What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-06-07 compared with 2021-12-08 · 115 added, 157 removed, 81 unchanged (77% of the section changed)

6 unchanged sentences

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 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.

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 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.

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 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. 

COVID-19 Receding Impacts

The Company’s results of operations, financial condition, liquidity and cash flow in early 2021 were materially adversely affected by the COVID-19 pandemic. During 2021, the Company experienced improved results as the adverse impact of the COVID-19 pandemic diminished and delayed projects were turned to production.

The Company is not currently experiencing any significant negative impacts as a result of the COVID-19 pandemic.

The war in Ukraine and resulting Russian oil and gas boycotts have added to the surge in oil prices which has impacted some of the Company's material and freight costs.

However, the Company has not experienced any direct impact from the disruption in region.

The Company does not source materials from this region, nor does it serve the market in any material nature. 

Oil and Gas Market

Increases in oil prices helped to improve demand for the Company's products as reflected in the Company's results during the three months ended April 30, 2022 as compared to the same period in 2021.

In particular, the Company's activity level in Canada has increased significantly due to the rise in energy prices.  

Supply Chain Constraints and Inflationary Impacts

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's production processes.

To mitigate these impacts, the Company has implemented several strategies, including purchasing from alternative suppliers and planning for material purchases further in advance to ensure the Company has materials when needed.

The Company has also updated its pricing to customers to offset the impacts of the raw material price increases.

These impacts are expected to continue throughout 2022. 

Liquidity Position

On April 14, 2021, the Company entered into a purchase and sale agreement to sell its land and buildings in Lebanon, Tennessee (the "Property"), and subsequently enter into a fifteen-year lease agreement to lease back the Property.

The transaction generated net cash proceeds of $9.1 million, following the release of the escrowed amount of $0.4 million in June 2021.

The transaction provided significant liquidity for the Company, which used the proceeds to repay its borrowings under the Senior Credit Facility, for strategic investments, and for general corporate needs.

The Company will lease back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent increases of 2.0%.

The Company enhanced its liquidity position on September 17, 2021 when it executed an extension of the Credit Agreement with PNC, providing for a new five-year $18 million senior secured revolving credit facility, subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”).

See further discussion of the Company's liquidity position as of April 30, 2022 in "Liquidity and capital resources" below.

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.

Since the Company focuses on large discrete projects, operating results can be significantly impacted as a result of large variations in the level of project activity in reporting periods.

($ in thousands)

Three Months Ended October 31,

Nine Months Ended October 31,

Change favorable/(unfavorable)

Three Months Ended April 30,

Change favorable/(unfavorable)

1 unchanged sentence

Percent of Net Sales

General and administrative expenses

2 unchanged sentences

Other income, net

Income/(loss) from operations before income taxes

Income tax expense/(benefit)

Net income/(loss)

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

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

Loss from operations before income taxes

Income tax expense

Three months ended April 30, 2022 ( " current quarter " ) vs.

Three months ended April 30, 2021 ( " prior year quarter " )

Net sales were $31.2 million in the current quarter, an increase of $6.8 million, or 28%, from $24.4 million in the prior year quarter.

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. 

The increase was a result of increased sales volumes, partly due to recovery from the effects of the COVID-19 pandemic. 

Gross profit:

2 unchanged sentences

General and administrative expenses:

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

General and administrative expenses increased $1.2 million, or 28%, from $4.4 million in the prior year quarter to $5.7 million in the current quarter.

Approximately $0.9 million of this increase was the result of increased incentive compensation.

This amount was based on 2021 actual payouts as compared to estimated amounts previously accrued in addition to accruals made for 2022 forecasted results as compared to the prior year quarter, where no incentive compensation was recorded.

The remainder of the increase was due to additions to headcount in support of the Company's business growth.

Selling expenses:

2 unchanged sentences

Net interest expense increased to $0.4 million in the current quarter from $0.2 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. 

This increase was related primarily to the sale leaseback transaction for our operating facility in Tennessee entered into in April 2021. 

Other income, net:

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 subsequent to the third quarter of 2020. 

Income tax expense/(benefit):

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.

Other income, net decreased to an income of less than $0.1 million in the current quarter, compared to approximately $0.4 million in the prior year quarter.

In the prior year quarter, the Company received grants from the Canadian government under the Canadian Emergency Wage Subsidy ("CEWS") and Canadian Emergency Rent Subsidy ("CERS") programs.

The Company was approved for and received approximately $0.3 million and $0.1 million in grants under the CEWS and CERS programs, respectively, during the prior year quarter.

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

Loss from operations before income taxes:

Loss from operations before income taxes decreased by $0.5 million to a loss of $(0.2) million in the current quarter from a loss of $(0.7) million in the prior year quarter.

The improvement was a result of increased sales volumes and margins as described above. 

Income tax expense:

The Company's worldwide effective tax rates ("ETR") were (455.9%) and (24.3%) 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 $0.8 million as of October 31, 2021 related to these taxes.

Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested.

The earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered. As such, the Company has accrued a liability of $0.4 million as of April 30, 2022 related to these taxes.

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

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 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 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 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 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 an increase in personnel-related expenses corresponding to the increased business activity during the period. 

Selling expenses:

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 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. 

Other income, net:

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 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 $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 subsequent to the third quarter of 2020. 

Income tax expense/(benefit):

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 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. 

The resulting net loss of $(0.9) million in the current quarter was relatively consistent with the net loss of $(0.8) million in the prior year quarter. 

Liquidity and capital resources

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.

Cash and cash equivalents as of April 30, 2022 were $6.4 million compared to $8.2 million on January 31, 2022.

On April 30, 2022, $0.6 million was held in the United States, and $5.8 million was held at the Company's foreign subsidiaries. The Company's working capital was $38.7 million on April 30, 2022 compared to $40.0 million on January 31, 2022.

Of the working capital components, accounts receivable decreased by $5.6 million and cash and cash equivalents decreased by $1.8 million as the result of the movements discussed below.

As of April 30, 2022, the Company had $4.9 million of borrowing capacity under its Senior Credit Facility in North America and $6.5 million of borrowing capacity under its foreign revolving credit agreements.

The Company had $5.2 million borrowed under its Senior Credit Facility and $6.1 million borrowed under its foreign revolving credit agreements at April 30, 2022.

Net cash used in operating activities in the three months ended April 30, 2022 and in the prior year period was $7.1 million and $2.4 million, respectively.

This decrease of $4.7 million was due primarily to an increases in costs and estimated earnings in excess of billings on uncompleted contracts and a decrease in accounts receivable, partially offset by an increase in accounts payable and changes in other assets and liabilities in the current period compared to the prior year period. 

Net cash used in investing activities in the three months ended April 30, 2022 and in the prior year period was $0.3 million and $0.4 million, respectively. 

Net cash provided by financing activities in the three months ended April 30, 2022 and in the prior year period was $5.1 million and $3.9 million, respectively.

The main source of cash from financing activities during the period was net proceeds from borrowings of approximately $5.3 million under the Senior Credit Facility, as compared to the prior year period, where net repayments were approximately $4.1 million. The increase in cash provided by financing activities was offset by net proceeds of $9.1 million as a result of the sale and leaseback of the Company's land and buildings in Lebanon, Tennessee during the prior year period.

Debt totaled $26.3 million and $21.9 million as of April 30, 2022 and January 31, 2022, respectively. For additional information, see Note 9 - Debt, in the Notes to Consolidated Financial Statements.

Treasury stock.

There were no purchases of shares of the Company's common stock made by or on behalf of the Company during the three months ended April 30, 2022.

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.

Stock 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. As of April 30, 2022, the Company has used $2.0 million of the $3.0 million authorized to repurchase its outstanding shares of common stock.

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 $18.0 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”).

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. 

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 U.A.E.

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 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”).

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 million 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 Parties executed an extension of the Credit Agreement with PNC, providing for a new five-year $18 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.

2 unchanged sentences

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.

(ii) to fund ongoing working capital needs;

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

Borrowings under the Renewed Senior Credit Facility bears interest at a rate equal to an alternate base 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’

2 unchanged sentences

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.

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.

Further, the North American Loan Parties may not make repurchases of the Company's common stock in excess of $3.0 million. 

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.

As of April 30, 2022, the calculated ratio was greater than 1.10 to 1.00.

In order to cure any future breach of the FCCR 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 Renewed Senior Credit Facility 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 April 30, 2022.

The Renewed Senior Credit Facility contains customary events of default.

2 unchanged sentences

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.

As of April 30, 2022, the Company had borrowed an aggregate of $5.2 million at a rate of 4.5% and had $4.9 million available under the Renewed Senior Credit Facility.

As of January 31, 2022, the Company had borrowed an aggregate of $0.6 million and had $8.5 million available under the Renewed Senior Credit Facility, before application of a $2.5 million availability block that has subsequently been removed completely based on the Company's financial performance.

Revolving lines - foreign . 

2 unchanged sentences

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.

Dirhams (approximately $2.2 million at April 30, 2022) from a bank in the U.A.E.

The facility has an interest rate of approximately 4.54% and was originally set to expire in November 2020, however, the expiration was extended due to the COVID-19 pandemic.

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 December 2021.

This process is expected to be completed in June 2022.

The Company has a second revolving line for 17.5 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 U.A.E. Dirhams (approximately $0.8 million at October 31, 2021) from a bank in the U.A.E.

Dirhams (approximately $4.8 million at April 30, 2022) from a bank in the U.A.E.

The facility has an interest rate of approximately 4.50% and is set to expire in January 2023.

The Company has a third credit agreement for project financing with a bank in the U.A.E.

for 3.0 million U.A.E.

Dirhams (approximately $0.8 million at April 30, 2022).

This credit arrangement is in the form of project financing at rates competitive in the U.A.E.

The line is secured by the contract for a project being financed by the Company's U.A.E.

The facility has an interest rate of approximately 4.50% and is expected to expire in June 2023 in connection with the completion of the project.

These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates.

2 unchanged sentences

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 $6.4 million at October 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 $5.4 million at April 30, 2022).

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

1 unchanged sentence

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 8.00% and is set to expire in August 2022.

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).

In December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for 28.2 million Egyptian Pounds (approximately $1.5 million at April 30, 2022).

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 December 2021 in connection with the completion of the project.

The facility has an interest rate of approximately 8.00% and is expected to expire in June 2022 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 guarantees only a portion of the subsidiaries' debt, including foreign debt.

As of April 30, 2022, the amount of foreign subsidiary debt guaranteed by the Company was approximately $0.1 million. 

The Company was in compliance with the covenants under the credit arrangements in 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.

and Egypt as of April 30, 2022. On April 30, 2022, 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 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.

Interest on the loan accrued at a fixed interest rate of 1.0%.

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").

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. 

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.

Based on these base rates, as of April 30, 2022, the Company's interest rates ranged from 4.50% to 8.0%, with a weighted average rate of 7.63%, and the Company had facility limits totaling $14.9 million under these credit arrangements.

As of April 30, 2022, $2.3 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, as of April 30, 2022, the Company had borrowed $6.1 million, and had an additional $6.5 million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of April 30, 2022 and January 31, 2022, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Finance obligation - buildings and land.

 On April 14, 2021, the Company entered into a purchase and sale agreement (the "Purchase and Sale Agreement").

Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its land and buildings in Lebanon, Tennessee (the "Property") for a purchase price of $10.4 million.

The transaction generated net cash proceeds of $9.1 million, following the release of the escrowed amount in June 2021 discussed below.

The Company used the 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 will lease back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent increases of 2.0%.

Under the Lease Agreement, the Company has four consecutive options to extend the term of the lease by five years for each such option. Concurrently with the sale of the Property, the Company paid off the approximately $0.9 million remaining on the mortgage note on the Property to its lender.

At closing, $0.4 million was placed in a short-term escrow account to cover certain post-closing contingencies that may arise.

The contingencies were resolved in May 2021 and the Company received the escrowed funds in June 2021.

In accordance with ASC Topic 842, "Leases", this transaction was recorded as a failed sale and leaseback as the present value of lease payments exceeded substantially all of the fair value of the underlying asset.

The Company utilized an incremental borrowing rate of 8.0% to determine the finance obligation to record for the amounts received and will continue to depreciate the assets. The current portion of the finance obligation of $0.1 million is recognized in current maturities of long-term debt and the long-term portion of $9.3 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of January 31, 2022. The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

Prior additional liquidity from the CEWS and CERS Programs

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 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.

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 year ended January 31, 2022.

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. 

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

Accounts receivable: 

1 unchanged sentence

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 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.

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.

Nevertheless, the Company has collected approximately $38.3 million as of April 30, 2022, with a remaining balance due in the amount of $3.6 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, 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, $1.4 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 October 31, 2021.

The Company continues to engage with the customer to ensure full payment of open balances, and during April 2022 received an updated acknowledgment of the outstanding balances and assurances of payment from the customer.

Further, the Company has been engaged by the customer to perform additional work in 2022 under customary trade terms that supports the continued cooperation between the Company and the customer.

As a result, the Company did not reserve any allowance against this amount as of April 30, 2022.

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.

6 unchanged sentences

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