What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-08 compared with 2021-09-08 · 114 added, 108 removed, 124 unchanged (64% of the section changed)

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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.

The Company's results of operations, financial condition, liquidity and cash flow in 2020 and the three months ended April 30, 2021 were adversely affected by the COVID-19 pandemic and the depressed market prices for oil and gas.

Subsequent to April 30, 2021, the Company has experienced fewer COVID-19 related impacts and has seen oil and gas prices increase, which has resulted in increased business activity and improved financial results for the Company. Although the Company believes the general economic environment in which the Company operates has improved since the onset of the COVID-19 pandemic, the Company continues to experience supply chain difficulties as discussed below, and may continue to be adversely affected by COVID-19 in future periods, 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's global supply chains have been adversely affected by the COVID-19 pandemic.

The Company is taking steps to ensure continuity of supply.

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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. 

As a result of the market conditions in 2020 and early 2021, the Company reduced headcount, planned capital expenditures and non-essential operating expenses.

As market conditions have improved and business activity has increased, the Company has increased headcount and resumed its global capital expenditure programs. 

On May 1, 2020, the Company entered into a loan agreement under the PPP and received proceeds of approximately $3.2 million.

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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. 

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 nine months ended October 31, 2021.

Grants to the Company under both programs ended in the second quarter of 2021.

The proceeds from the CEWS and CERS programs were recognized in other income in the consolidated statements of operations. 

RESULTS OF OPERATIONS

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($ in thousands)

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended October 31,

Nine Months Ended October 31,

Change favorable/(unfavorable)

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Net income/(loss)

Three months ended July 31, 2021 ( " current quarter " ) vs.

Three months ended July 31, 2020 ( " prior year quarter " )

Three months ended October 31, 2021 ( " current quarter " ) vs.

Three months ended October 31, 2020 ( " prior year quarter " )

Net sales were $35.2 million in the current quarter, an increase of $14.9 million, or 73%, from $20.3 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. 

The increase was a result of increased sales volumes in both North America and in the Middle East, North Africa and India ("MENA") due to recovery from the effects of the COVID-19 pandemic.

In addition, the Company's United Arab Emirates ("U.A.E.") business benefitted from the introduction of a new product line subsequent to the third quarter of 2020. 

Gross profit:

Gross profit increased to $7.6 million, or 22% of net sales, in the current quarter from $2.9 million, or 14% of net sales, in the prior year quarter.

This increase was driven by higher sales volumes and project mix.

This increase was driven by higher sales volumes and project and product 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. 

General and administrative expenses were relatively consistent, increasing $0.1 million, or 2%, from the prior year quarter. 

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. 

Selling expenses were relatively consistent, increasing slightly to $1.3 million in the current quarter, compared to $1.2 million in the prior year quarter.

Interest expense, net:

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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.

Other income, net remained relatively consistent, increasing to an income of $0.1 million in the current quarter, compared to approximately zero in the prior year quarter. 

Income/(loss) from operations before income taxes:

Income/(loss) from operations before income taxes increased by $4.4 million to income of $1.5 million in the current quarter from a loss of $(2.9) million in the prior year quarter.

The increase was a result of increased sales volumes in both North America and MENA 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. 

business benefitted from the introduction of a new product line subsequent to the third quarter of 2020. 

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's worldwide effective tax rates ("ETR") were 67.6% and 0.8% 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 and the absence of recognizing tax benefits on losses in the United States due to a full valuation allowance applied against its deferred tax assets.

The Company expects that future distributions from foreign subsidiaries will not be subject to incremental U.S.

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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.

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 $0.8 million as of October 31, 2021 related to these taxes.

For further information, see Note 5 - Income taxes, in the Notes to Consolidated Financial Statements.

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.

The resulting net income of $0.5 million in the current quarter was an improvement of $3.4 million over the net loss of $(2.9) million in the prior year quarter.

The increase was a result of increased sales volumes in both North America and MENA 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 " )

business benefitted from the introduction of a new product line subsequent to the third quarter of 2020. 

Nine months ended October 31, 2021 ( " current year-to-date " ) vs.

Nine months ended October 31, 2020 ( " prior year year-to-date " )

Net sales were $99.4 million in the current year-to-date, an increase of $36.0 million, or 57%, from $63.4 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.

The increase was a result of increased sales volumes in both North America and MENA 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. 

business benefitted from the introduction of a new product line subsequent to the third quarter of 2020. 

Gross profit:

Gross profit increased to $22.9 million, or 23% of net sales, in the current year-to-date from $8.8 million, or 14% of net sales, in the prior year year-to-date.

This increase was driven by higher sales volumes and project mix. 

This increase was driven by higher sales volumes and project and product mix. 

General and administrative expenses:

General and administrative expenses were $14.6 million in the current year-to-date, an increase of $1.3 million, or 10%, from $13.3 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. 

This increase was driven by an increase in personnel-related expenses corresponding to the increased business activity 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. 

Selling expenses decreased to $3.4 million in the current year-to-date, compared to $4.2 million in the prior year year-to-date due to organizational changes.

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.

Net interest expense increased from $0.4 million in the prior year year-to-date to $0.7 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. 

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Other income, net decreased to $1.0 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.

This decrease was primarily the result of income recorded in the prior year for funds received under the PPP program of $3.2 million.

Funds received under the CEWS and CERS programs in Canada during the current year were also less than in the prior year.

These decreases were offset by individually immaterial increases in our North American businesses.

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.

Income/(loss) from operations before income taxes increased by $10.5 million to an income of $5.1 million in the current year-to-date from a loss of ($5.4 million) in the prior year year-to-date.

The increase was a result of increased sales volumes in both North America and MENA 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. 

business benefitted from the introduction of a new product line subsequent to the third quarter of 2020. 

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.

The Company's worldwide ETR's were 40.0% and 6.2% 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 and the absence of recognizing tax benefits on losses in the United States due to a full valuation allowance applied against its deferred tax assets.

Net income/(loss):

The resulting net income of $3.1 million in the current year-to-date was an improvement of approximately $8.2 million over the net loss of ($5.1 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.

The increase was a result of increased sales volumes in both North America and MENA due to recovery from the effects of the COVID-19 pandemic.

In addition, the Company's U.A.E.

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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.

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.

Cash and cash equivalents as of October 31, 2021 were $10.0 million compared to $7.2 million on January 31, 2021.

On October 31, 2021, $2.6 million was held in the U.S., and $7.4 million was held at the Company's foreign subsidiaries. The Company's working capital was $38.2 million on October 31, 2021 compared to $25.6 million on January 31, 2021.

Of the working capital components, accounts receivable increased by $12.8 million and cash and cash equivalents increased by $2.8 million as the result of the movements discussed below.

As of October 31, 2021, the Company had $5.9 million of borrowing capacity under its Senior Credit Facility in North America and $9.4 million of borrowing capacity under its foreign revolving credit agreements.

The Company had no borrowings under its Senior Credit Facility and $4.1 million borrowed under its foreign revolving credit agreements at October 31, 2021.

Net cash used in operating activities in the nine months ended October 31, 2021 was less than $0.1 million, as compared to net cash provided by operating activities of $2.0 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 $13.5 million, partially offset by increases in net income and accounts payable of $3.1 million and $5.9 million, respectively.

All of these changes were the result of the increase in business activity during the period.

Net cash used in investing activities in the nine months ended October 31, 2021 and in the prior year period was $1.9 million and $1.6 million, respectively.

This increase was due primarily to capital expenditures of the Company's subsidiary in the U.A.E.

during the period. 

Net cash provided by financing activities in the nine months ended October 31, 2021 was $5.3 million, as compared to net cash used in financing activities of $7.2 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 proceeds from borrowings of approximately $1.9 million under the Senior Credit Facility, as compared to the prior year period, where net repayments were approximately $6.4 million. Debt totaled $10.2 million and $13.2 million as of October 31, 2021 and January 31, 2021, respectively. For additional information, see Note 9 - Debt, in the Notes to Consolidated Financial Statements.

Treasury stock.

On October 4, 2021, the Company's Board of Directors approved a share repurchase program, which authorizes the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock.

Share repurchases are permitted to be executed through open market or privately negotiated transactions over the course of 12 months, depending upon current market conditions and other factors. 

Revolving line - North America.

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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 Company used proceeds from the Senior Credit Facility for on-going working capital needs and to fund capital expenditures, working capital needs and other corporate purposes. Borrowings under the Senior Credit Facility bore 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 was based on average quarterly undrawn availability with respect to the Senior Credit Facility. Additionally, the Company was required to pay a 0.375% per annum facility fee on the unused portion of the Senior Credit Facility. 

As of October 31, 2020, the Company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio ("FCCR") 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 an FCCR 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. 

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.

Revolving lines - foreign .

 The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E.

The Company incurred additional fees over the remainder of the Amendment and Waiver of approximately $0.1 million.

The Amendment and Waiver also eliminated the Company’s ability to make LIBOR borrowings and reduced the overall availability by $2.0 million until maturity. 

On September 17, 2021, the North American Loan Parties executed an extension of the Credit Agreement with PNC, providing for a new five-year $18.0 million senior secured revolving credit facility, subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”).

The Company's obligations 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 will use borrowings under the Renewed Senior Credit Facility (i) to fund future capital expenditures;

(ii) to fund on-going working capital needs;

and (iii) for other corporate purposes, including potentially additional share repurchases.

Borrowings under the Renewed Senior Credit Facility bears interest at a rate equal to an alternate base rate, the London Inter-Bank Offered Rate (“LIBOR”) or a LIBOR successor rate index, plus, in each case, an applicable margin.

The applicable margin will be based on an FCCR range.

Interest on alternate base rate borrowings will be the alternate base rate as defined in 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 LIBOR or LIBOR successor rate borrowings will be the LIBOR rate 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. Additionally, the Borrowers will 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 will be secured by substantially all of the North American Loan Parties’

The Renewed Senior Credit Facility will mature 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 make capital expenditures in excess of $5.0 million annually, plus a limited carryover of unused amounts. 

The Renewed Senior Credit Facility also contains financial covenants requiring the North American Loan Parties to achieve a ratio of its EBITDA to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior Credit Facility to be not less than 1.10 to 1.00 if for any five consecutive days the undrawn availability is less than $3.0 million or any day in which the undrawn availability is less than $2.0 million.

If the covenant is triggered it will be tested for the nine-month period ending October 31, 2021 and the twelve-month period ending January 31, 2022 and thereafter on a trailing twelve-month basis.

As of the most recent reporting date, the calculated ratio was substantially greater than 1.10 to 1.00. 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 October 31, 2021.

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's request, during the continuance of any other event of default.

As of October 31, 2021, the Company had no borrowings and had $5.9 million available under the Renewed Senior Credit Facility, before application of a $3.0 million availability block that can be reduced by the Company's financial performance.

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.

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 Company has a revolving line for 8.0 million U.A.E.

Dirhams (approximately $2.2 million at October 31, 2021) from a bank in the U.A.E.

The facility has an interest rate of approximately 3.46% 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.

This process is expected to be completed in December 2021.

The Company has a second revolving line for 19.5 million U.A.E.

Dirhams (approximately $5.3 million at October 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 Company has a third revolving line for 3.0 million U.A.E. Dirhams (approximately $0.8 million at October 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.

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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).

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 $6.4 million at October 31, 2021).

This credit arrangement is in the form of project financing at rates competitive in Egypt.

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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 10.8% 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).

In January 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for 46.2 million Egyptian Pounds (approximately $2.9 million at October 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 facility has an interest rate of approximately 8.0% and is expected to expire in December 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.

and Egypt as of October 31, 2021. On October 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.

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. 

Additional liquidity from the PPP

Based on these base rates, as of October 31, 2021, the Company's interest rates ranged from 3.46% to 10.8%, with a weighted average rate of 6.51%, and the Company had facility limits totaling $17.6 million under these credit arrangements.

As of October 31, 2021 , $2.9 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, as of October 31, 2021 , the Company had borrowed $4.1 million, and had an additional $9.4 million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of October 31, 2021 and January 31, 2021, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Prior 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.

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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

Prior 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.

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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. 

Grants to the Company under both programs ended in the second quarter of 2021.

The proceeds from CEWS and CERS were recognized in other income in the consolidated statements of operations. 

Accounts receivable: 

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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.

Nevertheless, the Company has since then collected approximately $38.2 million as of October 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.

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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.

As a result, the Company did not reserve any allowance against this amount as of October 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis