Perma-Pipe International Holdings, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ( " MD&A " )   The statements contained under the caption MD&A and other information contained elsewhere in this quarterly report, 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, 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 heading Item 1A. Risk Factors included in the Company's latest Annual Report on Form 10-K.    This MD&A should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, contained elsewhere in this report. Percentages set forth below in the MD&A have been rounded to the nearest percentage point, and may not exactly correspond to the comparative data presented.   COVID-19 and Depressed Oil and Gas Market Impact   The Company's results of operations, financial condition, liquidity and cash flow in 2020 and the three months ended April 30, 2021 were materially adversely affected by the COVID-19 pandemic and the depressed market prices for oil and gas, and may continue to be materially adversely affected, the extent to which remains unclear at this time. See Item 1A. Risk Factors included in the Company's latest Annual Report on Form 10-K for additional information.   As of the date of filing this Form 10-Q, all of the Company’s plants are operating. The Company's global supply chains have been adversely affected by the COVID-19 pandemic and the effects of the winter weather events in the Gulf Coast region. The Company is taking steps to ensure continuity of supply. Due to the unprecedented actions taken to stem the spread of the virus and the uncertainty of the duration and impact of additional actions that may be required, the resulting future disruptions to the Company’s operations are uncertain.   In response to the factors noted above that negatively impacted our business in 2020 and early 2021, the Company has updated its forecasts more frequently to determine the continuing financial impact of these events on the Company’s results of operations, financial condition and liquidity. As a result of the anticipated conditions, the Company reduced headcount, planned capital expenditures and non-essential operating expenses.    On May 1, 2020, the Company entered into a loan agreement under the PPP and received proceeds of approximately $3.2 million. Interest on the loan accrued at a fixed interest rate of 1.0%. Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses. During the three months ended July 31, 2020, the Company used all of the PPP loan proceeds to pay for qualified expenses, 100% of which were used for payroll related expenses.  The Company submitted its application and supporting documentation for forgiveness to its bank, which submitted the application and supporting documents to the Small Business Administration ("SBA").   Based on the facts and circumstances of the Company's PPP loan and according to the applicable accounting guidance described herein, the Company has elected to account for the PPP loan proceeds as a grant that has reasonable assurance of being forgiven. As such, the Company recognized the proceeds in earnings during the year ended January 31, 2021. The amounts were recognized in other income in the consolidated statements of operations. On June 24, 2021, the Company was notified by its lender that its PPP loan had been forgiven by the SBA.    Beginning in April 2020, the Company's subsidiary, Perma-Pipe Canada, Ltd. ("PPCA"), applied for relief in the form of grants from the Canadian government under the Canadian Emergency Wage Subsidy ("CEWS") program. Based on the program rules, the grants are applied for each month and are granted based on the amount of eligible employee expenses incurred over the previous month. Beginning in October 2020, PPCA also applied for grants under the Canadian Emergency Rent Subsidy ("CERS") program. PPCA was approved for and received approximately $0.6 million and $0.1 million in grants under the CEWS and CERS programs, respectively, during the six months ended July 31, 2021. Both programs are expected to continue through September 2021. PPCA plans to apply for additional grants under the program, however there is no guarantee that PPCA will be granted any additional funds under the program. The proceeds from the CEWS and CERS programs are recognized in other income in the consolidated statements of operations.    19 Table of Contents   RESULTS OF OPERATIONS   The Company is engaged in the manufacture and sale of products in one reportable segment. Since the Company focuses on large discrete projects, operating results are significantly impacted as a result of large variations in the level of project activity in reporting periods.   ($ in thousands)   Three Months Ended July 31,     Six Months Ended July 31,       2021     2020     Change favorable/(unfavorable)     2021     2020     Change favorable/(unfavorable)       Amount     Percent of Net Sales     Amount     Percent of Net Sales     Amount     Amount     Percent of Net Sales     Amount     Percent of Net Sales     Amount   Net sales   $ 39,804             $ 20,364             $ 19,440     $ 64,227             $ 43,106             $ 21,121                                                                                     Gross profit     10,743       27 %     2,364       12 %     8,379       15,248       24 %     5,831       14 %     9,417                                                                                     General and administrative expenses     5,602       14 %     4,488       22 %     (1,114 )     10,008       16 %     8,792       20 %     (1,216 )                                                                                   Selling expense     1,053       3 %     1,331       7 %     278       2,094       3 %     2,978       7 %     884                                                                                     Interest expense, net     268               118               (150 )     446               304               (142 )                                                                                   Other income, net     457               3,739               (3,282 )     899               3,674               (2,775 )                                                                                   Income/(loss) from operations before income taxes     4,277               166               4,111       3,599               (2,569 )             6,168                                                                                     Income tax expense/(benefit)     861               (101 )             (962 )     1,026               (315 )             (1,341 )                                                                                   Net income/(loss)     3,416               267               3,149       2,573               (2,254 )             4,827     Three months ended July 31, 2021 ( " current quarter " ) vs. Three months ended July 31, 2020 ( " prior year quarter " )   Net sales:   Net sales were $39.8 million in the current quarter, an increase of $19.4 million, or 95%, from $20.4 million in the prior year quarter. The increase was a result of increased sales volumes in both North America and the Middle East due to recovery from the effects of the COVID-19 pandemic. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line.    20 Table of Contents   Gross profit:   Gross profit increased to $10.7 million, or 27% of net sales, in the current quarter from $2.4 million, or 12% of net sales, in the prior year quarter. This increase was driven by higher sales volumes and project mix.   General and administrative expenses:   General and administrative expenses increased $1.1 million, or 25%, from the prior year quarter. This increase was driven by personnel related expense increases corresponding to the business activity increases during the period.    Selling expenses:   Selling expenses decreased to $1.1 million in the current quarter, compared to $1.3 million in the prior year quarter due primarily to organizational changes in the roles of certain corporate employees.    Interest expense, net:   Net interest expense increased to $0.3 million in the current quarter from $0.1 million in the prior year quarter . This increase was primarily related to the sale leaseback transaction for our operating facility in Tennessee entered into in April 2021.    Other income, net:   Other income, net decreased to an income of $0.5 million in the current quarter, compared to income of $3.7 million in the prior year quarter. This decrease was a result of income recorded in the prior year quarter for funds received under the PPP program of $3.2 million.   Income from operations before income taxes:   Income from operations before income taxes increased by $4.1 million to $4.3 million in the current quarter from $0.2 million in the prior year quarter. The increase was a result of increased sales volumes in both North America and the Middle East due to recovery from the effects of the COVID-19 pandemic. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line.    Income tax expense/(benefit):   The Company's worldwide effective tax rates ("ETR") were 20.1% and (56.8%) in the current quarter and the prior year quarter, respectively. The change in the ETR from the prior year quarter to the current year quarter is largely due to changes in the mix of income and loss in various jurisdictions.   The Company expects that future distributions from foreign subsidiaries will not be subject to incremental U.S. federal tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends-received deduction. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested, and earnings in its Indian subsidiary are partially permanently reinvested. The earnings from these subsidiaries will be subject to tax in their local jurisdiction, and the impact of Indian, Canadian and Egyptian withholding taxes will be recorded. As such, the Company has accrued a liability of $0.5 million as of July 31, 2021 related to these taxes.   For further information, see Note 5 - Income taxes, in the Notes to Consolidated Financial Statements.   Net income: The resulting net income of $3.4 million in the current quarter was an improvement of $3.1 million over the $0.3 million in the prior year quarter. The increase was a result of increased sales volumes in both North America and the Middle East due to recovery from the effects of the COVID-19 pandemic. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line.  Six months ended July 31, 2021 ( " current year-to-date " ) vs. Six months ended July 31, 2020 ( " prior year year-to-date " )   Net sales:   Net sales were $64.2 million in the current year-to-date, an increase of $21.1 million, or 49%%, from $43.1 million in the prior year year-to-date. The increase was a result of increased sales volumes in both North America and the Middle East due to recovery from the effects of the COVID-19 pandemic. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line.    21 Table of Contents   Gross profit:   Gross profit increased to $15.2 million, or 24% of net sales, in the current year-to-date from $5.8 million, or 14% of net sales, in the prior year year-to-date. This increase was driven by higher sales volumes and project mix.    General and administrative expenses:   General and administrative expenses were $10.0 million in the current year-to-date, an increase of $1.2 million, or 14%, from $8.8 million in the prior year year-to-date. This increase was driven by personnel related expense increases corresponding to the business activity increases during the period.    Selling expenses:   Selling expenses decreased to $2.1 million in the current year-to-date, compared to $3.0 million in the prior year year-to-date due to organizational changes in the roles of certain corporate employees as well as the continued effects of cost reduction strategies implemented during the COVID-19 pandemic.    Interest expense, net:   Net interest expense remained relatively consistent, increasing slightly from $0.3 million in the prior year year-to-date to $0.4 million in the current year-to-date. This increase is primarily related to the sale leaseback transaction for our operating facility in Tennessee entered into in April 2021.    Other income, net:   Other income, net decreased to $0.9 million in the current year-to-date, compared to $3.7 million in the prior year year-to-date. This decrease was a result of income recorded in the prior year for funds received under the PPP program of $3.2 million, offset by funds received under the CEWS and CERS programs in Canada.   Income/(loss) from operations before income taxes:   Income/(loss) from operations before income taxes increased by $6.2 million to income of $3.6 million in the current year-to-date from a loss of ($2.6 million) in the prior year year-to-date. The increase was a result of increased sales volumes in both North America and the Middle East due to recovery from the effects of the COVID-19 pandemic. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line.    Income tax expense/(benefit):   The Company's worldwide effective tax rates ("ETR") were 28.5% and 12.3% in the current year-to-date and the prior year year-to-date, respectively. The change in the ETR from the prior year to the current year was largely due to changes in the mix of income and loss in various jurisdictions.   Net income/(loss):   The resulting net income of $2.6 million in the current year-to-date was an improvement of approximately $4.9 million over the net loss of ($2.3 million) in the prior year year-to-date. The increase was a result of increased sales volumes in both North America and the Middle East due to recovery from the effects of the COVID-19 pandemic. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line.    Liquidity and capital resources   Cash and cash equivalents as of July 31, 2021 were $5.5 million compared to $7.2 million on January 31, 2021. On July 31, 2021, $1.5 million was held in the U.S., and $4.0 million was held at the Company's foreign subsidiaries. The Company's working capital was $38.9 million on July 31, 2021 compared to $25.6 million on January 31, 2021. Of the working capital components, accounts receivable increased by $18.5 million and cash and cash equivalents decreased by $1.7 million as the result of the movements discussed below. As of July 31, 2021, the Company had $10.3 million of borrowing capacity under its Senior Credit Facility in North America and $10.1 million of borrowing capacity under its foreign revolving credit agreements. The Company had $3 thousand borrowed under its Senior Credit Facility $2.5 million borrowed under its foreign revolving credit agreements at July 31, 2021.   22 Table of Contents   Net cash used in operating activities in the six months ended July 31, 2021 was $5.2 million, as compared to net cash provided by operating activities of $2.6 million in the prior year period. This decrease in cash from operations was due primarily to increases in net working capital requirements in the current period compared to the prior year period due to increased activity as a result of post-COVID-19 economic recovery. The largest component of this increase was an increase in accounts receivable resulting in cash used of $19.3 million, partially offset by increases in net income and accounts payable of $2.6 million and $6.4 million, respectively. All of these changes were the result of the increase in project activity during the period.   Net cash used in investing activities in the six months ended July 31, 2021 and in the prior year period was $1.1 million and $0.8 million, respectively. This increase was due primarily to our Canadian subsidiary entering into two capital equipment leases during the quarter.    Net cash provided by financing activities in the six months ended July 31, 2021 was $4.5 million, as compared to net cash used in financing activities of $6.3 million in the prior year period. The main source of cash from financing activities during the period was net proceeds of $8.6 million as a result of the sale and leaseback of the Company's land and buildings in Lebanon, Tennessee during the period. This increase was also impacted by increased net repayments of approximately $3.6 million under the Senior Credit Facility, as compared to the prior year period, where net repayments were approximately $5.8 million. Debt totaled $8.6 million and $13.2 million as of July 31, 2021 and January 31, 2021, respectively. For additional information, see Note 9 - Debt, in the Notes to Consolidated Financial Statements.   Revolving line - 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 $18.0 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”).   The Company has used proceeds from the Senior Credit Facility for on-going working capital needs, and expects to continue using this facility to fund future capital expenditures, working capital needs and other corporate purposes. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate or London Interbank Offered Rate ("LIBOR"), plus, in each case, an applicable margin. The applicable margin is based on average quarterly undrawn availability with respect to the Senior Credit Facility.  Interest on alternate base rate borrowings are generally payable monthly in arrears and interest on LIBOR borrowings are generally payable in arrears on the last day of each interest period.  Additionally, the Company is required to pay a 0.375% per annum facility fee on the unused portion of the Senior Credit Facility.  The facility fee is payable quarterly in arrears.   Subject to certain exceptions, borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company and certain of the assets of its North American subsidiaries. The North American Loan Parties’ obligations under the Senior Credit Facility are guaranteed by Perma-Pipe Canada, Inc. The Senior Credit Facility will mature on September 20, 2021. The Company has engaged a consultant to assist with the search for, communication with and selection of a new lender or a replacement facility with PNC. The Company is in ongoing discussions with PNC to extend our current credit agreement for a multi-year term, which we expect to finalize prior to our current credit agreement's expiration on September 20, 2021.   Subject to certain qualifications and exceptions, the 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 cannot allow capital expenditures to exceed $3.0 million annually (plus a limited carryover of unused amounts).   The Senior Credit Facility also contains financial covenants requiring (i) the North America Loan Parties to achieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility (excluding from the calculation items related to the financial performance of the Company’s foreign subsidiaries not party to the Credit Agreement) ("fixed charge coverage ratio") to be not less than 1.10 to 1.00  at each quarter end on a trailing four-quarter basis; and (ii) the Company and its subsidiaries (including the Company’s foreign subsidiaries not party to the Credit Agreement) to achieve a fixed charge coverage ratio of not less than 1.10 to 1.00 at each quarter end on a trailing four-quarter basis.   As of October 31, 2020, the Company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the trailing four-quarters ended October 31, 2020 under its Credit Agreement for both the North American Loan Parties and the Company and its subsidiaries. On December 18, 2020, the Company entered into the First Amendment and Waiver to the Revolving Credit and Security Agreement (“Amendment and Waiver”) with PNC, which (i) reflected PNC’s waiver of the Company’s failure to maintain a fixed charge coverage ratio of 1.10 to 1.00 as of October 31, 2020 on a trailing four quarter basis as required under the Company’s Credit Agreement and (ii) further amended certain future fixed charge coverage ratio covenants requirements under the Credit Agreement as described below.  Additionally, the Company was also required to have received, and applied to reduce the outstanding balance under the Credit Agreement, $1.0 million from one of its foreign subsidiaries, Perma-Pipe Middle East FZC, in the UAE. The transfer and repayment occurred on December 17, 2020 and did not cause the Company to incur any additional fees or taxes, nor did it force the Company to change any of its assertions with regards to permanent reinvestment in any of its foreign subsidiaries. The Company will incur additional fees over the remainder of the Amendment and Waiver of approximately $0.1 million. The Amendment and Waiver also eliminates the Company’s ability to make LIBOR borrowings and reduces the overall availability by $2.0 million until maturity.    The amended fixed charge coverage ratio requirements for the Company and its subsidiaries under the Amendment and Waiver are 1.25 to 1.00 for the nine-month period ending July 31, 2021. The amended fixed charge coverage ratio requirements for the North American Loan Parties under the Amendment and Waiver are 1.10 to 1.00 for the nine-month period ending July 31, 2021.  In order to cure any future breach of the fixed charge coverage ratio covenant 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 Credit Agreement in an amount which, when added to the amount of the Company’s Consolidated EBITDA, would result in pro forma compliance with the covenant. The Company was in compliance with these covenants as of July 31, 2021.   As of July 31, 2021, the Company had $3 thousand in borrowings and had $10.3 million available under the Senior Credit Facility, before application of the $2.0 million availability block noted above in connection with the Amendment and Waiver. As of January 31, 2021, the Company had borrowed an aggregate of $2.8 million and had $1.7 million available under the Senior Credit Facility.   23 Table of Contents   Revolving lines - foreign .  The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E. and Egypt as discussed further below.   The Company has a revolving line for 8.0 million Dirhams (approximately $2.2 million at July 31, 2021) from a bank in the U.A.E. The facility has an interest rate of approximately 3.58% and was originally set to expire in November 2020, however, the expiration was extended due to the COVID-19 pandemic and inability to finalize renewal documentation prior to that time. The Company has submitted final documentation to complete the renewal process, and is awaiting official notification from the bank of the renewal completion. This process is expected to be completed in September 2021.   The Company has a second revolving line for 19.5 million Dirhams (approximately $5.3 million at July 31, 2021) from a bank in the U.A.E. The facility has an interest rate of approximately 4.5% and is set to expire in January 2022.   The Company has a third revolving line for 3.0 million Dirhams (approximately $0.8 million at July 31, 2021) from a bank in the U.A.E. The facility has an interest rate of approximately 4.5% and is set to expire in January 2022.   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.   In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 100.0 million Egyptian Pounds (approximately $6.2 million at July 31, 2021). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line was 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. The facility has an interest rate of approximately 11.0% and is set to expire in August 2022.   In January 2021, the Company entered into a second credit arrangement for project financing with a bank in Egypt for 46.0 million Egyptian Pounds (approximately $2.9 million at July 31, 2021). 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 8.0% and is expected to expire in September 2021 in connection with the completion of the project.   The Company's credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. The Company guarantees the subsidiaries' debt including all foreign debt.   The Company was in compliance with the covenants under the credit arrangements in the U.A.E. and Egypt as of July 31, 2021. On July 31, 2021, interest rates were based on the Emirates Inter Bank Offered Rate plus 3.0% to 3.5% per annum for the U.A.E. credit arrangements, two of which have a minimum interest rate of 4.5% per annum, and based on the stated interest rate in the agreement for the Egypt credit arrangement. Based on these base rates, as of July 31, 2021, the Company's interest rates ranged from 3.57% to 8.0%, with a weighted average rate of 5.89%, and the Company had facility limits totaling $17.6 million under these credit arrangements. A s of July 31, 2021 , $5.1 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. Additionally, as of July 31, 2021 , the Company had borrowed $2.5 million, and had an additional $10.1 million of borrowing remaining available under the foreign revolving credit arrangements. The foreign revolving lines balances as of July 31, 2021 and January 31, 2021, were included as current maturities of long-term debt in the Company's consolidated balance sheets.    24 Table of Contents   Additional liquidity from the PPP On May 1, 2020, the Company entered into a loan agreement under the PPP and received proceeds of approximately $3.2 million. Interest on the loan accrued at a fixed interest rate of 1.0%. Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses. During the three months ended July 31, 2020, the Company used all of the PPP loan proceeds to pay for qualified expenses, 100% of which were used for payroll related expenses.  The Company submitted its application and supporting documentation for forgiveness to its bank, which submitted the application and supporting documents to the Small Business Administration ("SBA").   Based on the facts and circumstances of the Company's PPP loan and according to the applicable accounting guidance described herein, the Company has elected to account for the PPP loan proceeds as a grant that has reasonable assurance of being forgiven. As such, the Company recognized the proceeds in earnings during the year ended January 31, 2021. The amounts were recognized in other income in the consolidated statements of operations. On June 24, 2021, the Company was notified by its lender that its PPP loan had been forgiven by the SBA.    Additional liquidity from the CEWS Program Beginning in April 2020, the Company's subsidiary, PPCA, applied for relief in the form of grants from the Canadian government under the CEWS program. Based on the program rules, the grants are applied for each month and are granted based on the amount of eligible employee expenses incurred over the previous month. Beginning in October 2020, PPCA also applied for grants under the CERS program. PPCA was approved for and received approximately $0.6 million and $0.1 million in grants under the CEWS and CERS programs, respectively, during the six months ended July 31, 2021. Both programs are expected to continue through September 2021. The proceeds from CEWS and CERS are recognized in other income in the consolidated statements of operations.    Accounts receivable:  In 2013, the Company started a project in the Middle East as a sub-contractor, with billings in the aggregate amount of approximately $41.9 million. The Company completed all of its deliverables in 2015 under the related contract, but the system has not yet been commissioned by the customer. Nevertheless, the Company has since then collected approximately $38.2 million as of July 31, 2021, with a remaining balance due in the amount of $3.7 million. Included in this balance is an amount of $3.4 million, which pertains to retention clauses within the agreements of the Company's customer (contractor), and which become payable by the customer when this project is fully tested and commissioned. In the absence of a firm date for the final commissioning of the project, and due to the long-term nature of this receivable, $2.1 million of this retention amount was reclassified to a long-term receivable account.   The Company has been engaged in ongoing active efforts to collect the outstanding amount. During the first quarter of 2021, the Company received approximately $0.1 million from the customer and additional receipts are expected throughout the rest of 2021. The Company continues to engage with the customer to ensure full payment of open balances, and during August 2021 received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. As a result, the Company did not reserve any allowance against this amount as of July 31, 2021. However, if the Company’s 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.   CRITICAL ACCOUNTING POLICIES AND ESTIMATES   Critical accounting policies are described in Item 7. MD&A and in the Notes to the Consolidated Financial Statements for the year ended January 31, 2021 contained in the Company's latest Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of critical accounting policies may require management to make assumptions, judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.   25 Table of Contents