
|
|
|
|
diversion of management's attention away from other activities, which could impair the operation of existing businesses; |
|
|
|
|
failure to successfully integrate anacquired businessor facilityinto existing operations; |
|
|
|
|
inability to maintain key pre-acquisition business relationships; |
|
|
|
|
loss of key personnel of anacquired business or facility; |
|
|
|
|
exposure to unanticipated liabilities; and |
|
|
|
|
failure to realize efficiencies, synergies and cost savings. |
|
As a result of these and other factors, including general economic risks, the Company may not be able to realize the expected benefits from future acquisitions, new facility developments, partnerships, joint ventures or other investments.
***The Company's information technology systems may be negatively affected by cybersecurity threats.***The Company faces risks relating to cybersecurity attacks that could cause the loss of confidential information and other business disruptions. The Company relies extensively on computer systems to process transactions and manage its business, and its business is at risk from and may be impacted by cybersecurity attacks. The Company employs a number of measures to prevent, detect and mitigate these threats, which include data and email encryption, strong password management policy, firewall systems, anti-virus software, and frequent backups.However, there is no guarantee such efforts will be successful in preventing a cyber-attack. A successful attack could adversely affect the Company's reputation and results of operations, including through lawsuits by third parties.
**ITEM1B. UNRESOLVED STAFF COMMENTS**
None.
9
[Table of Contents](#toc)
**ITEM1C. CYBERSECURITY**
**Risk Management and Strategy**
The Company's policies and practices are based on frameworks and standards that address risks through a comprehensive, cross-functional approach that assess, identify, monitor, and mitigate material risks from cybersecurity threats as part of the overall enterprise risk management ("ERM") process. This includes the collection and storage of data and being responsive to incidents as they occur. Further, the Company's processes and technology are utilized to develop, implement, and maintain appropriate measures to safeguard information systems in protecting the integrity, availability, and confidentiality of data. Additionally, the Company engages certain third parties to assist in network monitoring and control testing, among other functions of similar capacity.
The Company's cybersecurity program focuses on the following areas:
| | | Technological safeguards that are designed to protect the Company's information systems from cybersecurity threats, including the prevention and detection of system applications, access controls, and firewalls, which the Company assesses the vulnerability and severity of potential cybersecurity threats and makes necessary improvements. | |
| | | Utilization of third parties as part of the Company'srisk-based approach inidentifying and overseeing cybersecurity risks. | |
| | | The Company maintains an incident plan that addresses the Company's response to a cybersecurity event, which is periodically reviewed and updated. | |
While the Company is working to adopt the National Institute of Standards and Technology ("NIST") cybersecurity framework, the Company's on-going investment ininformation systems and utilization ofexternal *3rd* parties represents the best means for extensively testing both the design and operational effectiveness of cybersecurity controls, and to ensurecontinuity and functionality of the Company's operating systems.
As of the date of this report, the Company has not experienced any material cybersecurity events. However, the presence of new or more advanced forms of cybersecurity threats could have a material and adverse impact on the business, results of operations, and financial position. For further discussion relating to this topic, see Item 1A. Risk Factors "The Company's information technology systems may be negatively affected by cybersecurity threats."**
**Governance**
The Audit Committee of the Board of Directors has the responsibility of overseeing the Company's cybersecurity risks. The Director of Information Technology provides periodic updates to the Board of Directors regarding actions taken to mitigate the Company's exposure and protection from cybersecurity risks. Management routinely evaluates the Company's security processes, procedures, and systems to determine if enhancements are needed to reduce the possibility of a future cybersecurity event. This includes safeguards implemented by the Company, such as a multi-factor authentication process; restricted firewall settings; network monitoring, email phishing tests, and enhancing the Company's backup recovery strategy, among others.
The Director of Information Technology is responsible for assessing, monitoring, and managing the Company's cybersecurity risks. The Director of Information Technology has extensive experience in leading the Company's information systems and has previously led cybersecurity teams for several large global organizations prior to joining the Company.
The Director of Information Technology, along with members of management, inform the Audit Committee on cybersecurity risks by providing periodic updates regarding (i) Status of ongoing cybersecurity initiatives and strategies, (ii) The overall state of the Company's security program and potential exposure to risks, and (iii) Incident reports and learning from any cybersecurity events. Further, the Director of Information Technology maintains an open dialogue regarding any significant developments in cybersecurity risks, ensuring the Audit Committee's oversight is proactive and responsive.
In addition to periodic updates to the Audit Committee, the Director of Information Technology, in his capacity, regularly informs the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") regarding matters relatedto cybersecurity risks and incidents. This ensures the highest level of management are informed of potential risks associated with cybersecuritythat could have a material and adverse effectonthe Company.
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**ITEM2. PROPERTIES**
|
Location |
Leased and/or Owned |
|
|
Illinois |
Leased building and office space |
|
|
Louisiana |
Owned building and leased land |
|
|
Tennessee |
Leased building, office space, and land |
|
|
Texas |
Leased office space |
|
|
Camrose, Alberta, Canada |
Owned building with office space on owned land; leased land and leased office space |
|
|
Vars, Ontario, Canada |
Leased building, office space, and land |
|
|
India |
Leased building, office space, and land |
|
|
Dammam, Kingdom of Saudi Arabia |
Owned building and office space on leased land |
|
|
Riyadh, Kingdom of Saudi Arabia |
Leased building and office space |
|
|
United Arab Emirates |
Leased office space and building on leased land; owned building with office space on leased land |
|
|
Egypt |
Leased building and office space on leased land |
|
For further information, see Note 6- Leases, in the Notes to Consolidated Financial Statements.
|
ITEM3. |
LEGAL PROCEEDINGS |
|
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, including those involving environmental, tax, product liability, and general liability claims. The Company accrues a liability for these matterswhen it is considered probable that future costs will be incurred, and the amount can be reasonably estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes with respect to any legal proceedings, and its experience in contesting, litigating, and settling other similar matters.
As of
January 31, 2025, the
Company had no material pending litigation.
|
ITEM4. |
MINE SAFETY DISCLOSURES |
|
Not applicable.
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**PART II**
|
ITEM5. |
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
|
The Company's common stock is traded on the Nasdaq Global Market under the symbol "PPIH".
As of April 21, 2025, there were approximately44stockholders of record and other additional stockholders for whom securities firms or banks acted as nominees.
The Company has never declared or paid a cash dividend and does not anticipate paying any cash dividends on its common stock in the foreseeable future. Management presently intends to retain all available funds for the development of the Company's business and for use as working capital, including potentially repurchasing its common stock. The Company's credit facilities also restrict dividend payments. Future dividend policy will depend upon the Company's earnings, capital requirements, financial condition, credit agreement restrictionsand other relevant factors. For furtherinformation, see "Financing" in Item 7 and Note 5- Debt, in the Notes to Consolidated Financial Statements.
The Transfer Agent and Registrar for the Company's common stock is Broadridge Corporate Issuer Solutions, Inc., P.O. Box 1342 Brentwood, NY 11717,(877) 830-4936or(720) 378-5591.
**Unregistered Sales of Equity Securities and Use of Proceeds**
The Company has not made any sale of unregistered securities during the preceding three fiscal years.
**Issuer Purchases of Equity Securities**
The Company did not make any purchases of its common stock during fiscal2024.
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[Table of Contents](#toc)
**ITEM6. [RESERVED]**
**ITEM7.** **MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
*General*
Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely," and "probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors, including, but not limited to, those under the headings Cautionary Statements Regarding Forward Looking Information and Item 1A. Risk Factors.
The analysis presented below and discussed in more detail throughout this MD&A was organized to provide instructive information for better understanding the Company's results of operations, financial condition and cash flows. However, this MD&A should be read in conjunction with the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K,including the notes thereto and the risk factors contained herein. The Company's fiscal year ends on January 31. Years, resultsand balances described as 2024and2023are for the fiscal years ended January 31,2025and2024, respectively.
The Company is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. Since the Company's revenues aresignificantly dependentupon discrete projects, the Company's operating results in any reporting period could be negatively impacted as a result of variations in the level of the Company's discrete project orders or delays in the timing of the specific project phases.
The tabular information presented throughout thisMD&Aisin thousands, exceptper share data, or unless otherwise specified.
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[Table of Contents](#toc)
*Results of Operations*
**Consolidated Results of Operations**
|
|
|
Year Ended January 31, |
|
|
|
|
|
2025 |
|
|
2024 |
|
|
Change favorable (unfavorable) |
|
|
|
|
|
Amount |
|
|
Percent of Net Sales |
|
|
Amount |
|
|
Percent of Net Sales |
|
|
Amount |
|
|
|
Net sales |
|
$ |
158,384 |
|
|
|
|
|
|
$ |
150,668 |
|
|
|
|
|
|
$ |
7,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
53,248 |
|
|
|
34 |
% |
|
|
41,458 |
|
|
|
28 |
% |
|
|
11,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
28,000 |
|
|
|
18 |
% |
|
|
22,591 |
|
|
|
15 |
% |
|
|
(5,409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expense |
|
|
4,947 |
|
|
|
3 |
% |
|
|
5,508 |
|
|
|
4 |
% |
|
|
561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
1,940 |
|
|
|
|
|
|
|
2,266 |
|
|
|
|
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
107 |
|
|
|
|
|
|
|
(1,202 |
) |
|
|
|
|
|
|
1,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax |
|
|
18,468 |
|
|
|
|
|
|
|
9,891 |
|
|
|
|
|
|
|
8,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
5,377 |
|
|
|
|
|
|
|
(3,320 |
) |
|
|
|
|
|
|
(8,697 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
13,091 |
|
|
|
|
|
|
|
13,211 |
|
|
|
|
|
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interest |
|
|
4,108 |
|
|
|
|
|
|
|
2,740 |
|
|
|
|
|
|
|
1,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock |
|
|
8,983 |
|
|
|
|
|
|
|
10,471 |
|
|
|
|
|
|
|
(1,488 |
) |
|
***Year ended******January 31, 2025Compared to year ended January 31, 2024***
***Net sales***
Net sales were $158.4million and $150.7million in the years ended January 31, 2025 and 2024, respectively. The increaseof $7.7 millionwas primarily a result of higher sales volumes in the Middle East and Canada.
***Gross profit***
Gross profit was $53.2million, or34%of net sales and $41.5 million, or28% of net sales, in theyears ended January 31, 2025 and 2024, respectively. Theincrease of $11.7million was drivenby higher sales volumes and improved gross margins in the Middle East and Canada.
***General and administrative expense***
General and administrative expenses were $28.0million and $22.6 million in the years ended January 31, 2025 and 2024, respectively.Theincreaseof $5.4 millionwas primarily related to higher compensation costs and professional fees.
***Selling expenses***
Selling expenses were $4.9million and $5.5million in the years ended January 31, 2025 and 2024, respectively.Thedecreaseof $0.6millionwas driven by lowerpayroll expenses during the year.
14
[Table of Contents](#toc)
***Interest expense***
Interest expensewas $1.9million and $2.3million inthe years ended January 31, 2025 and 2024, respectively.Thedecreaseof $0.4 million was related to decreasedborrowings and,to a lesser extent, lower interest rates.
***Other income (expense)***
Other incomewas $0.1million, as compared to other expense of$(1.2) million in the years ended January 31, 2025 and 2024, respectively. The change relates mainly toa certain one-time non-recurring chargein connection witha non-cash pre-tax settlement resulting from the termination of the Company's pension plan.
***Income taxes***
The Company's worldwide effective tax rates ("ETR") were 29.1%and (33.6%)in the years ended January 31, 2025 and 2024, respectively. The change in ETR was largely due to changes in the mix of income and loss in various tax jurisdictions and therelease of the partial domestic valuation allowance in the prior year.For further information, see Note 7- Income taxes, in the Notes to Consolidated Financial Statements.
***Net income attributable to common stock***
Net income attributable to common stock was $9.0million and $10.5million in the years ended January 31, 2025 and 2024, respectively. Thedecreasein net income was a result of the changes discussed above, less amounts attributable to non-controlling interest.
**Liquidity and capital resources**
Cash and cash equivalents were $15.7million and $5.8millionas ofJanuary 31, 2025and January 31, 2024, respectively.On January 31, 2025, approximately $0.3million was held in the United States, and $15.4 million was heldby the Company'sforeign subsidiaries.The Company's working capital was $54.7million onJanuary 31, 2025compared to $41.1million on January 31, 2024. As ofJanuary 31, 2025, the Company had $3.7 million of borrowing capacity under the Renewed Senior Credit Facility (as defined below) in North America and $15.6 million of borrowing capacity under its foreign revolving credit agreements.The Company had $6.8 million borrowed under the Renewed Senior Credit Facility and $4.8 million borrowed under its foreign revolving credit agreements atJanuary 31, 2025.
Net cash provided byoperating activities in the years ended January 31, 2025 and 2024was $13.9million and$14.7million, respectively. The current yeardecrease of $0.8million was due primarilytoa decrease in accounts payable and customer deposits, partially offset by a reductionin receivables, prepaid expenses and other current assets,as compared to the prior year.
Net cash used ininvesting activities in the years ended January 31, 2025 and 2024was $2.8million and $11.1million, respectively. Thedecreaseof $8.3million wasdue to less investment activity incapital assets during the year, mainly in the United Statesand Canada.
Net cash used in financing activities in the years ended January 31, 2025 and 2024was $0.9million and $3.3million, respectively.Thedecrease of $2.4million during the year endedJanuary 31, 2025consisted, in part, from no share repurchase activity as compared to the use of the remaining $1.0 million authorized as part of the Company's share repurchase programduring the year endedJanuary 31, 2024. Additionally, a net repayment was made ofborrowings under the Company's credit facilities ofapproximately$0.2million, as compared to a net repaymentof approximately$1.3million during the year endedJanuary 31, 2024. Further, debt totaled $24.5 million and $25.7 million as ofJanuary 31, 2025and2024, respectively.For additional information, see Note 5 - Debt, in the Notes to Consolidated Financial Statements.
15
[Table of Contents](#toc)
The Company believes it will have the ability to satisfy all working capital needs and any planned capital expenditures for the twelve months following the issuance of the Consolidated Financial Statements, based on its existing cash on hand, cash flows from operations, and available credit facilities.
There was no restricted cash held in the United States on January 31, 2025or January 31, 2024.Restricted cash held by foreign subsidiaries was $1.4 million as ofJanuary 31, 2025and2024, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.
The following table summarizes the Company's estimated contractual obligations onJanuary 31, 2025:
|
|
|
Year Ending January 31, |
|
|
|
Contractual obligations |
|
Total |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
Thereafter |
|
|
|
Revolving line - North America (1) |
|
$ |
6,765 |
|
|
$ |
6,765 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
Mortgage note (2) |
|
|
3,956 |
|
|
|
221 |
|
|
|
221 |
|
|
|
221 |
|
|
|
221 |
|
|
|
221 |
|
|
|
2,853 |
|
|
|
Revolving lines - foreign (3) |
|
|
2,010 |
|
|
|
2,010 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
Long-term finance obligation (4) |
|
|
9,023 |
|
|
|
225 |
|
|
|
263 |
|
|
|
305 |
|
|
|
349 |
|
|
|
400 |
|
|
|
7,481 |
|
|
|
Subtotal |
|
|
21,754 |
|
|
|
9,221 |
|
|
|
484 |
|
|
|
526 |
|
|
|
570 |
|
|
|
621 |
|
|
|
10,334 |
|
|
|
Finance lease obligations |
|
|
75 |
|
|
|
32 |
|
|
|
34 |
|
|
|
9 |
|
|
|
- |
|
|
|
- |
|
|
|
(0 |
) |
|
|
Operating lease obligations (5) |
|
|
15,966 |
|
|
|
1,900 |
|
|
|
2,094 |
|
|
|
2,120 |
|
|
|
1,791 |
|
|
|
899 |
|
|
|
7,162 |
|
|
|
Uncertain tax position obligations (6) |
|
|
1,225 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,225 |
|
|
|
Loan payable to GIG (7) |
|
|
2,753 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,753 |
|
|
|
Total |
|
$ |
41,773 |
|
|
$ |
11,153 |
|
|
$ |
2,612 |
|
|
$ |
2,655 |
|
|
$ |
2,361 |
|
|
$ |
1,520 |
|
|
$ |
21,474 |
|
|
|
(1) |
Interest obligations exclude floating rate interest on debt payable under the North American revolving line of credit. Based on the amount of such debt on January 31, 2025, and the weighted average interest rate of 9.0%on that debt, such interest was being incurred at an annual rate of approximately$0.6 million. |
|
|
(2) |
Scheduled maturities, excluding interest. |
|
|
(3) |
Scheduled maturities of foreign revolver line, excluding interest. |
|
|
(4) |
This schedule represents the cash payments to be made under the lease agreement for the land and buildings sold by the Company in Lebanon, Tennessee and leased back from the purchaser in April 2021. These amounts differ from the liabilities presented as debt in the consolidated balance sheets as the debt amount represents future payments discounted to the present date. Refer to Note 5 - Debt, in the Notes to the Consolidated Financial Statements for further discussion of the transaction. |
|
|
(5) |
Minimum contractual amounts, assuming no changes in variable expenses. |
|
|
(6) |
Refer to Note 7- Income taxes, in the Notes to Consolidated Financial Statements for a description of the uncertain tax position obligations. |
|
|
(7) |
Refer to Note 12 - Non-controlling interest, in the Notes to Consolidated Financial Statements for further discussion regarding the loan payable to Gulf Insulation Group ("GIG"). |
|
***Financing***
**Revolving lines -****North America****.**
On September 20, 2018, the Company and certain of its U.S. and Canadian subsidiaries (collectively, together with the Company, the North American Loan Parties) entered into a Revolving Credit and Security Agreement (the Credit Agreement) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a three-year $18million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the Senior Credit Facility).
On September 17, 2021,the North American Loan Partiesexecuted an extension of the Credit Agreementwith PNC, providing for a new five-year $18million senior secured revolving credit facility, subject to a borrowing base including various reserves (the Renewed Senior Credit Facility). The Company'sobligations under the Renewed Senior Credit Facility are currently guaranteed by Perma-Pipe Canada, Inc. Each of the North American Loan Parties other than Perma-Pipe Canada, Inc. is a borrower under the Renewed Senior Credit Facility (collectively, the Borrowers).
The Borrowers have used and will continue to use borrowings under the Renewed Senior Credit Facility (i)to fund future capital expenditures; (ii)to fund ongoing working capital needs; and (iii)for other corporate purposes, including potentially additional stockrepurchases. Borrowings under the Renewed Senior Credit Facility bearinterest at a rate equal to an alternate base rate, SOFRrate index, plus, in each case, an applicable margin. The applicable margin is based on a fixed charge coverage ratio ("FCCR") range. Interest on alternate base rate borrowings is the alternate base rate (as definedin the Renewed Senior Credit Facility) plus an applicable margin ranging from 1.00% to 1.50%, based on the FCCR in the most recently reported period. Interest on SOFR rate borrowings is the SOFRrate (as defined in the Renewed Senior Credit Facility) plus an applicable margin ranging from 2.00% to 2.50%, based on the FCCR in the most recently reported period, as well as an additional SOFR adjustment ranging from 0.10% to 0.25%, based on the term of the interest period. Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility.
Subject to certain exceptions, borrowings under the Renewed Senior Credit Facility are secured by substantially all of the North American Loan Parties assets. The Renewed Senior Credit Facility matures on September 20, 2026. Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties may not makecapital expenditures in excess of $5.0 million annually, plus a limited carryover of unused amounts. Further, the North American Loan Parties may not make repurchases of the Company's common stock in excess of $3.0 million.
16
[Table of Contents](#toc)
The Renewed Senior Credit Facility also contains financial covenants requiringthe North American Loan Parties to achieve a ratio of its EBITDA (as defined in the Renewed Senior Credit Facility) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior Credit Facilityto be not less than 1.10 to 1.00 for any five consecutive days in which the undrawn availability is less than $3.0 millionor any day in which the undrawn availability is less than $2.0 million. As of January 31, 2025, the calculated ratio was greater than 1.10 to 1.00. In order to cure any future breach of these covenants by the North American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the Companys Consolidated EBITDA, would result in compliance on a pro forma basis. The Company was in compliance with respect to these covenants as of January 31, 2025.
The Renewed Senior Credit Facility contains customary events of default. If an event of default occurs and is continuing, then PNC may terminate all commitments to extend further credit and declare all amounts outstanding under the Renewed Senior Credit Facility due and payable immediately. In addition, if any of the North American Loan Parties or certain of their subsidiaries become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Renewed Senior Credit Facility will automatically become immediately due and payable. Loans outstanding under the Renewed Senior Credit Facility will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) while a bankruptcy event of default exists or (ii) upon the lender'srequest, during the continuance of any other event of default.
As of
January 31, 2025,the Company had borrowed an aggregate of $
6.8 million at a rate of
9.0% and had $
3.7 million available under the Renewed Senior Credit Facility. As of
January 31, 2024, the Company had borrowed an aggregate of $
5.5 million and had $
4.0 million available under the Renewed Senior Credit Facility.
**Revolving lines -**
**foreign**
**.**The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E., Egypt, and Saudi Arabiaas further described below:
*United Arab Emirates*
The Company hasa revolving line for
8.0million U.A.E. Dirhams (approximately $
2.2 million at
January 31, 2025) from a bank in the U.A.E. As of
January 31, 2025, thefacility hasan interest rate of approximately
7.9%and expiresin July2025.The Company had borrowed an aggregate of $0.4million and $0.2million
as of January 31, 2025 and
January 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets. As of
January 31, 2025 and
January 31, 2024, the Company had unused borrowing availability ofapproximately $1.6million and $1.9million, respectively.
The Company has a revolving line for
65.2 million U.A.E. Dirhams (approximately $
17.7 millionat
January 31, 2025) from a bank in the U.A.E. As of
January 31, 2025, thefacility has an interest rate of approximately
7.9%and expires
in August2025. The Company had borrowed an aggregate of $0.1millionas of January 31, 2025andJanuary 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.As of
January 31, 2025 and
January 31, 2024, the Company had unused borrowing availability ofapproximately $9.0million and $1.0million, respectively.
17
[Table of Contents](#toc)
*Egypt*
In June 2021, and as renewed or amended subsequently thereafter, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving lineof100.0millionEgyptian Pounds (approximately $2.0million atJanuary 31, 2025). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. As of January 31, 2025, the facility has an interest rate of approximately20.8%. Additionally,this credit arrangement was renewed in November 2024 with substantially the same terms and conditions andexpiresin November2025. As ofJanuary 31, 2025, theCompany had an immaterial amount outstanding with respect to this credit arrangement, and approximately $1.4 million outstanding atJanuary 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.Further, as ofJanuary 31, 2025andJanuary 31, 2024, the Company had unused borrowing capacity of $2.0million and $3.2million, respectively.
In December 2021, the Company entered into a credit arrangement for project financing with a bank of Egypt for 28.2million Egyptian Pounds. As this project has progressed and the Company receivedcollections, the facility has decreased to a current amount of
2.1 million Egyptian Pounds(approximately $0.1 million at
January 31, 2025). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by the contract for a project being financed by the Company's Egyptian subsidiary. The facility has an interest rate of approximately
20.8%and, as of November 2022, is no longer available for borrowings by the Company.The facility will expire in connection with final customer balance collections and the completion of the project. As of
January 31, 2025, the Company had an insignificant amount outstanding, and approximately$
0.1million outstanding at
January 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.
*Saudi Arabia*
In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi Arabia for a revolving line of
37.0
million Saudi Riyal (approximately $
9.9
million at
January 31, 2025
). This credit arrangement is in the form of project financing at rates competitive in Saudi Arabia. The line is secured by certain assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary. The facility was renewed in May 2024 with substantially the same terms and conditions and expires in May 2025. As of
January 31, 2025
, thefacility has an interest rate of approximately
9.0%
. The Company had borrowed an aggregate of $1.5million and $3.2millionas of January 31, 2025andJanuary 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.The unused borrowing availability attributable to this credit arrangement at
January 31, 2025 and
January 31, 2024, was $3.0million and $6.1million, respectively.
These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. The lines are secured by certain equipment, certain assets (such as accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt. The Company guarantees only a portion of the subsidiaries' debt, including foreign debt. The amount of foreign subsidiary debt guaranteed by the Company was approximately $10 million at
January 31, 2025and
January 31, 2024.
The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of
January 31, 2025
. Interest rates were based on (i) the Emirates Inter Bank Offered Rateplus 3.0% to 3.5% per annum for the U.A.E. credit arrangements, twoof which havea minimum interest rate of 4.5% per annum; (ii) either the Central Bank of Egypt corporate loan rate plus 1.5% to 3.5% per annum or the stated interest rate in the agreements for the Egypt credit arrangements; and (iii) the Saudi Inter Bank Offered Rate plus 3.5% for the Saudi Arabia credit arrangement. Based on these rates,asof
January 31, 2025,the Company's interest rates ranged from
7.9% to
20.8%, with a weighted average rate of
11.6%, and the Company had facility limits totaling $
34.6 million under these credit arrangements. As of
January 31, 2025,$
16.9 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.Additionally, the Company had borrowed approximately $2.1million and had an additional $
15.6million of remaining borrowing capacity available under the foreign revolving credit arrangements. The foreign revolving line balances were included as current maturities of long-term debt in the Company's consolidated balance sheets
as of January 31, 2025and
January 31, 2024.
In June 2023, the Companyassumed a promissory note of approximately $
2.8million in connection with the formation of the joint venture with GIG. Inaccordance with the promissory note, all principal is due and payable on the maturity date of April 9, 2026, with the option to prepay, in whole or in part, at any time prior to the maturity date, without premium or penalty.
**Mortgages.**On July28, 2016, the Company entered into a mortgage agreementsecured by the Company's manufacturing facility located in Alberta, Canadathat matures on December23, 2042. As ofJanuary 31, 2025, the remaining balance on the mortgage in Canada is approximately5.7 millionCanadian Dollars ("CAD") (approximately $4.0 million atJanuary 31, 2025).The interest rate is variable,andwas7.1% atJanuary 31, 2025.The principal balance is included as a component of long-term debt, less current maturities in the Company's consolidated balance sheets and is presented net of issuance costs of $0.1 millionas of January 31, 2025andJanuary 31, 2024.
18
[Table of Contents](#toc)
**Finance obligation - buildings and land.**
OnApril 14, 2021,the Company entered into a purchase and sale agreement (the "Purchase and Sale Agreement") to sell its land and buildings in Lebanon, Tennessee (the "Property"). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold the Propertyfor $10.4million. The transaction generated net cash proceeds of $9.1million. Concurrently with the sale of the Property, the Company paid off the approximately $0.9million remaining on the mortgage note on the Property to its lender. TheCompany used the remaining proceeds to repay its borrowings under the Senior Credit Facility, for strategic investments, and for general corporate needs. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the Lease Agreement), whereby the Company is leasing back the Property at an annual rental rate ofapproximately $0.8million, subject to annual rent increases of2.0%. Under the Lease Agreement, the Company hasfourconsecutive options to extend the term of the lease byfiveyears for each such option.As of
January 31, 2025and
2024, the Company had a net book value relating to this asset of
$1.8millionand $1.9million, respectively.
In accordance with ASC842,*Leases*, this transaction was recorded as a failed sale and leaseback as the present value of lease payments exceededsubstantiallyall of thefair value of the underlying asset. The Company utilized an incremental borrowing rate of8.0% to determinethe finance obligationto record for the amounts received andwill continue to depreciate the assets.The current portion of the finance obligation of $
0.2
million is recognized in current maturities of long-term debt and the long-term portion of $
8.8
million is recognizedinlong-term finance obligationon the Company's consolidated balance sheets as of
January 31, 2025
.The net carrying amount of the financial liability and remaining assets will bezeroat the end of the lease term.
***Accounts receivable***
In 2015, the Company completed a project in the Middle East with billings in the aggregate amount of approximately $41.9 million. The system has not yet been commissioned by the customer. Nevertheless, the Company has settled approximately $40.1 millionas of January 31, 2025, with a remaining balance due in the amount of $1.8 million, all of which pertains to retention clauses within the agreements withthe Company's customer, and which become payable by the customer when this project is fully tested and commissioned. Of this retention amount, $1.2 millionisclassified in a long-term asset account.
The Company continues to activelyengage in ongoing collection efforts with the customerto ensure full payment of open balances, and at various times throughout
2024
and 2023, the Company received a partial payment to settle$
0.4
million and $0.6million of the customer's outstanding balances, respectively. Additionally, the Company has been engaged by the customer to perform additional work in
2025
under customary trade terms that supportthe continued cooperation between the Company and the customer. As a result, the Company did not reserve any allowance against the remaining outstanding balancesas of
January 31, 2025
. However, if the Companys efforts to collect on this account are not successful, the Company may recognize an allowance for all, or substantially all, of any such then uncollected amounts.
***Stock repurchase plan***
The repurchase program approved on October 4, 2021, authorized the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock. Stock repurchases were permitted to be executed through open market or privately negotiated transactions, depending upon current market conditions and other factors. On December 7, 2022, the Board of Directors authorized the use of $1.0 million remaining under the share repurchase program previously approved on October 4, 2021 that expired on October 3, 2022. During the twelvemonths ended January 31, 2024, the Company used the remaining $1.0 million of the $3.0 million authorized to repurchase its outstanding shares of common stock.Accordingly, there was no repurchase activity with respect to the Company's shares of common stock during the twelve months ended January 31, 2025.
On August 29, 2024, the Company retired all remaining treasury stock previously acquiredunder the stock repurchase program. The retirement was recorded as a reduction to common stock based on the par value of the shares, and the excess over par value was recorded as a decrease in retained earnings in accordance with ASC 505-30, *Equity - Treasury Stock*.
19
[Table of Contents](#toc)
**Critical accounting estimates and policies**
The Company's significant accounting policies are discussed in the Notes to Consolidated Financial Statements included in Item8 of this Annual Report on Form 10-K. The application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the Company, as well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates, the revisions are included in the Company's results of operations for the period in which the actual amounts become known.
***Revenue recognition.***In accordance with Accounting Standards Codification ("ASC")606, *Revenue from Contracts with Customers*, the Company recognizes revenue for certain contracts when a customer obtains control of promised goods or services. Other contracts recognize revenues usingperiodic recognition of income. For these contracts, the Company uses the "over time" accounting method. Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete.The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable, the amount can be reliably estimated, and the amount is not subject to reversal.See Note 4 - Revenue recognition, in the Notes to Consolidated Financial Statements,for further information relating to input and output accounting methods.
***Income taxes.***Deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary differences have been recorded at the current tax rate. The Company assesses its deferred tax assets for realizability at each reporting period. The Company maintains a partial valuation allowance in the United States against certain deferred tax assets.
The Company recognizes a tax position in its consolidated financial statementsonly after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, See Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.
***New accounting pronouncements.***See Recent accounting pronouncements in Note 2 - Significant accounting policies, in the Notes to Consolidated Financial Statements.
|
ITEM7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|
Not applicable.
|
ITEM8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
|
The consolidated financial statements of the Company for each of the two years in theyears ended January 31, 2025 and 2024 and the notes thereto are set forth beginning on page 23.
|
ITEM9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
|
None.
20
[Table of Contents](#toc)
|
ITEM9A. |
CONTROLS AND PROCEDURES |
|
***Evaluation of Disclosure Controls and Procedures***
The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness 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 January31, 2025.The Company's disclosure controls and procedures are designed to provide reasonable assurance that information requiredto be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SECs rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to the Companysmanagement, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officerhave concluded that, as of January 31, 2025, our disclosure controls and procedures were not effective because of the material weaknesses in internal control over financial reporting, as described below.
***Management's Annual Report on Internal Control Over Financial Reporting.***
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. As required by Rule 13a-15(c) under the Exchange Act, the Company's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's internal control over financial reporting as of
January 31, 2025
. The framework on which such evaluation was based is contained in the report entitled "Internal Control-Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on management's evaluation, management has concluded that we did not maintain effective internal control over financial reporting as of
January 31, 2025, due to the material weaknesses identified below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknessesare as follows:
|
|
|
We did not design and maintain effective controls in response ot the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement in financial reporting. This contributed to the following material weaknesses; |
|
|
|
|
We did not design and maintain effective certain controls over financial reporting relating to the review and approval of manual journal entries, review of the financial close process, including the statement of cash flows, and review of certain financial policies and procedures; |
|
|
|
|
We did not design and maintain effective controls at operating locations in the Middle East and North Africa ("MENA"), including not maintaining sufficient documentation to support an evaluation that controls over business processes were designed and operating effectively. |
|
These material weaknesses resulted in adjustments to property, plant, and equipment, net of accumulated depreciation, trade accounts payable, trade accounts receivable, and the statement of cash flows. These adjustments resulted in a revision of the unaudited consolidated financial statements as of and for the period ended April 30, 2024, a restatement as of and for the period ended July 31, 2024 and material adjustments as of and for the period ended October 31, 2024.
|
|
|
We did not design and maintain effective controls over information technology general controls ("ITGCs"), specifically controls over the timely review of user access and administrative access to adequately restrict access, program change management, computer operations, and program development; |
|
|
|
|
We did not design and maintain effective controls over managements review of the completeness and accuracy of certain system-generated reports. |
|
These material weaknesses did not result in a misstatement to the Company's annual or interim financial statements.
Each of these material weaknesses could result in a material misstatement of substantially all accounts and disclosures in the Company's annual or interim financial statements that would not be prevented or detected on a timely basis.
21
[Table of Contents](#toc)
**Remediation****Plan for the Material Weaknesses in Internal Control over Financial Reporting**
To address these matters, the Company has begun implementing its remediation plan. Our ongoing remediation plans include the following:
(i) performing an entity wide risk assessment to identify relevant risks and changes to those relevant risks to our financial reporting; ii) designing and implementing controls to identify and evaluate changes in our business and the impact on our internal control over financial reporting;(iii) engagingoutside consultants with expertise relating to ITGCs to document processes,assist in addressing the design and operating ITGCs, monitoring and testing reviews focusing on systems supporting our financial reporting process(iv) designing and maintaining controls and documentation evidencing thoseITGCs for knowledge transfer and function changes, including access and program control and change management, computer operations, and program development, (v) designing and maintaining effective controls to reviewthe completeness and accuracy of certain system-generated reports;and (vi) outsourcingcertain functions to third-party providers, specifically relating to servers and firewalls, and managed detection and response.
Our remediation plans related to entity level controls, financial reporting controls, and business process controls include:
(i) enhancing the design of controls for the review of and posting of journal entries; (ii) evaluating and updating documented formal accounting policies, financial reporting,processes and procedures; and overall internal control procedures; and (iii) updating the design of controls for the preparation and review of the financial close process, including thestatement of cash flows.
In addition to the items noted above, ourremediation plans related to our MENA locations include: (i)evaluating and updating the Company's evidence of internal control policies and procedures; (ii) enhancingthe design of controls over business processes that are relevant to our MENA locations; and (iii) formalizing our financial reporting processesand procedures.
The Company anticipates the actions described abovewill strengthen the Company's internal control over financial reporting and will address the related material weaknesses described above. However, the material weaknesses cannot be considered fully remediated until the necessary controls have been appropriately designed and implemented. The remediation processes and procedures will also need to be in operation for a period of time and managementconcludethrough testing, that these controls are operating effectively.
**Changes in Internal Control over Financial Reporting**.There were no changes to our internal control over financial reporting which were identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Exchange during the fourth quarter of the fiscal yearended January31, 2025,that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
**Attestation Report of Registered Public Accounting Firm.**This Annual Report does not contain an attestation report of our independent registered public accounting firm related to internal control over financial reporting becausethe rules for smaller reporting companies providean exemption from the attestation requirement.
| ITEM9B. | OTHER INFORMATION | |
Not applicable.
|
ITEM9C. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
|
Not applicable.
22
[Table of Contents](#toc)
**PART III**
|
ITEM10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
|
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its2025annual meeting of stockholders.
Information with respect to executive officers of the Company is included in Part I, Item 1, hereof under the caption "Information about our Executive Officers".
|
ITEM11. |
EXECUTIVE COMPENSATION |
|
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its2025annual meeting of stockholders.
|
ITEM12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
|
**Equity Compensation Plan Information**
The following table provides information regarding the number of shares of common stock that may be issued upon exercise of outstanding options, warrants and rights under the Company's equity compensation plans and the weighted average exercise price and number of shares of common stock remaining available for issuance under those plans as of January 31, 2025.
|
|
|
Number of shares to be issued upon exercise of outstanding options, warrants and rights |
|
Weighted-average exercise price of outstanding options, warrants and rights |
|
Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) |
|
|
Plan Category |
|
(a)(1) |
|
(b)(1) |
|
(c)(2) |
|
|
Equity compensation plans approved by stockholders |
|
600 |
|
$6.85 |
|
422,445 |
|
(1) The amounts shown in columns (a) and (b) of the above table do not include 229,771outstanding shares of restricted stock granted under the Company's previous stock incentive plans, including the 2021 Omnibus Stock Incentive Plant dated May 26, 2021 ("2021 Plan") and the 2024Omnibus Stock Incentive Plan dated July2024("2024Plan").
(2) The 2021 Plan expiredon May 26, 2024.The 2024Plan will expire in July2027.
The other information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its2025annual meeting of stockholders.
|
ITEM13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
|
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its2025annual meeting of stockholders.
|
ITEM14. |
PRINCIPAL ACCOUNTANTFEES AND SERVICES |
|
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its2025annual meeting of stockholders.
**PART IV**
| ITEM15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | |
| | a. | List of documents filed as part of this report: | |
(1) Financial Statements - Consolidated Financial Statements of the Company
Refer to Part II, Item 8 of this report.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
(3) Report of Registered Public Accounting Firm (PricewaterhouseCoopersLLP, Houston, Texas, Auditor Firm ID 238)
(4) Report of Registered Public Accounting Firm (Grant ThorntonLLP, Houston, Texas, Auditor Firm ID 248)
| | b. | Exhibits: The exhibits, as listed in the Exhibit Index included herein, are submitted as a separate section of this report. | |
| | c. | The response to this portion of Item 15 is submitted under 15a(2) above. | |
23
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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
To the Board of Directors and Stockholders of Perma-Pipe International Holdings, Inc.
**Opinion on the financial statements**
We have audited the accompanying consolidated balance sheet of Perma-Pipe International Holdings, Inc. and its subsidiaries (the "Company") as of January31,2025, and the related consolidated statements of operations, of comprehensive income, of stockholders equity and of cash flows for the year then ended, including the related notes and schedule of valuation and qualifying accounts for the year then ended appearing under Item 15, (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January31,2025, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
**Basis for opinion**
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
**Critical audit matter**
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
*Specialty Piping Systems and Coating Revenue Recognition under the Input Method*
As described in Notes 2 and 4 to the consolidated financial statements, approximately $46 million of the Companys revenue for year ended January 31, 2025 relates to specialty piping systems and coating revenue recognized over time under the input method. Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete. The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the "over time" method is the most accurate depiction of the Companys performance as it measures the value of the goods and services transferred to the customer. Costs include material, labor, and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when projectcosts are incurred.
The principal considerations for our determination that performing procedures relating to specialty piping systems and coating revenue recognition under the input method is a critical audit matter are (i) the significant judgment by management when developing the estimated total costs to complete the contracts and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating managements significant assumptions related to the total costs to complete.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, for certain open contracts (i) testing managements process for developing the estimated total costs to completeand (ii) evaluating the reasonableness of the significant assumptions used by management related to the estimated total costs to complete. Evaluating the reasonableness of the significant assumptions related to the estimated total costs to complete involved considering (i) the terms of the contracts and other documents that support those estimates ; (ii) using actual costs to date to assess the reasonableness of the estimate of the remaining costs to complete the contract; and (iii) performing a retrospective review of certain open contracts as of January 31, 2024 to evaluate actual costs incurred to estimated costs.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
May 1, 2025
We have served as the Companys auditor since 2024.
24
[Table of Contents](#toc)
**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
Board of Directors and Stockholders
Perma-Pipe International Holdings, Inc.
**Opinion on the financial statements**
We have audited the accompanying consolidated balance sheet of Perma-Pipe International Holdings, Inc. (a Delaware corporation) and subsidiaries (the Company) as of January 31, 2024, the related consolidated statement
of operations, comprehensive income, stockholders equity, and cash flows for the period ended January 31, 2024, and the related notes and financial statement schedule included in Item 15(a) (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2024, and the results of its operations and its cash flow for the period ended January 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
**Basis for opinion**
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ GRANT THORNTONLLP
We have served as the Companys auditor from 2004 to2024.
Houston, Texas
April 26, 2024(except for Note 13, as to which the date isMay 1, 2025)
25
[Table of Contents](#toc)
**PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF OPERATIONS**
**(In thousands, except per share data)**
| | | Year ended January 31, | | |
| | | 2025 | | | 2024 | | |
| | | | | | | | | | |
| Net sales | | $ | 158,384 | | | $ | 150,668 | | |
| Cost of sales | | | 105,136 | | | | 109,210 | | |
| Gross profit | | | 53,248 | | | | 41,458 | | |
| | | | | | | | | | |
| Operating expenses | | | | | | | | | |
| General and administrative expenses | | | 28,000 | | | | 22,591 | | |
| Selling expense | | | 4,947 | | | | 5,508 | | |
| Total operating expenses | | | 32,947 | | | | 28,099 | | |
| | | | | | | | | | |
| Income from operations | | | 20,301 | | | | 13,359 | | |
| | | | | | | | | | |
| Interest expense | | | 1,940 | | | | 2,266 | | |
| Other income (expense) | | | 107 | | | | (1,202 | ) | |
| Income before income tax | | | 18,468 | | | | 9,891 | | |
| | | | | | | | | | |
| Income tax expense (benefit) | | | 5,377 | | | | (3,320 | ) | |
| | | | | | | | | | |
| Net income | | | 13,091 | | | | 13,211 | | |
| Less: Net income attributable to non-controlling interest | | | 4,108 | | | | 2,740 | | |
| Net income attributable to common stock | | $ | 8,983 | | | $ | 10,471 | | |
| | | | | | | | | | |
| Weighted average common shares outstanding | | | | | | | | | |
| Basic | | | 7,956 | | | | 7,977 | | |
| Diluted | | | 8,015 | | | | 8,073 | | |
| | | | | | | | | | |
| Earnings per share attributable to common stock | | | | | | | | | |
| Basic | | $ | 1.13 | | | $ | 1.31 | | |
| Diluted | | $ | 1.12 | | | $ | 1.30 | | |
See accompanying notes to consolidated financial statements.
26
[Table of Contents](#toc)
**PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**
**(In thousands)**
|
|
|
Year ended January 31, |
|
|
|
|
|
2025 |
|
|
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,091 |
|
|
$ |
13,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments, net of tax |
|
|
(2,646 |
) |
|
|
898 |
|
|
|
Comprehensive income |
|
$ |
10,445 |
|
|
$ |
14,109 |
|
|
|
Less: Comprehensive income attributable to non-controlling interest |
|
|
4,108 |
|
|
|
2,740 |
|
|
|
Total comprehensive income attributable to common stock |
|
$ |
6,337 |
|
|
$ |
11,369 |
|
|
See accompanying Notes to Consolidated Financial Statements.
27
[Table of Contents](#toc)
**PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES**
**CONSOLIDATED BALANCE SHEETS**
**(In thousands, except per share data)**
| | | January 31, | | |
| | | 2025 | | | 2024 | | |
| ASSETS | | | | | | | | | |
| Current assets | | | | | | | | | |
| Cash and cash equivalents | | $ | 15,716 | | | $ | 5,845 | | |
| Restricted cash | | | 1,401 | | | | 1,395 | | |
| Trade accounts receivable, less allowance for doubtful accounts of $703 at January 31, 2025 and $699 at January 31, 2024 | | | 43,148 | | | | 46,646 | | |
| Inventories | | | 16,622 | | | | 15,541 | | |
| Prepaid expenses and other current assets | | | 10,045 | | | | 9,697 | | |
| Unbilled accounts receivable | | | 18,936 | | | | 16,597 | | |
| Costs and estimated earnings in excess of billings on uncompleted contracts | | | 2,934 | | | | 3,097 | | |
| Total current assets | | | 108,802 | | | | 98,818 | | |
| Long-term assets | | | | | | | | | |
| Property, plant and equipment, net of accumulated depreciation | | | 35,365 | | | | 37,620 | | |
| Operating lease right-of-use asset | | | 8,199 | | | | 6,467 | | |
| Deferred tax assets | | | 6,639 | | | | 7,919 | | |
| Goodwill | | | 2,057 | | | | 2,222 | | |
| Other long-term assets | | | 4,179 | | | | 2,665 | | |
| Total long-term assets | | | 56,439 | | | | 56,893 | | |
| Total assets | | $ | 165,241 | | | $ | 155,711 | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | |
| Current liabilities | | | | | | | | | |
| Trade accounts payable | | $ | 23,691 | | | $ | 25,323 | | |
| Accrued compensation and payroll taxes | | | 1,388 | | | | 1,214 | | |
| Commissions and management incentives payable | | | 5,840 | | | | 4,523 | | |
| Revolving line - North America | | | 6,765 | | | | 5,519 | | |
| Current maturities of long-term debt | | | 2,481 | | | | 4,071 | | |
| Customers' deposits | | | 2,506 | | | | 4,264 | | |
| Operating lease liability short-term | | | 1,071 | | | | 914 | | |
| Other accrued liabilities | | | 6,697 | | | | 9,039 | | |
| Billings in excess of costs and estimated earnings on uncompleted contracts | | | 1,249 | | | | 495 | | |
| Income taxes payable | | | 2,375 | | | | 2,380 | | |
| Total current liabilities | | | 54,063 | | | | 57,742 | | |
| Long-term liabilities | | | | | | | | | |
| Long-term debt, less current maturities | | | 3,669 | | | | 4,229 | | |
| Long-term finance obligation | | | 11,551 | | | | 11,788 | | |
| Deferred compensation liabilities | | | 1,689 | | | | 1,212 | | |
| Deferred tax liabilities | | | 1,320 | | | | 1,217 | | |
| Operating lease liability long-term | | | 7,713 | | | | 6,270 | | |
| Other long-term liabilities | | | 2,131 | | | | 1,275 | | |
| Total long-term liabilities | | | 28,073 | | | | 25,991 | | |
| Non-controlling interest | | | 10,967 | | | | 6,266 | | |
| Commitments and contingencies | | | | | | | | | |
| Stockholders' equity | | | | | | | | | |
| Common stock, $.01 par value, authorized 50,000 shares; 7,983 issued and outstanding at January 31, 2025 and 8,017 issued and outstanding at January 31, 2024 | | | 80 | | | | 80 | | |
| Additional paid-in capital | | | 60,151 | | | | 60,063 | | |
| Treasury stock, no shares at January 31, 2025 and 112 shares at January 31, 2024 | | | - | | | | (968 | ) | |
| Retained earnings | | | 20,104 | | | | 12,088 | | |
| Accumulated other comprehensive loss | | | (8,197 | ) | | | (5,551 | ) | |
| Total stockholders' equity | | | 72,138 | | | | 65,712 | | |
| Total liabilities and stockholders' equity | | $ | 165,241 | | | $ | 155,711 | | |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements.
28
[Table of Contents](#toc)
**PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**
**(In thousands, except share data)**
| | | Common Stock | | | Additional Paid-in Capital | | | Retained Earnings | | | Treasury Stock | | | Accumulated Other Comprehensive Loss | | | Total Stockholders' Equity | | |
| Total stockholders' equity on January 31, 2023 | | $ | 80 | | | $ | 62,562 | | | $ | 1,617 | | | $ | (26 | ) | | $ | (6,449 | ) | | $ | 57,784 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | - | | | | - | | | | 10,471 | | | | - | | | | - | | | | 10,471 | | |
| Common stock issued under stock plans, net of shares used for tax withholding | | | - | | | | (274 | ) | | | - | | | | - | | | | - | | | | (274 | ) | |
| Repurchase of common stock | | | - | | | | - | | | | - | | | | (942 | ) | | | - | | | | (942 | ) | |
| Stock-based compensation expense | | | - | | | | 913 | | | | - | | | | - | | | | - | | | | 913 | | |
| Acquisition-related adjustment | | | - | | | | (3,138 | ) | | | - | | | | - | | | | - | | | | (3,138 | ) | |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | 898 | | | | 898 | | |
| Total stockholders' equity on January 31, 2024 | | $ | 80 | | | $ | 60,063 | | | $ | 12,088 | | | $ | (968 | ) | | $ | (5,551 | ) | | $ | 65,712 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | - | | | | - | | | | 8,983 | | | | - | | | | - | | | | 8,983 | | |
| Common stock issued under stock plans, net of shares used for tax withholding | | | 1 | | | | (126 | ) | | | - | | | | - | | | | - | | | | (125 | ) | |
| Retirement of treasury stock | | | (1 | ) | | | - | | | | (967 | ) | | | 968 | | | | - | | | | - | | |
| Stock-based compensation expense | | | - | | | | 860 | | | | - | | | | - | | | | - | | | | 860 | | |
| Amount attributable to non-controlling interest | | | - | | | | (646 | ) | | | - | | | | - | | | | - | | | | (646 | ) | |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | (2,646 | ) | | | (2,646 | ) | |
| Total stockholders' equity on January 31, 2025 | | $ | 80 | | | $ | 60,151 | | | $ | 20,104 | | | $ | - | | | $ | (8,197 | ) | | $ | 72,138 | | |
| Shares | | 2024 | | | 2023 | | |
| Balances at beginning of year | | | 8,016,781 | | | | 8,007,002 | | |
| Treasury stock retired | | | (112,015 | ) | | | - | | |
| Shares issued, net of shares used for tax withholding | | | 77,802 | | | | 66,726 | | |
| Prior year adjustments | | | - | | | | (56,947 | ) | |
| Balance end of year | | | 7,982,568 | | | | 8,016,781 | | |
See accompanying notes to consolidated financial statements.
29
[Table of Contents](#toc)
**PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
**(In thousands)**
|
|
|
Year ended January 31, |
|
|
|
|
|
2025 |
|
|
2024 |
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,091 |
|
|
$ |
13,211 |
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,629 |
|
|
|
3,830 |
|
|
|
Deferred tax expense (benefit) |
|
|
1,617 |
|
|
|
(6,920 |
) |
|
|
Stock-based compensation expense |
|
|
860 |
|
|
|
913 |
|
|
|
Provision on uncollectible accounts |
|
|
4 |
|
|
|
89 |
|
|
|
(Gain) loss on disposal of fixed assets |
|
|
292 |
|
|
|
(6 |
) |
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(1,169 |
) |
|
|
8,814 |
|
|
|
Accrued compensation and payroll taxes |
|
|
1,530 |
|
|
|
(1,144 |
) |
|
|
Inventories |
|
|
(1,817 |
) |
|
|
(830 |
) |
|
|
Customers' deposits |
|
|
(1,637 |
) |
|
|
2,315 |
|
|
|
Income taxes receivable and payable |
|
|
- |
|
|
|
144 |
|
|
|
Prepaid expenses and other current assets |
|
|
(447 |
) |
|
|
(2,849 |
) |
|
|
Accounts receivable |
|
|
2,465 |
|
|
|
(4,859 |
) |
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
|
916 |
|
|
|
(1,218 |
) |
|
|
Unbilled accounts receivable |
|
|
(2,987 |
) |
|
|
(5,053 |
) |
|
|
Other assets and liabilities |
|
|
(2,419 |
) |
|
|
8,294 |
|
|
|
Net cash provided by operating activities |
|
|
13,928 |
|
|
|
14,731 |
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,875 |
) |
|
|
(11,106 |
) |
|
|
Proceeds from insurance recovery for property and equipment |
|
|
- |
|
|
|
5 |
|
|
|
Proceeds from sales of property and equipment |
|
|
27 |
|
|
|
3 |
|
|
|
Net cash used in investing activities |
|
|
(2,848 |
) |
|
|
(11,098 |
) |
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving lines |
|
|
76,344 |
|
|
|
155,706 |
|
|
|
Payments of debt on revolving lines |
|
|
(76,540 |
) |
|
|
(156,996 |
) |
|
|
Payments of principal on finance obligation |
|
|
(360 |
) |
|
|
(118 |
) |
|
|
Payments of other debt |
|
|
- |
|
|
|
(243 |
) |
|
|
Decrease in drafts payable |
|
|
46 |
|
|
|
(197 |
) |
|
|
Payments on finance lease obligations, net |
|
|
(218 |
) |
|
|
(193 |
) |
|
|
Repurchase of common stock |
|
|
- |
|
|
|
(942 |
) |
|
|
Stock options exercised and taxes paid related to restricted shares vested |
|
|
(179 |
) |
|
|
(273 |
) |
|
|
Net cash used in financing activities |
|
|
(907 |
) |
|
|
(3,256 |
) |
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(296 |
) |
|
|
70 |
|
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
9,877 |
|
|
|
447 |
|
|
|
Cash, cash equivalents and restricted cash - beginning of period |
|
|
7,240 |
|
|
|
6,793 |
|
|
|
Cash, cash equivalents and restricted cash - end of period |
|
$ |
17,117 |
|
|
$ |
7,240 |
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,928 |
|
|
$ |
2,285 |
|
|
|
Income taxes paid |
|
|
3,714 |
|
|
|
3,283 |
|
|
|
Fixed assets acquired under financing leases - non-cash |
|
|
- |
|
|
|
139 |
|
|
|
Fixed assets acquired - non-cash |
|
$ |
21 |
|
|
$ |
- |
|
|
See accompanying notes to consolidated financial statements.
30
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**PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
**YEARS ENDED JANUARY 31,2025 AND2024**
**(Tabular amounts in thousands, except per share data, or unless otherwise specified)**
**Note 1 - Business information**
Perma-Pipe International Holdings, Inc. ("PPIH", the "Company", "we", "our"or the "Registrant") was incorporated in Delaware on *October**12,* *1993.* The Company is engaged in the manufacture and sale of products in one distinct segment: Piping Systems.
***Fiscal year.***The Company's fiscal year ends on *January 31.*Years, resultsand balances described as*2024*and*2023*are for the fiscalyears ended *January 31, 2025*and *2024*, respectively.
***Nature of business.***The Company engineers, designs, manufactures and sells specialty piping systems, and leak detection systems. Specialty piping systems include: (i) insulated and jacketed district heating and cooling ("DHC") piping systems for efficient energy distribution from central energy plants to multiple locations, (ii) primary and secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products, and (iii) the coating and/or insulation of oil and gas gathering and transmission pipelines. The Company's leak detection systems are sold with its piping systems or on a stand-alone basis, to monitor areas where fluid intrusion *may*contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services or damage equipment or property.
***Geographic information.***Net sales attributed to a geographic area are based on the destination of the product shipment. Sales to foreign customers were 66.6%in*2024* compared to65.6% in*2023*. Long-lived assets are based on the physical location of the assets and consist of property, plant and equipment.
| | | 2024 | | | 2023 | | |
| Net sales | | | | | | | | | |
| United States | | $ | 52,956 | | | $ | 51,893 | | |
| Canada | | | 31,002 | | | | 31,351 | | |
| Middle East/North Africa/India | | | 74,014 | | | | 63,880 | | |
| Europe | | | 333 | | | | 559 | | |
| Other | | | 79 | | | | 2,985 | | |
| Total net sales | | $ | 158,384 | | | $ | 150,668 | | |
| | | | | | | | | | |
| Property, plant and equipment, net of accumulated depreciation | | | | | | | | | |
| United States | | $ | 4,650 | | | $ | 5,600 | | |
| Canada | | | 9,622 | | | | 10,775 | | |
| Middle East/North Africa/India | | | 21,093 | | | | 21,245 | | |
| Total property, plant and equipment, net of accumulated depreciation | | $ | 35,365 | | | $ | 37,620 | | |
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**Note 2 - Significant accounting policies**
*********Use of estimates.***The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
************
***Revenue recognition.***During*2024*and*2023* and in accordance with Accounting Standards Codification ("ASC")*606,* *Revenue from Contracts with Customers*, the Company recognizes revenue for certain contracts when a customer obtains control of promised goods or services. Other contracts recognize revenues usingperiodic recognition of income. For these contracts, the Company uses the "over time" accounting method. Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete.The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, *may*result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable, the amount can be reliably estimated, and the amount is *not* subject to reversal.See Note *4* - Revenue recognition, in the Notes to Consolidated Financial Statements,for further information relating to input and output accounting methods.
*********Shipping and handling.***Shipping and handling costs are included in cost of sales, and the amounts invoiced to customers relating to shipping and handling are included in net sales.
***Operating cycle.***The length of contracts variesbut are typically less than *one* year. The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion unless completion of such contracts extends significantly beyond *one* year.
*********Consolidation.***The consolidated financial statements include the accounts of the Company and its subsidiaries. This includes allwholly owned subsidiaries as well as certain joint ventures in which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated.
*********Translation of foreign currency.***Assets and liabilities of consolidated foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at year-end. Revenues and expenses are translated at average exchange rates prevailing during the year. The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensiveloss. Gains or losses on foreign currency transactions and the related tax effects are reflected in net income.The aggregateforeign exchange transactionloss recognized in the income statement was $0.3 million and $0.1 million in *2024* and *2023,* respectively.Additionally, translation adjustmentsattributable to intercompany transactions, such as loans and receivables,are included in stockholders' equity as part of accumulated other comprehensiveloss.
*********Contingencies.***The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, including those involving environmental, tax, product liability and general liability claims. The Company accrues for such liabilities when it is probable that future costs will be incurred, and the amount can be reasonably estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes of these matters, and its experience in contesting, litigating and settling other similar matters. The Company does *not* currently anticipate the amount of any ultimate liability with respect to these matters will materially affect the Company's financial position, liquidity, or future operations.
*********Cash and cash equivalents.***All highly liquid investments with a maturity of *three* months or less when purchased are considered to be cash equivalents. Cash and cash equivalents was$15.7million and $5.8million as of *January 31, 2025*and*2024*, respectively. On *January 31, 2025*, $0.3million was held in the United States and $15.4 million was held by foreign subsidiaries. On *January 31, 2024*, less than$0.1million was held in the United States and $5.7 million was held byforeign subsidiaries.
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******
***Restricted cash.***There was no restricted cash held in the United States on *January 31, 2025*or*2024*.Restricted cash held by foreign subsidiaries was $1.4 million and $1.4 million as of *January 31, 2025*and*2024*, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.
| | | 2024 | | | 2023 | | |
| Cash and cash equivalents | | $ | 15,716 | | | $ | 5,845 | | |
| Restricted cash | | | 1,401 | | | | 1,395 | | |
| Cash, cash equivalents and restricted cash as presented in the statement of cash flows | | $ | 17,117 | | | $ | 7,240 | | |
******
***Accounts receivable.***The majority of the Company's accounts receivable are due from geographically dispersed contractors and manufacturing companies. Credit is extended based on an evaluation of a customer's financial condition. In the United States, collateral is *not* generally required. In the United Arab Emirates ("U.A.E."), Saudi Arabia, Egypt and Indialetters of credit are usually obtained for significant orders. Accounts receivable are due within various time periods specified in the terms applicable to the specific customer and are stated asamounts due from customers net of an allowance for claims and doubtful accounts. Standard payment terms are generally net *30* to *60* days. The Company maintains an allowance for credit losses for accounts receivable. The assessment of the allowance for credit losses involves certain judgments and estimates. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. The Company *may*also establish an allowance for credit losses for specific receivables when it is probable that a specific receivable will *not* be collected and the loss can be reasonably estimated.Past due trade accounts receivable balances are written off when the Company's collection efforts have been unsuccessful in collecting the amount due and the amount is deemed uncollectible. The write off is recorded against the allowance for credit losses.
For the years ended*January 31, 2025*and *2024*,respectively, no *one* customer accounted for greater than *10%* of the Company's consolidated net sales.
As of *January 31, 2025*and*2024*, respectively,no *one*customer accounted for greater than*10%*of accounts receivable.
*********Concentration of credit risk.***The Company maintains its U.S. cash in bank deposit accounts at financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC"). Cash balances are below FDIC limits. The Company has *not* experienced any losses in such accounts. The Company's foreign cash is held in accountsatmultipleinstitutions in the various countries in which the Company operates, limiting the concentration of risk internationally. The Company has a broad customer base doing business in all regions of the United States as well as other areas in the world.
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******
***Accumulated other comprehensive loss.***Accumulated other comprehensive loss represents the change in equity from non-owner transactions and consistsof foreign currency translation.
| | | 2024 | | | 2023 | | |
| Equity adjustment foreign currency, gross | | $ | (8,522 | ) | | $ | (5,804 | ) | |
| Tax effect of equity adjustment foreign currency | | | 325 | | | | 253 | | |
| Total accumulated other comprehensive loss | | $ | (8,197 | ) | | $ | (5,551 | ) | |
******
***Inventories.***Inventories are stated at the lower of cost or net realizable value. Cost is determined using the *first*-in, *first*-out method for all inventories.
| | | 2024 | | | 2023 | | |
| Raw materials | | $ | 16,374 | | | $ | 13,787 | | |
| Work in process | | | 745 | | | | 611 | | |
| Finished goods | | | 366 | | | | 2,022 | | |
| Subtotal | | | 17,485 | | | | 16,420 | | |
| Less allowance | | | 863 | | | | 879 | | |
| Inventories | | $ | 16,622 | | | $ | 15,541 | | |
******
***Long-lived assets.***Property, plant and equipment are stated at cost. Interest is capitalized in connection with the construction of facilities and amortized over the estimated useful life of the asset. Long-lived assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets *may**not* be recoverable. If such a review indicates impairment, the carrying amount of such assets is reduced to an estimated fair value.
Depreciation is computed using the straight-line method over the estimated useful lives ofassets, as presentedin the following table. Leasehold improvements are depreciated over the remaining life of the lease or its useful life, whichever is shorter. Amortization of finance lease assets is included in depreciation. Depreciation expense was approximately $3.6million and $3.8 million in the years ended*January 31, 2025*and *2024*,respectively.
| | | Useful Life (Years) | | | 2024 | | | 2023 | | |
| Land, buildings and improvements | | | 3 - 30 | | | $ | 26,276 | | | $ | 25,620 | | |
| Machinery and equipment | | | 3 - 10 | | | | 50,360 | | | | 56,411 | | |
| Furniture, office equipment and computer systems | | | 3 - 7 | | | | 3,218 | | | | 3,169 | | |
| Transportation equipment | | | 3 | | | | 1,184 | | | | 2,293 | | |
| Subtotal | | | | | | | 81,038 | | | | 87,493 | | |
| Less accumulated depreciation | | | | | | | 45,673 | | | | 49,873 | | |
| Property, plant and equipment, net of accumulated depreciation | | | | | | $ | 35,365 | | | $ | 37,620 | | |
*********Impairment of long-lived assets.***The Company's assessment of long-lived assets and other identifiable intangibles is based upon factors that market participants would use in accordance with the accounting guidance for the fair value measurement of assets.At*January 31, 2025*, the Company performed anassessment to determine whether there were any triggering events that *may*have occurred which could indicate that the carrying value of the Company's long-lived assets are *not* recoverable. Based on this assessment, the Company did *not* identify any triggering events that would indicate that the carrying amounts *may**not* be recoverable with respect to long-lived assets. Accordingly, there was no impairment chargefor the year ended*January 31, 2025*.
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******
***Goodwill.*** The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. All identifiable goodwill as of *January 31, 2025*and *2024*, is attributable to the purchase of the remaining *50%* interest in Perma-Pipe Canada, Ltd., which occurred in *2016.*
The following table provides a reconciliation of changes in the carrying amount of goodwill:
| | | 2024 | | | 2023 | | |
| Balance at beginning of year | | $ | 2,222 | | | $ | 2,227 | | |
| Foreign exchange adjustment | | | (165 | ) | | | (5 | ) | |
| Balance at end of year | | $ | 2,057 | | | $ | 2,222 | | |
The Company performs an impairment assessment of goodwill annuallyas of *January 31,*or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset.At*January 31, 2025*, the Company performed a qualitative assessment to determine whether there were any triggering events that *may*have occurred which could indicate that more likely than *not* that the fair value of the reporting unit did *not* exceed its carrying amount.Based on this assessment, the Company did *not* identify any triggering events that would indicate that the fair value is less than the carrying value of the reporting unit for the year ended*January 31, 2025*. Accordingly, performing a quantitative goodwill impairment test was *not* required.
*********Other intangible assets with definite lives.***The Company owns several patents including those covering features of its piping and electronic leak detection systems. Patents are capitalized and amortized on a straight-line basis over a period *not* to exceed the legal lives of the patents. The Company expenses costs incurred to renew or extend the term of intangible assets. Gross patents were $2.7million as of *January 31, 2025*and *2024*. Accumulated amortization was approximately $2.6million as of*January 31, 2025*and *2024*. Amortization over the next *five* fiscal years will be less than $0.1 million and an insignificant amountthereafter. Amortization expense is expected to be recognized over the weighted-average period of 9.1 years.
*********Research and development*****.**Research and development expenses consist of materials, salaries and related expenses of engineering personnel and outside services for product development projects. Research and development costs are expensed as incurred. Research and development expense was approximately $0.1 millionand$0.5 millionin the years ended*January 31, 2025*and *2024*, respectively.
******
***Income taxes.***Deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary differences have been recorded at the current tax rate. The Company assesses its deferred tax assets and liabilities for realizability at each reporting period. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than *not* that a tax benefit will *not* be realized.
The Company recognizes a tax position in its consolidated financial statementsonly after determining that the relevant tax authority would more likely than *not* sustain the position following an audit. For tax positions meeting the more likely than *not* threshold, the amount recognized in the financial statements is the largest benefit that has a greater than *50%* likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, see Note *7*- Income taxes.
One of the base broadening provisions of the U.S. Tax Cuts and Jobs Act of *2017* ("Tax Act") is the Global Intangible Low-Taxed Income provisions ("GILTI"). In accordance with guidance issued by the Financial Accounting Standards Board ("FASB") staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred. Thus, for the years ended*January 31, 2025*and *2024*, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.
******Fair value of financial instruments***.*The Company classifies cash and cash equivalents, accounts receivable, and accounts payable based on carrying values that approximate their fair value due to the short-term nature of these instruments.The carrying amount of the Company's short-term debt, revolving line of credit and long-term debt approximate fair value because the majority of the amounts outstanding accrue interest at variable rates.
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******
***Net income per common share.***Earnings per share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding (basic). The Company reported net incomein *2024*and*2023*. The Company adjusted for dilutive shares in *2024*and*2023*,assuming conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share. The dilutive shares are in the following table:
| Basic weighted average number of common shares outstanding | | 2024 | | | 2023 | | |
| Basic weighted average number of common shares outstanding | | | 7,956 | | | | 7,977 | | |
| Dilutive effect of stock options and restricted stock units | | | 59 | | | | 96 | | |
| Weighted average number of common shares outstanding assuming full dilution | | | 8,015 | | | | 8,073 | | |
| | | | | | | | | | |
| Restricted stock and stock options not included in the computation of diluted EPS of common stock because the option exercise prices exceeded the average market prices | | | 1 | | | | 87 | | |
| Canceled options during the year | | | - | | | | (17 | ) | |
| Restricted stock and stock options with an exercise price below the average stock price | | | 59 | | | | 96 | | |
*********Equity-based compensation.*** The Company issues or has issued various types of stock-based awards to employees and directors: restricted stock, deferred stock and stock options. Non-cash compensation expense associated with restricted stock is based on the fair value of the common stock at the grant date, and amortized using the straight line method over avesting period range of one to four years. Compensation expense associated with deferred stock which has beenawarded to the Board of Directors (non-employee) is based upon the fair value of the common stock at the date of grant, and since the grant vests immediately it is expensed on the date of the grant.Stock******compensation expense for stock options isrecognized ratably over the requisite service period of the award. The Black-Scholes option-pricing model is utilized to estimate the fair value of option awards.
*********Treasury Stock.***In accordance with ASC*505,* *Equity*, the Company accountsfor share repurchases pursuant to therepurchase programunder the cost method. This resultsin recognizingthe shares as treasury stock, a reduction of stockholders' equityon the Company's consolidated balance sheetsand on the Company's consolidated statements of stockholders' equity. These amountsincludecosts associated with the acquisition of the shares.See Note *11*- Treasury stockfor furtherdetail.
*********Segments.***Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker ("CODM") in making decisions regarding resource allocation and assessing performance. The Companys Chief Executive Officer is the CODM, and he uses the Company's consolidated financial informationin determining how to allocate resources and assess performance. The Company has determined that it operates as*one* segment.
******
***Recent accounting pronouncements***.In *November 2023,*the FASB issued ASU *No.* *2023*-*07,* *Segment Reporting* (*Topic 280*): *Improvements to Reportable Segment Disclosures*. The standard update requires additional disclosures, including further details about segment expenses regarding a public entity's reportable segments on an annual and interim basis. The additional segment disclosures are effective for fiscal years beginning after *December 15, 2023,*and interim periods within fiscal years beginning after *December 15, 2024.*The Company adopted this standard update in fiscal *2024.* The standard adoption resulted in additional disclosures but did *not* have a material impact on the consolidated financial statements. See Note *13*- Segment reporting, in the Notes to Consolidated Financial Statements for related disclosures.
In *December 2023,*the FASB issued ASU *No.* *2023*-*09,* *Income Taxes* (*Topic 740*): *Improvements to Income Tax Disclosures*. Pursuant to this standard update, companies are required to provide additional information, which isprimarily attributable to the rate reconciliation and income taxes paid. Thestandard updateis to be applied prospectively, with retrospective application permitted. The new income tax disclosures are effective for fiscal years beginning after *December 15, 2024,*with early adoption permitted. The Company is still evaluatingthis standard updatebut does *not* expect it to have a material impact on its consolidated financial statements.
In *November 2024,*the FASB issued ASU *No.* *2024*-*03,* *Income Statement - Disaggregation of Income Statement Expenses (Subtopic 220-40)*. The standard update requires additional disclosures related to the disaggregation of income statement expenses. The disaggregation of income statement expense disclosures set forth in this standard update iseffective for annual periods beginning after *December 15, 2026*and interim periods within fiscal years beginning after *December 15, 2027,*with early adoption permitted. The Company is still evaluating the impact this standard update but does *not* expect it to have a material impact on its consolidated financial statements.
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**Note 3 - Retention**
A retention receivable is a portion of an outstanding receivable balance amount withheld by a customer until a contract is fully completed as specified in the contract. As of*January 31, 2025*and *2024*, the Company had short-term retention receivables of$3.3million and $2.4million, respectively, whichwere included as a component of trade accounts receivable. Additionally, the Company had long-term retention receivables of$2.6million and $1.7million as of*January 31, 2025*and *2024*, respectively. The long-term retention receivable balances were included as a component of other long-term assets in the Company's consolidated balance sheets. See Note *2* - Accounts receivablefor further information regarding the future realization of these long-term balances.
In
*2015,* the Company completed a project in the Middle East with billings in the aggregate amount of approximately
$41.9 million. The system has
*not* yet been commissioned by the customer. Nevertheless, the Company has settled approximately $
40.1 millionas of
*January 31, 2025*, with a remaining balance due in the amount of $
1.8 million, all of which pertains to retention clauses within the agreements withthe Company's customer, and which become payable by the customer when this project is fully tested and commissioned. Of this retention amount, $
1.2 millionisclassified as a long-term asset.
The Company has been actively engagedin ongoing collection efforts with the customer to ensure full payment of open balances, and at various times throughout*2025* and*2024*,the Company received a partial payment to settle$0.4millionand $0.6million of the customer's outstanding balances, respectively, including an additional $0.6 million that was received subsequent to the end of the year.Additionally, the Company has been engaged by the customer to perform additional work in*2025*undercustomary trade credit termsthatsupportthe continued cooperation between the Company and the customer. As a result, the Companydid not reserve any allowance against thisoutstanding receivable as of*January 31, 2025*. However, if the Company's efforts to collect on this account are *not* successful, the Company *may*recognize an allowance for all, or substantial all, of any such uncollected amounts.
For further information regarding accounts receivable, see Note *2* - Significant accounting policies,in the Notes to Consolidated Financial Statements.
**Note 4 - Revenue recognition**
The Company accounts for its revenues underASC *606,* *Revenue from Contracts with Customers*.
***Revenue from contracts with customers***
The Company defines a contract as an agreement that has approval and commitment from both parties, defined rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability is reasonably assured.
The Companys standard revenue transactions are classified into *two* main categories:
| | 1) | Systems and Coating - which include all bundled products in which Perma-Pipe engineers, and manufactures pre-insulated specialty piping systems mainly relating to the district heating and cooling and oil & gas markets. | |
| | 2) | Products - which include cables, leak detection products, heat trace products, material/goods not bundled with piping or flowline systems, and field services not bundled into a project contract. | |
In accordance with ASC *606*-*10*-*25*-*27* through *29,* the Company recognizes specialty piping and coating systems revenue over time as the manufacturing process progresses because *one* of the following conditions exist:
| | 1) | The customer owns the material that is being insulated or coated, so the customer controls the asset and thus the work-in-process; or | |
| | 2) | The customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured, which has no alternative future use, and there is a right to payment for work performed to date plus profit margin. | |
Products revenue is recognized when goods are shipped or services are performed (ASC *606*-*10*-*25*-*30*).
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A breakdown of the Company's revenues by revenue class for the years ended *January 31, 2025*and *2024*are as follows:
| | | 2024 | | | 2023 | | |
| | | Sales | | | % to Total | | | Sales | | | % to Total | | |
| Products | | $ | 12,801 | | | | 8 | % | | $ | 10,368 | | | | 7 | % | |
| | | | | | | | | | | | | | | | | | |
| Specialty Piping Systems and Coating | | | | | | | | | | | | | | | | | |
| Revenue recognized under input method | | | 45,606 | | | | 29 | % | | | 51,977 | | | | 34 | % | |
| Revenue recognized under output method | | | 99,977 | | | | 63 | % | | | 88,323 | | | | 59 | % | |
| Total | | $ | 158,384 | | | | 100 | % | | $ | 150,668 | | | | 100 | % | |
The input methodis used by certain operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract over time. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the "over time" method is the most accuratedepiction of the Companys performance as it measures the value of the goods and services transferred to the customer. Costs include all material, labor, and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when projects costs are incurred.
The output method is used by allother operating entities to measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract. Due to the types of end customers, generally these contracts require formal inspection protocols or specific export documentation for units produced, or produced and shipped, therefore, the output method is the most faithful depiction of the Companys performance. Depending on the conditions of the contract, revenue *may*be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped.
Some of the Companys operating entities invoice and collect milestones or other contractual obligations prior to the transfer of goods and services, but do*not* recognize revenue until the performance obligations are satisfied under the methods discussed above.
Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract and revenue is recognized using the modified contract value. Contract modifications that occur during the manufacturing process (changes in scope of work, job performance, material costs, and/or final contract settlements) are recognized in the period in which the revisions are known. Provisions are made for estimated losses on uncompleted contracts in the contract liabilities account in the period in which such losses are determined.
The transaction priceassociated with the Company's contracts with customers are generally determined based on the fixed amount of considerationas specifiedin acontract that is generally *not* subject to change. Additionally, from time to time the transaction price *may*also include variable consideration in certain instances whereit is deemedprobable that a significant reversal of cumulative revenue recognized will *not* occur. The aggregate of these amounts represents the total transaction price, which excludes amounts that are attributable to sales and value added taxes, or amounts collected on behalf of *third* parties.The total transaction priceis then allocated to the performance obligations thatiseventually recognized as revenue based on the project type and the method that is used to measure the transferof promised goods and services tocustomers.Additionally, transaction prices relating to cost-plus contracts are determined by applying the applicable profit margin to costs incurred on contracts, whereas transaction prices relating to fixed price contracts are determined on a lump-sum basis. Further, standard payment terms are generallynet *30* to *60* days, which is customer specific.
***Contract assets and liabilities***
Contract assets represent revenue recognized in excess of amounts billedfor contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities represent billings in excess of costsfor contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impactthe period end balances in these accounts. In addition, contract assets include receivables or amounts that are billable beyond the passage of time. For additional information, see Note *3* - Retention, in the Notes to Consolidated Financial Statements, and*Unbilled accounts receivable,* as further described below.
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The Company anticipates that substantially all costs incurred onuncompleted contracts as of*January 31, 2025*will be billed and collected within one year.
The following table shows the reconciliation of the cost in excess of billings and billings in excess of costs:
| | | 2024 | | | 2023 | | |
| Costs incurred on uncompleted contracts | | $ | 11,621 | | | $ | 21,912 | | |
| Estimated earnings | | | 9,366 | | | | 11,270 | | |
| Earned revenue | | | 20,987 | | | | 33,182 | | |
| Less billings to date | | | 19,302 | | | | 30,580 | | |
| Costs in excess of billings, net | | $ | 1,685 | | | $ | 2,602 | | |
| Balance sheet classification | | | | | | | | | |
| Contract assets: Costs and estimated earnings in excess of billings on uncompleted contracts | | $ | 2,934 | | | $ | 3,097 | | |
| Contract liabilities: Billings in excess of costs and estimated earnings on uncompleted contracts | | | (1,249 | ) | | | (495 | ) | |
| Costs in excess of billings, net | | $ | 1,685 | | | $ | 2,602 | | |
Substantially all of the $0.5million and $1.3million contract liabilities balances at*January 31, 2024* and*2023*,respectively, were recognized in revenues during*2024* and *2023*, respectively.
***Unbilled accounts receivable***
The Company has recorded$18.9 millionand $16.6 million of unbilled accounts receivableon the consolidated balance sheets as of*January 31, 2025*and *2024*,respectively, fromrevenues generated by certain of its subsidiaries. The Company has fulfilled all performance obligations and has recorded revenue under the respective contracts. The deliverables under these contracts have been accepted by the customer and billings will be made once thecustomer takes possession ofor arranges shipping for the products. The Company anticipates that substantially all of the amounts included in unbilled accounts receivable as of*January 31, 2025*will be billed within *one* year.
***Practical expedients***
Costs to obtain a contract are *not* considered to be incremental or material, and project duration generally does *not* span more than *one* year. Accordingly, the Company applies apractical expedient for these types of costsand as such, are expensed in the period incurred.
As a result of the Company's contracts having a duration of less than *one* year, a practical expedient was applied regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.
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**Note 5 - Debt**
| | | 2024 | | | 2023 | | |
| Revolving line - North America | | $ | 6,765 | | | $ | 5,519 | | |
| Mortgage note | | | 3,956 | | | | 4,512 | | |
| Revolving lines - foreign | | | 2,010 | | | | 3,632 | | |
| Loan payable to GIG | | | 2,753 | | | | 2,753 | | |
| Finance lease obligations | | | 9,098 | | | | 9,316 | | |
| Total debt | | | 24,582 | | | | 25,732 | | |
| Unamortized debt issuance costs | | | (116 | ) | | | (125 | ) | |
| Less current maturities | | | 9,253 | | | | 9,590 | | |
| Total long-term debt | | $ | 15,213 | | | $ | 16,017 | | |
| | | | | | | | | | |
| Current portion of long-term debt | | $ | 9,253 | | | $ | 9,590 | | |
| Total short-term debt | | $ | 9,253 | | | $ | 9,590 | | |
The following table summarizes the Company's scheduled maturities in each of the next *five* fiscal years:
| | | Total | | | 2025 | | | 2026 | | | 2027 | | | 2028 | | | 2029 | | | Thereafter | | |
| Revolving line - North America | | $ | 6,765 | | | $ | 6,765 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | - | | |
| Mortgage note | | | 3,956 | | | | 221 | | | | 221 | | | | 221 | | | | 221 | | | | 221 | | | | 2,853 | | |
| Revolving lines - foreign | | | 2,010 | | | | 2,010 | | | | - | | | | - | | | | - | | | | - | | | | - | | |
| Long-term finance obligation | | | 9,023 | | | | 225 | | | | 263 | | | | 305 | | | | 349 | | | | 400 | | | | 7,481 | | |
| Loan payable to GIG | | | 2,753 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,753 | | |
| Finance lease obligations | | | 75 | | | | 32 | | | | 34 | | | | 9 | | | | - | | | | - | | | | (0 | ) | |
| Total | | $ | 24,582 | | | $ | 9,253 | | | $ | 518 | | | $ | 535 | | | $ | 570 | | | $ | 621 | | | $ | 13,087 | | |
**Revolving lines -****North America****.**On *September 20, 2018,*the Company and certain of its U.S. and Canadian subsidiaries (collectively, together with the Company, the North American Loan Parties) entered into a Revolving Credit and Security Agreement (the Credit Agreement) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a three-year $18million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the Senior Credit Facility).
On *September 17, 2021,*the North American Loan Partiesexecuted an extension of the Credit Agreementwith PNC, providing for a new five-year $18million senior secured revolving credit facility, subject to a borrowing base including various reserves (the Renewed Senior Credit Facility). The Company'sobligations under the Renewed Senior Credit Facility are currently guaranteed by Perma-Pipe Canada, Inc. Each of the North American Loan Parties other than Perma-Pipe Canada, Inc. is a borrower under the Renewed Senior Credit Facility (collectively, the Borrowers).
The Borrowers have used and will continue to use borrowings under the Renewed Senior Credit Facility (i)to fund future capital expenditures; (ii)to fund ongoing working capital needs; and (iii)for other corporate purposes, including potentially additional stockrepurchases. Borrowings under the Renewed Senior Credit Facility bearinterest at a rate equal to an alternate base rate, SOFRrate index, plus, in each case, an applicable margin. The applicable margin is based on a fixed charge coverage ratio ("FCCR") range. Interest on alternate base rate borrowings is the alternate base rate (as definedin the Renewed Senior Credit Facility) plus an applicable margin ranging from 1.00% to 1.50%, based on the FCCR in the most recently reported period. Interest on SOFR rate borrowings is the SOFRrate (as defined in the Renewed Senior Credit Facility) plus an applicable margin ranging from 2.00% to 2.50%, based on the FCCR in the most recently reported period, as well as an additional SOFR adjustment ranging from 0.10% to 0.25%, based on the term of the interest period. Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility.
Subject to certain exceptions, borrowings under the Renewed Senior Credit Facility are secured by substantially all of the North American Loan Parties assets. The Renewed Senior Credit Facility matures on *September 20, 2026.*Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties *may**not* makecapital expenditures in excess of $5.0 million annually, plus a limited carryover of unused amounts. Further, the North American Loan Parties *may**not* make repurchases of the Company's common stock in excess of $3.0 million.
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The Renewed Senior Credit Facility also contains financial covenants requiringthe North American Loan Parties to achieve a ratio of its EBITDA (as defined in the Renewed Senior Credit Facility) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior Credit Facilityto be *not* less than 1.10 to *1.00* for any *five* consecutive days in which the undrawn availability is less than $3.0 millionor any day in which the undrawn availability is less than $2.0 million. As of *January 31, 2025*, the calculated ratio was greater than 1.10 to *1.00.* In order to cure any future breach of these covenants by the North American Loan Parties, the Company *may*repatriate cash from any of its foreign subsidiaries that are otherwise *not* a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the Companys Consolidated EBITDA, would result in compliance on a pro forma basis. The Company was in compliance with respect to these covenants as of *January 31, 2025*.
The Renewed Senior Credit Facility contains customary events of default. If an event of default occurs and is continuing, then PNC *may*terminate all commitments to extend further credit and declare all amounts outstanding under the Renewed Senior Credit Facility due and payable immediately. In addition, if any of the North American Loan Parties or certain of their subsidiaries become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Renewed Senior Credit Facility will automatically become immediately due and payable. Loans outstanding under the Renewed Senior Credit Facility will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) while a bankruptcy event of default exists or (ii) upon the lender'srequest, during the continuance of any other event of default.
As of *January 31, 2025*,the Company had borrowed an aggregate of $6.8 million at a rate of9.0% and had $3.7 million available under the Renewed Senior Credit Facility. As of *January 31, 2024*, the Company had borrowed an aggregate of $5.5 million and had $4.0 million available under the Renewed Senior Credit Facility.
**Finance obligation - buildings and land.**On*April 14, 2021,*the Company entered into a purchase and sale agreement (the "Purchase and Sale Agreement") to sell its land and building in Lebanon, Tennessee (the "Property"). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold the Propertyfor $10.4million. The transaction generated net cash proceeds of $9.1million. Concurrently with the sale of the Property, the Company paid off the approximately $0.9million remaining on the mortgage note on the Property to its lender. TheCompany used the remaining proceeds to repay its borrowings under the Senior Credit Facility, for strategic investments, and for general corporate needs. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the Lease Agreement), whereby the Company is leasing back the Property at an annual rental rate ofapproximately $0.8million, subject to annual rent increases of2.0%. Under the Lease Agreement, the Company hasfourconsecutive options to extend the term of the lease byfiveyears for each such option. As of*January 31, 2025*and*2024*, the Company had a net book value relating to this asset of$1.8millionand $1.9million,respectively.
In accordance with ASC*842,**Leases*, this transaction was recorded as a failed sale and leaseback as the present value of lease payments exceededsubstantiallyall of thefair value of the underlying asset. The Company utilized an incremental borrowing rate of8.0% to determinethe finance obligationto record for the amounts received andwill continue to depreciate the assets.The current portion of the finance obligation of $0.2million is recognized in current maturities of long-term debt and the long-term portion of $8.8 million is recognizedinlong-term finance obligationon the Company's consolidated balance sheets as of*January 31, 2025*.The net carrying amount of the financial liability and remaining assets will be*zero*at the end of the lease term.
**Revolving lines -**
**foreign**
**.**The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E., Egypt, and Saudi Arabiaas further described below:
*United Arab Emirates*
The Company hasa revolving line for
8.0million U.A.E. Dirhams (approximately $
2.2 million at
*January 31, 2025*) from a bank in the U.A.E. As of
*January 31, 2025*, thefacility hasan interest rate of approximately
7.9%and expiresin
*July*
*2025.*The Company had borrowed an aggregate of
$0.4million and
$0.2million
as of *January 31, 2025* and
*January 31, 2024*, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets. As of
*January 31, 2025* and
*January 31, 2024*, the Company had unused borrowing availability ofapproximately
$1.6million and
$1.9million, respectively.
The Company has a revolving line for
65.2 million U.A.E. Dirhams (approximately $
17.7 millionat
*January 31, 2025*) from a bank in the U.A.E. As of
*January 31, 2025*, thefacility has an interest rate of approximately
7.9%and expires
in *August**2025.* The Company had borrowed an aggregate of $0.1millionas of *January 31, 2025*and*January 31, 2024*, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.As of
*January 31, 2025* and
*January 31, 2024*, the Company had unused borrowing availability ofapproximately
$9.0million and
$1.0million, respectively.
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*Egypt*
In
*June 2021,*and as renewed or amended subsequently thereafter, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving lineof
100.0millionEgyptian Pounds (approximately $
2.0million at
*January 31, 2025*). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. As of
*January 31, 2025*, the facility has an interest rate of approximately
20.8%. Additionally,this credit arrangement was renewed in
*November 2024*with substantially the same terms and conditions andexpiresin
*November*
*2025.* As of
*January 31, 2025*, theCompany had an immaterial amount outstanding with respect to this credit arrangement, and approximately
$1.4 million outstanding at
*January 31, 2024*, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.Further, as of
*January 31, 2025*and
*January 31, 2024*
, the Company had unused borrowing capacity of $2.0million and $3.2million, respectively.
In
*December 2021,*the Company entered into a credit arrangement for project financing with a bank of Egypt for
28.2million Egyptian Pounds. As this project has progressed and the Company receivedcollections, the facility has decreased to a current amount of
2.1 million Egyptian Pounds(approximately
$0.1 million at
*January 31, 2025*). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by the contract for a project being financed by the Company's Egyptian subsidiary. The facility has an interest rate of approximately
20.8%and, as of
*November 2022,*is
no longer available for borrowings by the Company.The facility will expire in connection with final customer balance collections and the completion of the project. As of
*January 31, 2025*, the Company had an insignificant amount outstanding, and approximately$
0.1million outstanding at
*January 31, 2024*, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.
*Saudi Arabia*
In *March 2022,*the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi Arabia for a revolving line of
37.0
million Saudi Riyal (approximately $
9.9
million at
*January 31, 2025*
). This credit arrangement is in the form of project financing at rates competitive in Saudi Arabia. The line is secured by certain assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary. The facility was renewed in *May 2024*with substantially the same terms and conditions and expires in *May 2025.*As of
*January 31, 2025*
, thefacility has an interest rate of approximately
9.0%
. The Company had borrowed an aggregate of $1.5million and $3.2millionas of *January 31, 2025*and*January 31, 2024*, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.The unused borrowing availability attributable to this credit arrangement at
*January 31, 2025* and
*January 31, 2024*, was
$3.0million and
$6.1million, respectively.
These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. The lines are secured by certain equipment, certain assets (such as accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt. The Company guarantees only a portion of the subsidiaries' debt, including foreign debt. The amount of foreign subsidiary debt guaranteed by the Company was approximately
$10 million at
*January 31, 2025*and
*January 31, 2024*.
The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of
*January 31, 2025*
. Interest rates were based on (i) the Emirates Inter Bank Offered Rateplus
3.0% to
3.5% per annum for the U.A.E. credit arrangements,
*two*of which havea minimum interest rate of
4.5% per annum; (ii) either the Central Bank of Egypt corporate loan rate plus
1.5% to
3.5% per annum or the stated interest rate in the agreements for the Egypt credit arrangements; and (iii) the Saudi Inter Bank Offered Rate plus
3.5% for the Saudi Arabia credit arrangement. Based on these rates,asof
*January 31, 2025*,the Company's interest rates ranged from
7.9% to
20.8%, with a weighted average rate of
11.6%, and the Company had facility limits totaling $
34.6 million under these credit arrangements. As of
*January 31, 2025*,$
16.9 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.Additionally, the Company had borrowed approximately $
2.1million and had an additional $
15.6million of remaining borrowing capacity available under the foreign revolving credit arrangements. The foreign revolving line balances were included as current maturities of long-term debt in the Company's consolidated balance sheets
as of *January 31, 2025*and
*January 31, 2024*.
In
*June 2023,*the Companyassumed a promissory note of approximately $
2.8million in connection with the formation of the joint venture with GIG. Inaccordance with the promissory note, all principal is due and payable on the maturity date of
*April 9, 2026,*with the option to prepay, in whole or in part, at any time prior to the maturity date, without premium or penalty.
**Mortgages.**On *July**28,* *2016,* the Company entered into a mortgage agreementsecured by the Company's manufacturing facility located in Alberta, Canadathat matures on *December*23, *2042.* As of*January 31, 2025*, the remaining balance on the mortgage in Canada is approximately5.7 millionCanadian Dollars ("CAD") (approximately $4.0 million at*January 31, 2025*).The interest rate is variable,andwas7.1% at*January 31, 2025*.The principal balance is included as a component of long-term debt, less current maturities in the Company's consolidated balance sheets and is presented net of issuance costs of $0.1 millionas of *January 31, 2025*and*January 31, 2024*.
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**Note 6 - Leases**
The Company accounts for its leases under ASC *842,* *Leases*.Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheets.Operating leases are included in operating lease right-of-use (ROU) assets, operating lease liabilities short-term, and operating lease liabilities long-termin the Company's consolidated balance sheets. Finance leases are included in property, plant and equipment, current maturities of long-term debt, and long-term debt less current maturities in the Company's consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Companys incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.
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 the commencement date in determining the present value of lease payments.The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.
In calculating the ROU asset and lease liability, the Company elects to combine lease and non-lease components. Additionally, the Company excludes short-term leases having an initial termof *12* months or less in accordance withthe new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.
**Operating Leases.**In *August 2020,*the Company entered into a new lease in Abu Dhabi for land upon which the Company has built a production facility. Theannual payments are approximately 1.2million U.A.E. Dirhams (approximately $0.3million at*January 31, 2025*), inclusive of rent and common charges, with escalation clauses in the agreement.Rent paymentswere deferred until *August 2022*and have now commenced.The lease expires in *August 2050.*
In *March*and *December 2022,*the Company servedNotices of Termination to its lessor for the Company's lease of the land and buildings in Fujairah in the U.A.E.The Company served the Notices of Termination in connection with the Company's intended relocation to a different facility in Abu Dhabi. The Company vacated portions of the leased space in *December 2022*and the remaining space was vacated in *December**2024.* The *first* Notice of Termination required that the Company pay an additional amount equal to *three* months' rent after thattermination to enable the lessor to prepare the assets for lease by another party. As a result of the termination, the Company has recognized adjustments to the amounts recorded in the consolidated financial statements as of*January 31, 2024*. The termination resulted in decreases of $0.4 million, $6.0 million and $5.5 million to operating lease liability short-term, operating lease liability long-term and operating lease right-of-use asset, respectively, in the consolidated balance sheets as of*January 31, 2024*. The termination also resulted in a decrease in rent expense of $1.1 million in the consolidated statement of operations for the year ended*January 31, 2024*. There were *no* other adjustments in connection with these terminations forthe year ended*January 31, 2025*.
At*January 31, 2025*, the Company had total operating lease liabilities of $8.8 millionand operating ROU assets of $8.2 million, which are reflected in the consolidated balance sheets.
***Finance Leases.***The Company has several lease agreements, with lease terms of one to fifteen years, which consist of real estate, vehicles and office equipment leases. These leases do *not* require any contingent rental payments, impose any financial restrictions or contain any residual value guarantees. Certain of the Companys leases include renewal options and escalation clauses; renewal options have *not* been included in the calculation of the lease liabilities and ROU assets as the Company is *not* reasonably certain to exercise the options.Variable expenses generally represent the Companys share of the landlords operating expenses. The Company does *not* have any arrangements where it acts as a lessor, other than *one* sub-lease arrangement.
At*January 31, 2025*, theCompany also had finance lease liabilities of $0.1 million included in current maturities of long-term debt and long-term debt less current maturities, and finance ROU assets of $0.3 millionwhich were included in property plant and equipment, net of accumulated depreciationin the consolidated balance sheets.
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Supplemental balance sheet information related to leases is as follows:
| Operating and Finance leases | | January 31, 2025 | | | January 31, 2024 | | |
| Finance lease assets | | | | | | | | | |
| Property and Equipment - gross | | $ | 899 | | | $ | 970 | | |
| Accumulated depreciation and amortization | | | (626 | ) | | | (536 | ) | |
| Property and Equipment - net | | $ | 273 | | | $ | 434 | | |
| | | | | | | | | | |
| Finance lease liabilities | | | | | | | | | |
| Finance lease liability short-term | | $ | 75 | | | $ | 113 | | |
| Total finance lease liabilities | | $ | 75 | | | $ | 113 | | |
| | | | | | | | | | |
| Operating lease assets | | | | | | | | | |
| Operating lease ROU assets | | $ | 8,199 | | | $ | 6,467 | | |
| | | | | | | | | | |
| Operating lease liabilities | | | | | | | | | |
| Operating lease liability short-term | | $ | 1,071 | | | $ | 914 | | |
| Operating lease liability long-term | | | 7,713 | | | | 6,270 | | |
| Total operating lease liabilities | | $ | 8,784 | | | $ | 7,184 | | |
Total lease costs consist of the following:
| Lease costs | Consolidated Statements of Operations Classification | | Year Ended January 31, 2025 | | | Year Ended January 31, 2024 | | |
| | | | | | | | | | | |
| Finance Lease Costs | | | | | | | | | | |
| Amortization of ROU assets | Cost of sales | | $ | 131 | | | $ | 162 | | |
| Interest on lease liabilities | Interest expense | | | 6 | | | | 9 | | |
| Operating lease costs | Cost of sales, SG&A expenses | | | 1,873 | | | | 1,888 | | |
| Short-term lease costs (1) | Cost of sales, SG&A expenses | | | 667 | | | | 530 | | |
| Sub-lease income | SG&A expenses | | | - | | | | (61 | ) | |
| Total Lease costs | | $ | 2,677 | | | $ | 2,528 | | |
(*1*) Includes variable lease costs, which are *not* material
Supplemental cash flow information related to leases is as follows:
| | | Year Ended January 31, | | |
| | | 2025 | | | 2024 | | |
| Cash paid for amounts included in the measurement of lease liabilities | | | | | | | | | |
| Financing cash flows from finance leases | | $ | 31 | | | $ | 193 | | |
| Operating cash flows from finance leases | | | 6 | | | | 9 | | |
| Operating cash flows from operating leases | | | 2,031 | | | | 1,789 | | |
| | | | | | | | | | |
| ROU Assets obtained in exchange for new lease obligations | | | | | | | | | |
| Finance leases liabilities | | $ | - | | | $ | 139 | | |
| Operating leases liabilities | | | 2,767 | | | | 4,988 | | |
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Weighted-average lease terms and discount rates are as follows:
| | | January 31, 2025 | | | January 31, 2024 | | |
| | | | | | | | | | |
| Weighted-average remaining lease terms (in years) | | | | | | | | | |
| Finance leases | | | 2.3 | | | | 3.3 | | |
| Operating leases | | 11.5 | | | | 13.7 | | |
| | | | | | | | | | |
| Weighted-average discount rates | | | | | | | | | |
| Finance leases | | | 6.4 | % | | | 6.8 | % | |
| Operating leases | | | 10.0 | % | | | 9.3 | % | |
Maturities of lease liabilities as of *January 31, 2025*, are as follows:
| Year | | Operating Leases | | | Finance Leases | | |
| For the year ended January 31, 2026 | | $ | 1,900 | | | $ | 36 | | |
| For the year ended January 31, 2027 | | | 2,094 | | | | 36 | | |
| For the year ended January 31, 2028 | | | 2,120 | | | | 9 | | |
| For the year ended January 31, 2029 | | | 1,791 | | | | - | | |
| For the year ended January 31, 2030 | | | 899 | | | | - | | |
| Thereafter | | | 7,162 | | | | - | | |
| Total lease payments | | | 15,966 | | | | 81 | | |
| Less: amount representing interest | | | (7,182 | ) | | | (6 | ) | |
| Total lease liabilities at January 31, 2025 | | $ | 8,784 | | | $ | 75 | | |
Rentexpense onoperating leases, which is recorded on a straight-line basis,was $2.5 million and $2.4 million for the years ended*January 31, 2025* and*2024*, respectively.
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**Note 7 - Income taxes**
| Income from continuing operations before income taxes | | 2024 | | | 2023 | | |
| Domestic (1) | | $ | (4,682 | ) | | $ | (8,541 | ) | |
| Foreign | | | 23,150 | | | | 18,432 | | |
| Total | | $ | 18,468 | | | $ | 9,891 | | |
(*1*) The domestic loss from continuing operations before income taxes includes corporate overhead costs.
| Components of income tax expense (benefit) | | 2024 | | | 2023 | | |
| Current | | | | | | | | | |
| Federal | | $ | (4 | ) | | $ | (21 | ) | |
| Foreign | | | 3,614 | | | | 3,351 | | |
| State and other | | | 150 | | | | 270 | | |
| Total current income tax expense | | | 3,760 | | | | 3,600 | | |
| Deferred | | | | | | | | | |
| Federal | | | 1,048 | | | | (7,311 | ) | |
| Foreign | | | 569 | | | | 391 | | |
| Total deferred income tax expense (benefit) | | | 1,617 | | | | (6,920 | ) | |
| Total income tax expense | | $ | 5,377 | | | $ | (3,320 | ) | |
As a result of the *one*-time transition tax from the U.S. Tax Cuts and Jobs Act of *2017* (Tax Act), the Company estimates that distributions from foreign subsidiaries will *no* longer be subject to incremental U.S. federal income tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction to offset any U.S. federal income tax liability on the undistributed earnings. However, upon repatriation, various state taxes and foreign withholding taxes *may*be levied on such amounts. Determination of the amount of unrecognized state and local tax liability is *not* practicable due to the complexities associated with its hypothetical calculation. Current and future earnings in the Company's subsidiaries in Canada and Egypt are *not* permanently reinvested. Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions areconsidered.The Company's liability was $0.8million as of *January 31, 2025* and *2024*,related to these taxes.
U.S. income and foreign withholding taxes have *not* been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States.The Company intends to permanently reinvest the undistributed earnings ofits Middle Eastern and Indian subsidiaries.The Middle Eastern and Indian subsidiaries have unremitted earnings of $50.6million and $13.3million, respectively, as of *January 31, 2025*. Unremitted earnings of $25.9million in the United Arab Emirates would *not* be subject to withholding tax in the event of a distribution, and $24.7 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of $1.2million. The Company has *not* recorded a deferred tax liability related to any financial reporting basis over tax basis in connection withthe Company'sinvestment in these foreign subsidiaries as it is *not* practical to estimate.
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The difference between the provision for income taxes and the amount computed by applying the U.S. Federal statutory rate of *21%*was as follows:
| | | 2024 | | | 2023 | | |
| Tax expense at federal statutory rate | | $ | 3,882 | | | $ | 2,083 | | |
| State expense, net of federal income tax effect | | | 68 | | | | 159 | | |
| Domestic return to provision | | (82 | ) | | 247 | | |
| Domestic valuation allowance | | | (468 | ) | | | (8,065 | ) | |
| Global Intangible Low-Taxed Income inclusion | | | 2,201 | | | | 2,202 | | |
| State NOL expirations | | - | | | 1,375 | | |
| Permanent differences other | | 176 | | | 258 | | |
| Valuation allowance for state NOLs | | | 56 | | | | (1,314 | ) | |
| Differences in foreign tax rate | | | (796 | ) | | | (598 | ) | |
| Reductions of uncertain tax positions of prior years | | - | | | (239 | ) | |
| Deferred tax on unremitted earnings | | | 152 | | | | 195 | | |
| Foreign withholding taxes | | | 31 | | | | 135 | | |
| Research tax credit | | | 265 | | | | 247 | | |
| All other, net expense | | | (108 | ) | | | (5 | ) | |
| Total income tax (benefit) expense | | $ | 5,377 | | | $ | (3,320 | ) | |
The Company's worldwide effective tax rates ("ETR") were 29.1%and (33.6%)in the year ended *January 31, 2025*and*2024*, respectively.The change in the ETR was largely due to changes in the mix of income and loss in various tax jurisdictions, and the release of the partial domestic valuation allowance in the prior year.
| Components of deferred income tax assets | | 2024 | | | 2023 | | |
| U.S. Federal NOL carryforward | | $ | 4,870 | | | $ | 6,173 | | |
| Deferred compensation | | | 222 | | | | 241 | | |
| Research tax credit | | | 1,240 | | | | 1,505 | | |
| Foreign NOL carryforward | | | 255 | | | | 258 | | |
| Foreign tax credit | | | 2,580 | | | | 2,580 | | |
| Stock compensation | | | - | | | | 21 | | |
| Other accruals not yet deducted | | | 202 | | | | 500 | | |
| State NOL carryforward | | | 1,544 | | | | 1,495 | | |
| Accrued commissions and incentives | | | 1020 | | | | 845 | | |
| Inventory reserve | | | 118 | | | | 70 | | |
| Lease liability | | | 1034 | | | | 878 | | |
| Deferred tax assets, gross | | | 13,085 | | | | 14,566 | | |
| Valuation allowance | | | (5,277 | ) | | | (5,689 | ) | |
| Total deferred tax assets, net of valuation allowances | | $ | 7,808 | | | $ | 8,877 | | |
| | | | | | | | | | |
| Components of the deferred income tax liability | | | | | | | | | |
| Depreciation | | $ | (530 | ) | | $ | (370 | ) | |
| Foreign subsidiaries unremitted earnings | | | (813 | ) | | | (783 | ) | |
| Prepaid | | | (77 | ) | | | (94 | ) | |
| Right of use asset | | | (999 | ) | | | (855 | ) | |
| Other | | | (70 | ) | | | (73 | ) | |
| Total deferred tax liabilities | | $ | (2,489 | ) | | $ | (2,175 | ) | |
| | | | | | | | | | |
| Deferred tax assets, net | | $ | 5,319 | | | $ | 6,702 | | |
| | | | | | | | | | |
| Balance sheet classification | | | | | | | | | |
| Long-term assets | | $ | 6,639 | | | $ | 7,919 | | |
| Long-term liability | | | (1,320 | ) | | | (1,217 | ) | |
| Total deferred tax assets, net of valuation allowances | | $ | 5,319 | | | $ | 6,702 | | |
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As of *January 31, 2025*and*2024*, the Company haddeferred tax assets of $4.9 million and $6.2million, respectively,related to gross U.S. Federal net operating loss ("NOL") carryforwards of $23.8 million and $30.1million, respectively. Of this amount,$16.4 million will begin to expire between tax years*2036* and*2037*, withthe remainder *not* subject to expiration. As of *January 31, 2025*and*2024*, the Company haddeferred tax assets of $1.5million related to gross stateNOLsof$21.9million and $21.0million, respectively, that expire between*2025*and*2044*. The Company has released the valuation allowance recorded against U.S. Federal NOLs during the year ended*January 31, 2024*, and continues to maintain a valuation allowance against its state NOLs.As of *January 31, 2025*and*2024*,the Company haddeferred tax assets of $0.3 million related togross foreign NOLs of $1.3 million for its subsidiaryin Saudi Arabia, whichcan be carried forward indefinitely and does *not* have a valuation allowance recorded against it.The ultimate realization of the tax benefit is dependent upon the future generation of taxableincome in the respective tax jurisdictions.
The Company periodically reviews the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates, evaluates future sources of taxable income and tax planning strategies and *may*make further adjustments based on management's outlook for continued profits in each jurisdiction.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective negative evidence previously evaluated was the domestic cumulative loss incurred over a *three*-year period. The Company achieved *three* years of cumulative income in the U.S. federal tax jurisdiction as of the period ended*January 31, 2024*. As such, management determined that the domestic deferred tax assets are more likely than *not* to be realized and have released the valuation allowance accordingly during the period ended*January 31, 2024*.The Company continues to maintain a valuation allowance against certain domestic deferred tax assets including its foreign tax credit carryovers, R&D credit carryovers, and state deferred tax assets. Management has released $0.2 million of valuation allowance related to R&D credit carryovers in the period ending *January 31, 2025*based upon expectations of future taxable income. The amount of the domestic deferred tax assets considered realizable, however, could be increased if there are changes to the objective positive and negative evidence considered.
The Company has a deferred tax asset of $2.6 million for U.S. foreign tax credits after considering the impact of the repatriated foreign earnings and the *one*-time transition tax. Theforeign tax credit deferred tax asset is fully offset with a valuation allowance. The excess foreign tax credits are subject to a *ten*-year carryforward and will begin to expire on *January 31, 2026*.
The following table summarizes uncertaintax position("UTP") activity, excluding the related accrual for interest and penalties:
| | | 2024 | | | 2023 | | |
| Balance at beginning of year | | $ | 1,433 | | | $ | 1,673 | | |
| Decreases in positions taken in a prior period | | | (3 | ) | | | (256 | ) | |
| Increases in positions taken in a current period | | | 224 | | | | 143 | | |
| Decreases due to lapse of statute of limitations | | | (131 | ) | | | (21 | ) | |
| Decreases due to settlements | | | (114 | ) | | | (106 | ) | |
| Balance at end of year | | $ | 1,409 | | | $ | 1,433 | | |
Included in the total UTP liability were estimated accrued interest and penalties of$0.4millionas of each of*January 31, 2025*and *2024*. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheets and recognized as an expense during the period.The Company's policy is to include interest and penalties in income tax expense. On *January 31, 2025*, the Company did*not* anticipate any significant adjustments to its unrecognized tax benefits within the next *twelve* months. Included in the balance on *January 31, 2025*were amounts offset by deferred taxes (i.e. temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments).Upon reversal, $1.2million of the amount accrued on*January 31, 2025* would impact the future ETR.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.Tax years related to *January 31, 2022,**2023,* and *2024*are open for federal and state tax purposes. In addition, federal and state tax yearsrelated to *January 31,**2005*through *January 31,**2010*,are subject to adjustment on audit, up to the amount of research tax credit generated in those years. Any NOL carryovercan still be adjusted by the Internal Revenue Service in futureyearaudits.
The Company's management periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time *may*change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate *may*increase or decrease in any period. Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state tax issues are included in other long-term liabilities on the consolidated balance sheets.
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**Note 8 - Retirement plans**
***401(k) plan***
The domestic employees of the Company participate in the PPIH *401*(k) Employee Savings Plan, which is applicable to all employees except employees covered by collective bargaining agreement benefits. The plan allows employee pretax payroll contributions from 1% to 16% of total compensation. The Company matches 100% of each participant's payroll deferral contributions up to 1% of their compensation, plus 50% of each participant's payroll deferral contributions on the next 5% of compensation.
Contributions to the *401*(k) plan were $0.4millionin the years ended *January 31, 2025*and *2024*, respectively.
***Multi-employer plans***
The Company contributes to a multi-employer plan for certain collective bargaining U.S. employees. The risks of participating in this multi-employer plan are different from a single employer plan in the following aspects:
| | | Assets contributed to the multi-employer plans by one employer may be used to provide benefits to employees of other participating employers. | |
| | | If a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers. | |
| | | If the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. | |
The Company has assessed and determined that the multi-employer plans to which it contributes are *not* significant to the Company's consolidated financial statements. The Company does *not* expect to incur a withdrawal liability or expect to significantly increase its contribution over the remainder of the contract period. The Company made contributions to the bargaining unit supported multi-employer pension plans (in thousands):
| | | | | | | | | | | (In thousands) | | | (In thousands) | | | | |
| | | | | | | | | | | FIP/RP Status | | 2024 | | | 2023 | | Surcharge | | |
| Plan Name | | EIN | | | Plan # | | Funded Zone Status | Pending/Implemented | | Contribution | | | Contribution | | Imposed | Collective Bargaining Expiration Date | |
| Plumbers & Pipefitters Local 572 Pension Fund | | 62-6102837 | | | 001 | | Yellow | No | | $189 | | | $161 | | No | 5/5/2025 | |
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**Note 9 - Stock-based compensation**
The Company has prior incentive plans under which previously granted awards remain outstanding, but under which *no* new awards *may*be granted, including the Company's *2021* Omnibus Stock Incentive Plan, which expired in *May 2024.*At *January 31, 2025*, the Company had reserved a total of 122,814shares for grants and issuances under these incentiveplans, including issuances pursuant to unvested or unexercised prior awards.
The Company's*2024*Omnibus Stock Incentive Plan dated*May 28, 2024*was approved bythe Company's stockholders in *July**2024*(*"2024*Plan"). The*2024*Plan will expire in *July**2027.*The*2024*Plan authorizes awards to officers, employees, consultants and independent directors. The *2024* Plan provides for the grant of deferred shares, non-qualified stock options, incentive stock options, restricted shares, restricted stock units, and performance-based restricted stock units intended to qualify under section *422* of the Internal Revenue Code.
Grants were made in connection with the *2024* Plan and the prior incentive plans to employees, officers, and independent directors, as further described below:
***Stock compensation expense***
The Company has granted stock-based compensation awards to eligible employees, officers or independent directors. The Company recognized the following stock-based compensation expense for the periods presented:
| | | 2024 | | | 2023 | | |
| Restricted stock based compensation expense | | $ | 860 | | | $ | 913 | | |
| Total stock-based compensation expense | | $ | 860 | | | $ | 913 | | |
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***Stock options***
The Company did not grant any stock options during theyears ended *January 31, 2025*or *2024*. The following tablesummarizes the Company's stock option activity:
| | | Options | | | Weighted average exercise price | | | Weighted average remaining contractual term | | | Weighted average grant date fair value | | |
| Outstanding on January 31, 2023 | | | 40 | | | $ | 10.85 | | | | 1.12 | | | $ | 19 | | |
| | | | | | | | | | | | | | | | | | |
| Exercised | | | (1 | ) | | | 6.85 | | | | | | | | | | |
| Expired or forfeited | | | (17 | ) | | | 11.15 | | | | | | | | | | |
| Outstanding on January 31, 2024 | | | 22 | | | | 11.15 | | | | 0.7 | | | | 6 | | |
| | | | | | | | | | | | | | | | | | |
| Options exercisable on January 31, 2024 | | | 22 | | | $ | 11.15 | | | | 0.7 | | | | 6 | | |
| | | | | | | | | | | | | | | | | | |
| Exercised | | | (4 | ) | | | 6.89 | | | | | | | | | | |
| Expired or forfeited | | | (17 | ) | | | 12.41 | | | | | | | | | | |
| Outstanding on January 31, 2025 | | | 1 | | | | 6.85 | | | | 0.8 | | | | 4 | | |
| | | | | | | | | | | | | | | | | | |
| Options exercisable on January 31, 2025 | | | 1 | | | $ | 6.85 | | | | 0.8 | | | $ | 4 | | |
There wasnovesting, expiration or forfeiture of previously unvested stock options during theyear ended*January 31, 2025*. In addition,there were no remaining unvested stock options outstanding, and therefore no unrecognized compensation expense related to unvested stock options during the year ended*January 31, 2025*.
**Deferred stock**
As part of their compensation, in previous years the Company granteddeferred stock unitsto each non-employee director,equal to the result of dividing the award amount by the fair market value of the common stock on the date of grant. The stock vests on the date of grant; however, it isdistributed to the directors only upon their separation from service. During the year ended*January 31, 2025*, nodeferred stock units were distributed. There were approximately62,926 deferred stock units outstanding included in the restricted stock activity shown belowas of*January 31, 2025* and *2024*.
**Restricted stock**
The Company has granted restricted stock to executive officers, independent directors, and employees. The restricted stock vests ratably overone to four years. The Company calculates restricted stock compensation expense based on the grant date fair value and recognizes expense on a straight-line basis over the vesting period. The following table summarizes the Company's restricted stock activity:
| | | Restricted shares | | | Weighted average price per share | | | Weighted average grant date fair value | | |
| Outstanding on January 31, 2023 | | | 266 | | | $ | 8.55 | | | $ | 2,286 | | |
| Granted | | | 92 | | | | 10.26 | | | | | | |
| Issued / vested | | | (84 | ) | | | | | | | | | |
| Forfeited | | | (52 | ) | | | 9.59 | | | | | | |
| Outstanding on January 31, 2024 | | | 222 | | | $ | 9.33 | | | $ | 2,078 | | |
| Granted | | | 111 | | | | 8.93 | | | | | | |
| Issued / vested | | | (73 | ) | | | | | | | | | |
| Forfeited | | | (29 | ) | | | 9.59 | | | | | | |
| Outstanding on January 31, 2025 | | | 230 | | | $ | 9.05 | | | $ | 2,080 | | |
The fair value of vested restricted stock was $0.9million and $1.1million in theyear ended *January 31, 2025*and *2024*respectively. Additionally, there was $1.0 million of unrecognized compensation cost related to unvested restricted stock granted under the plans as of*January 31, 2025* and*2024*. Thesecosts areexpected to be recognized over the weighted-average period of1.7 years and1.8 years, respectively. Further, the Company had approximately 0.2 million of non-vested restricted stock granted under the planas of*January 31, 2025*. The remaining amount of non-vested restricted stock is expected to vest over theweighted-average period of 1.7years.
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**Note 10 - Interest expense**
| | | 2024 | | | 2023 | | |
| Interest expense | | | 2,224 | | | | 2,429 | | |
| Interest income | | | 284 | | | | 163 | | |
| Interest expense | | | 1,940 | | | | 2,266 | | |
**Note 11- Treasury stock**
The repurchase program approved on *October 4, 2021,*authorized the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock. Stock repurchases were permitted to be executed through open market or privately negotiated transactions, depending upon current market conditions and other factors. On *December 7, 2022,*the Board of Directors authorized the use of $1.0 million remaining under the share repurchase program previously approved on *October 4, 2021*that expired on *October 3, 2022.*During the *12 months ended* *January 31, 2024,*the Company used the remaining $1.0 million of the $3.0 million authorized to repurchase its outstanding shares of common stock.Accordingly, there was no repurchase activity with respect to the Company's shares of common stock during the *twelve* months ended *January 31, 2025.*
The following table sets forth information with respect to repurchases by the Company of its shares of common stock during*2023*:
| Period | | Total number of shares purchased | | | Average price paid per share | | | Total number of shares purchased as part of publicly announced plans or programs | | | Approximate dollar value of shares that may yet be purchased under the plans or programs | | |
| July 1, 2023 - July 31, 2023 | | | 37 | | | | 8.51 | | | | 37 | | | | 628 | | |
| August 1, 2023 - August 31, 2023 | | | 62 | | | | 8.67 | | | | 62 | | | | 92 | | |
| September 1, 2023 - September 30, 2023 | | | 10 | | | | 8.95 | | | | 10 | | | | - | | |
| Total | | | 109 | | | | | | | | 109 | | | | | | |
On
*August 29, 2024,*the Company retired all remaining treasury stock previously acquiredunder the stock repurchase program. The retirement was recorded as a reduction to common stock based on the par value of the shares, and the excess over par value was recorded as a decrease in retained earnings in accordance with ASC
*505*-
*30,*
*Equity - Treasury Stock*.
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**Note 12- Joint venture and non-controlling interest**
On *June 1, 2023,*the Company closed on its formation of the joint venture (the "JV Agreement" or "JV") with Gulf Insulation Group ("GIG") a leading provider of pre-insulated piping systems and pipe fabrication, in which the Company acquired a 60% financial controlling interest and contributed assets consisting of a building and equipment.The JV is a limited liability company named Perma Pipe Gulf Arabia Industry andis a closed joint stock company established under laws of the Kingdom of Saudi Arabia. The JV's capital is comprised of ordinary shares with *60%* owned by the Company and the remaining 40% owned by GIG. The Company expects this collaborative business arrangement to result in expanding its market presence in Saudi Arabia, Kuwait, and Bahrain. The primary business activities of the JV include the manufacture and sale of the pre-insulated piping systems and pipe coating services. The other party to this business arrangement acquired a *40%* non-controlling interest in the JV by contributing assets (i.e. acquired by the JV) of approximately $6.8million in fair value, mainly consisting of an idle building and equipment. The fair value of the net assets contributed was determined through the use of a *third*-party appraiser using the indirect cost method.
Pursuant to the applicable guidance in ASC *805,* *Business Combinations and Noncontrolling Interests*, the Company determined that the transaction did *not* meet the necessary conditions to be considered a business as the set of assets acquired did *not* contain an organized workforce and therefore was recorded as an asset acquisition. The assets transferred by the Company to the JV were recorded at historical cost, and *no* gain was recognized as a result of this exchange since the Company has a controlling interest in the JV. The Companys measurement of the acquired assets is comprised of the fair value of the contributed net assets given up by the Company and the fair value of the non-controlling interest, excluding the contributed assets. The non-controlling interest attributable to the other party was recorded as of the investment date and was measured as part of the carrying amount of the ownership interest in the net assets given up by the Company plus the fair value of the non-controlling interest, excluding the contributed assets. *No* gain or loss was recognized as a result of this exchange. In connection with the joint venture, the Company also assumed a promissory note issued as part of the formation of the JV in the principal amount of $2.8million payable to GIG. The principal amount is presented within the Long-term debt, less current maturities caption in the Company's consolidated balance sheets.The Company also has a promissory note due from the JV that was issued as part of the formation of the JV in the amount of approximately $4.2million, which is eliminatedin consolidation.
The Company has a *60%* controlling financial interest in thejoint venturewhich is *not* considered a wholly owned subsidiary. Accordingly, there remains a minority portion of the equity interest that is owned by a *third* party, GIG. Pursuant to the applicable guidance contained in ASC *810,* *Consolidations*, the balance sheetsand operating activities of this investment areincluded in the Company's consolidated financial statements. As of*January 31, 2025*, the carrying amount of the assets and liabilities of the JV that are consolidated by the Company totaled $39.1millionand $22.1million, respectively.
The Company adjusts net income in the consolidated statements of operations to exclude the proportionate share of results that is attributable to the non-controlling interest. Additionally, the Company presents the proportionate share that is attributable to redeemable non-controlling interest as temporary equity within the consolidated balance sheets. This mezzanine presentation is the result of the non-controlling interest being subject to a put option that is *not* solely within the Company's control and in connection with the equity shares of the business arrangement that is redeemable any time after *five* years following the date of incorporation. The redemption amount per the JV Agreement is at fair value of the non-controlling interest which is the fair value of ordinary shares of the JV owned by GIG. Further, neither the call option nor put option contained in the JV Agreement met the definition of a derivative as a result of *not* containing a net settlement provision and the shares *not* being readily convertible to cash, thereby being considered embedded with respect to non-controlling interest and *not* a freestanding instrument.
As a result of the non-controlling interest being subject to redemption rights that are *not* entirely within the Company's control, it was concluded that the necessary conditions were met to be accounted for in accordance with ASC *480,* *Distinguishing Liabilities from Equity*. Pursuant to this accounting standard, the Company determined that the only criteria for the securityto become redeemable is the passage of time and, therefore, is considered probable of redemption. The Company made a policy election to measure changes in the non-controlling interest immediately as they occur and adjust the carrying amount of non-controlling interest equal to its redemption amount as the non-controlling interest has *no* stated fixed price or fixed date. As such, at each subsequent balance sheet date following the formation of this business arrangement, the Company must determine whether further adjustment is requiredto increase the carrying value of the redeemable non-controlling interest. If the Company determines that the fair value of the redeemable non-controlling interest exceeds its carrying value, an adjustment is made to reflect this change. However, if the value is determined to be less than its carrying value, suchadjustment is limited to its original carrying value at the formation of thebusiness arrangement. Additionally, adjustments made to reflect the changein the value of the redeemable non-controlling interest are offsetagainstpermanentequity within the Company's consolidated balance sheets.
Net income attributable to GIG was$4.1million and $2.7million for the *twelve* months ended*January 31, 2025* and*2024*, respectively. The proportionate share of net income was accounted for as a reduction in deriving net income attributable to common stock in the Company's consolidated statements of operations.
The Company is the ultimate parent of the JV through its *60%* financial control and as part of the JV Agreement has majority control of the operational activities of the JV and *no* joint control exists. The JV Agreement has *no* veto or kickout rights and board voting is proportional to the ownership interest. Certain activities do include a *two*-*third* majority affirmative vote of shareholders of the JV and include acquiring another company, establishing new subsidiaries, entering another partnership or joint venture, any merger or material change to the business of the JV. These are considered protective rights. The *60%* equity ownership of the JV by the Company allows it to receive its proportionate share of losses and residual returns.
The non-controlling interest is measured at fair value and was$11.0million and $6.3millionrecorded within temporary equity at*January 31, 2025* and*2024*, respectively. The change in non-controlling interest consists of approximately $4.1million incurrent year net income attributable to non-controlling interest, and approximately $0.6millionas an adjustment in the carrying value of the redeemable non-controlling interest pertaining to the business arrangement. In addition, there were *no* dividends or any other form of distributions from non-controlling interestfor the year ended*January 31, 2025* and *2024*, respectively.
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**Note 13- Segment reporting**
The Company operates under
one segment: Piping Systems. The results are presented on an consolidated basis to the Chief Executive Officer who serves as the chief operating decision maker ("CODM").The accounting policies of the Company's segment are the same as those described in the summary of significant accounting policies.
For further information, see Note *2* - Significant accounting policies,in the Notes to Consolidated Financial Statements.
The CODM regularly reviews consolidated revenues, significant expenses, and consolidated net income attributable to common stock to make operating decisions and assess performance. The CODM uses this information in making company-wide decisions when determining how to allocate resources.
Significant expenses represent amounts that are regularly provided to the CODM and included in consolidated net income attributable to common stock.Additionally, the CODM regularly reviews asset information by our reporting segment in a manner that is consistent with the presentationon the Company's accompanying consolidated balance sheets.
The following table summarizes the Company's revenues, net income attributable to common stock, and significant expenses:
| | | Year ended January 31, | | |
| | | 2025 | | | 2024 | | |
| | | | | | | | | | |
| Net sales | | $ | 158,384 | | | $ | 150,668 | | |
| | | | | | | | | | |
| Cost of sales | | | | | | | | | |
| Labor | | | 23,109 | | | | 19,048 | | |
| Materials | | | 59,036 | | | | 64,973 | | |
| Depreciation and amortization | | | 3,104 | | | | 3,562 | | |
| Other costs of sales | | | 19,887 | | | | 21,627 | | |
| Total Cost of sales | | | 105,136 | | | | 109,210 | | |
| | | | | | | | | | |
| Operating expenses | | | | | | | | | |
| Salaries and wages | | | 16,295 | | | | 14,043 | | |
| Depreciation and amortization | | | 516 | | | | 196 | | |
| Other general and administrative expense | | | 11,189 | | | | 8,352 | | |
| General and administrative expenses | | | 28,000 | | | | 22,591 | | |
| Selling expense | | | 4,947 | | | | 5,508 | | |
| Total operating expenses | | | 32,947 | | | | 28,099 | | |
| | | | | | | | | | |
| Income from operations | | | 20,301 | | | | 13,359 | | |
| | | | | | | | | | |
| Interest expense | | | 1,940 | | | | 2,266 | | |
| Other income (expense) | | | 107 | | | | (1,202 | ) | |
| Income before income tax | | | 18,468 | | | | 9,891 | | |
| Income tax expense (benefit) | | | 5,377 | | | | (3,320 | ) | |
| Net income | | | 13,091 | | | | 13,211 | | |
| Less: Net income attributable to non-controlling interest | | | 4,108 | | | | 2,740 | | |
| Net income attributable to common stock | | $ | 8,983 | | | $ | 10,471 | | |
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**Schedule II**
**Perma-Pipe International Holdings, Inc. and Subsidiaries**
**VALUATION AND QUALIFYING ACCOUNTS**
**For the Years Ended January 31, 2025 and 2024**
| | | Balance at beginning of period | | | Charges to expenses | | | Write-offs (1) | | | Other charges (2)(3) | | | Balance at end of period | | |
| Year Ended January 31, 2025 | | | | | | | | | | | | | | | | | | | | | |
| Valuation allowance for deferred tax assets | | $ | 5,689 | | | $ | (412 | ) | | $ | - | | | $ | - | | | $ | 5,277 | | |
| Allowance for possible losses in collection of trade receivables | | | 699 | | | | 36 | | | | (25 | ) | | | (7 | ) | | | 703 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Year Ended January 31, 2024 | | | | | | | | | | | | | | | | | | | | | |
| Valuation allowance for deferred tax assets | | $ | 15,993 | | | $ | (208 | ) | | $ | - | | | $ | (10,096 | ) | | $ | 5,689 | | |
| Allowance for possible losses in collection of trade receivables | | | 612 | | | | 123 | | | | (36 | ) | | | - | | | | 699 | | |
**(1)**Uncollectible accounts written off.
**(2)**Impact on allowancedue to foreign currency translation for the year ended*January 31, 2025*.
**(3)**Therelease of valuation allowances related to deferred tax assets for the year ended*January 31, 2024*.
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EXHIBIT INDEX |
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The exhibits listed below are filed herewith except the exhibits described below as incorporated by reference. Exhibits not filed herewith are incorporated by reference to such exhibits filed by the Company under the location set forth under the caption "Description and Location" below. The Commission file number for the Company's Exchange Act filings referenced below is 001-32530. |
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Exhibit No. |
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Description and Location |
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3.1 |
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Certificate of Incorporation of Perma-Pipe International Holdings, Inc. [Incorporated by reference to Exhibit 3.3 to Registration Statement No. 33-70298] |
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3.2 |
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Certificate of Amendment to Certificate of Incorporation of Perma-Pipe International Holdings, Inc. [Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 20, 2017] |
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3.3 |
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Seventh Amended and Restated By-Laws of Perma-Pipe International Holdings, Inc. [Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 4, 2025] |
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4.1 |
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Description of the Registrant'sSecurities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 [Incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed on April 21, 2020] |
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10.1 |
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Form of Directors and Officers Indemnification Agreement [Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2006 filed on May 15, 2006] * |
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10.2 |
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Executive Employment Agreement with David J. Mansfield dated October 19, 2016 [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on December 13, 2016]* |
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10.3 |
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Revolving Credit and Security Agreement, dated September 20, 2018, by and among the Company, PNC Bank, National Association, and the other parties thereto [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 24, 2018] |
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10.4 |
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Second Amendment and Waiver to Revolving Credit and Security Agreement, dated September 17, 2021, by and among the Company, PNC Bank, National Association, and other parties thereto [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 21, 2021] |
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10.5 |
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Executive Employment Agreement, dated October 2, 2023, by and between the Company and Matthew E. Lewicki [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 2, 2023]* |
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10.6 |
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Perma-Pipe International Holdings, Inc. 2024 Omnibus Stock Incentive Plan [Incorporated by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed on June 21, 2024]* |
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10.7 |
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Lease dated March 15, 2021, between the Company and Nash88 [Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K/A filed on April 22, 2021] |
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10.8 |
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Form of Restricted Stock and Performance Award Agreement under the 2024 Omnibus Stock Incentive Plan* |
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10.9 |
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Form of Non-Employee Director Restricted Stock Unit Agreement under the 2024 Omnibus Stock Incentive Plan* |
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10.10 |
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Executive Employment Agreement, dated March 31, 2025, by and between the Company and Saleh Sagr [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 4, 2025]* |
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14.1 |
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Code of Conduct [Incorporated by reference to Exhibit 14 of the Company's Annual Report on Form 10-K/A for the fiscal year ended January 31, 2004 filed on June 1, 2004] |
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19.1 |
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Insider Trading Policy |
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21.1 |
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Subsidiaries of Perma-Pipe International Holdings, Inc. |
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23.1 |
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Consent of Independent Registered Public Accounting Firm - PricewaterhouseCoopersLLP |
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23.2 |
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Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP |
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24.1 |
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Power of Attorney executed by directors and officers of the Company |
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31.1 |
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Rule 13a - 14(a)/15d - 14(a) Certification (1) Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Rule 13a - 14(a)/15d - 14(a) Certification (2) Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Section 1350 Certifications (1) Chief Executive Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and (2) Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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97.1 |
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Recoupment of Incentive Compensation Following a Restatement[Incorporated by reference to Exhibit 97 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2024 filed on April 26, 2024] |
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101.INS |
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Inline XBRL Instance |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition |
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101.LAB |
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Inline XBRL Taxonomy Extension Labels |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
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*Management contracts and compensatory plans or agreements
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**ITEM16. FORM 10-K SUMMARY**
None.
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**SIGNATURES**
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Perma-Pipe International Holdings, Inc. |
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Date: May 1, 2025 |
/s/David J. Mansfield |
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David J. Mansfield |
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Director, and Chief Executive Officer |
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(Principal Executive Officer) |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
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DAVID J. MANSFIELD |
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Director, and Chief Executive Officer (Principal Executive Officer) |
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MATTHEW E. LEWICKI* |
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Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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May 1, 2025 |
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CYNTHIA BOITER* |
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Director |
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DAVID B. BROWN* |
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Director |
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ROBERT MCNALLY* |
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Director |
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IBRAHIM JAHAM AL KUWARI* |
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Director |
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JON C. BIRO* |
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Director |
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JEROME T. WALKER* |
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Director and Chairman of the Board of Directors |
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*By: |
/s/ David J. Mansfield |
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Individually and as Attorney in Fact |
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David J. Mansfield |
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