What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-04-27 compared with 2022-04-19 · 194 added, 176 removed, 84 unchanged (81% of the section changed)

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The Company's fiscal year ends on January 31.

Years, results and balances described as 2021 and 2020 are for the fiscal years ended January 31, 2022 and 2021, respectively.

Years, results and balances described as 2022  and 

2021  are for the fiscal years ended January 31,  

2023  and 

2022 , respectively.

The Company is engaged in the manufacture and sale of products in one reportable segment:

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Since the Company's revenues are significantly dependent upon discrete projects, the Company's operating results in any reporting period could be negatively impacted as a result of variations in the level of the Company's discrete project orders or delays in the timing of the specific project phases. 

COVID-19 and the Oil and Gas Market

The Company’s results of operations, financial condition, liquidity and cash flow in 2021 were materially adversely affected by the COVID-19 pandemic and the then depressed market prices for oil and gas.

During 2021, the Company experienced improved results as the adverse impact of the COVID-19 pandemic diminished and delayed projects were turned to production. 

Increases in oil prices also helped to improve the Company's results in Canada and in the Middle East.  See Item 1A.

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 this region.

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

Oil and Gas Market

Increases in oil prices helped to improve demand for the Company's products in the oil and gas markets during the year ended January 31,  

2023  as compared to the year ended January 31,  

2022 ,the Company's activity level in Canada has increased significantly due to the rise in energy prices.  

Risk Factors for additional information. 

Liquidity Position

As discussed further below, 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 a portion of the proceeds to repay its borrowings under the Senior Credit Facility.

The Company expects to use its liquidity for strategic investments and 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 further enhanced its liquidity position on September 17, 2021 when 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”).

See further discussion below and in Note 5 - Debt, in the Notes to Consolidated Financial Statements.

Supply Chain Constraints

The Company's global supply chains have been negatively affected by the COVID-19 pandemic.

Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company routinely experiences significant delays and increased prices for raw materials used in our production processes.

To mitigate these impacts, the Company has implemented several strategies, including purchasing from alternative suppliers and planning for material purchases farther 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.

While these impacts are expected to continue into 2022, the resulting future disruptions to the Company’s operations are uncertain.

The Company further enhanced its liquidity position on September 17, 2021 when it executed an extension of a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and lender, 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”). 

January 31, 2023 , the Company had borrowed an aggregate of $ 4.4 million and had $ 9.9 million available under the Renewed Senior Credit Facility. 

See further discussion of the Company's liquidity position as of January 31, 2023  in "Liquidity and capital resources" below. 

Additionally, as of January 31, 2023 , the Company had borrowed $ 5.7 million and had an additional $ 10.2 million of borrowing remaining available under its foreign revolving credit arrangements.

Supply Chain Constraints and Inflationary Impacts

Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company could experience delays and has incurred 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 also adjusts its pricing to customers to offset the impacts of the raw material price increases.

Risk Factors for additional information. 

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Consolidated Results of Operations:

Change favorable

($ in thousands)

(Unfavorable)

Year Ended January 31,

Change favorable/(unfavorable)

Percent of Net Sales

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Interest expense, net

Other income, net

Income/(loss) from operations before income taxes

Income tax expense/(benefit)

Net income/(loss)

2021 Compared to 2020

Net sales were $138.6 million in 2021, an increase of $53.9 million, or 63.6%, from $84.7 million in 2020.

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

Gross profit:

Gross profit increased to $32.5 million, or 23.5% of net sales, in 2021, an increase of $21.4 million, or 191.0%, from $11.2 million, or 13.2% of net sales, in 2020.

This increase was primarily driven by higher sales volumes without a corresponding increase in fixed plant costs. In addition, the Company's U.A.E.

business benefitted from the introduction of a high margin new product line in late 2020. 

General and administrative expenses:

General and administrative expenses were $19.9 million in 2021 compared to $17.2 million in 2020, an increase of $2.7 million, or 15.5%.

This increase was driven primarily by the increase in headcount as operations returned to pre-pandemic levels, as well as incentive compensation associated with the improved financial results in 2021. 

Income before income taxes

Income tax expense

Year ended  

January 31, 2023  Compared to year ended January 31, 2022

Net sales were $ 142.6  million and $ 138.6  million in the years ended January 31, 2023 and 2022 , respectively.

The increase  of $ 4.0 million 

was primarily a result of higher sales volumes in North America and Saudi Arabia.

Gross profit was $ 38.3  million, or 

27%  of net sales and $ 32.5 million, or 

23% of net sales, in the 

years ended January 31, 2023 and 2022 , respectively.

increase of $ 5.8  million was driven by higher sales volumes and improved gross margins as a result of the mix of projects globally.

General and administrative expense

General and administrative expenses were $ 22.0  million and $ 19.9 million in the years ended January 31, 2023 and 2022 , respectively. The 

increase  of $ 2.1 million 

was primarily related to higher compensation costs.

Selling expenses

Selling expenses decreased by $0.8 million, or 15.1%, from $5.3 million in 2020 to $4.5 million in 2021.

This decrease was primarily due to organizational changes during the year. 

Interest expense:

Interest expense increased to $0.8 million in 2021 from $0.4 million in 2020.

This increase is primarily related to the sale and leaseback of the Company's land and buildings in Lebanon, Tennessee in April 2021, whereby a portion of the Company's monthly rent payments are recorded to interest expense.

Other income, net: 

Other income was $1.1 million in 2021 compared to $4.0 million in 2020, a decrease of $2.9 million.

This decrease was primarily the result of income recorded in 2020 for funds received under the PPP program of $3.2 million.

Funds received under the Canadian Emergency Wage Subsidy ("CEWS") and Canadian Emergency Rent Subsidy ("CERS") programs in Canada during 2021 were also less than in 2020, as CEWS and CERS grants ceased in the second quarter of 2021.

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

Income/(loss) from operations before income taxes:

Income from operations before income taxes increased to income of $8.3 million in 2021 compared to a loss of ($7.8) million in 2020.

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

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

business benefitted from the introduction of a new product line in late 2020. 

Income taxes:

The Company's worldwide effective tax rates ("ETR") were 27.2% and 1.7% in 2021 and 2020, respectively. The change in the ETR from the prior year to the current year 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.

As a result of the one-time transition tax from the U.S.

Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company estimates that distributions from foreign subsidiaries will not be subject to incremental U.S.

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.

Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholdings taxes in these jurisdictions are considered. The Company's liability has remained consistent at $0.2 million as of January 31, 2022 and 2021, respectively, related to these taxes.

Selling expenses were $ 5.2  million and $ 4.5  million in the years ended January 31, 2023 and 2022 , respectively. The 

increase  of $ 0.7  million 

was due to the expansion of the Company's sales force in the current period. 

Interest expense, net

Net interest expense was $ 2.1  million and $ 0.8  million in the years ended January 31, 2023 and 2022 , respectively. The 

increase  of $ 1.3 million was related to increased borrowings and higher interest rates. 

Other income, net

Net other income was $ 0.5  million and $ 1.0 million in the years ended January 31, 2023 and 2022 , respectively. The current year amount includes income from the release of the Company's liability for a past project and insurance recovery income, partially offset by a non-cash pre-tax settlement charge resulting from the termination of the Company's pension plan. 

The prior year amount includes the receipt of grants from the Canadian government in response to the COVID-19 pandemic.

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

The Company's worldwide effective tax rates ("ETR") were 37.8%  and 27.2%  in the years ended January 31, 2023 and 2022 , respectively. The change in the ETR was primarily due to additional United States tax expense due to the inclusion of income from foreign jurisdictions with low effective tax rates, inability to recognize tax benefits on losses in the United States due to a full valuation allowance and changes in the mix of income and loss in the various tax jurisdictions.

For further information, see Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.

Net income/(loss):

The resulting net income of $6.1 million in 2021 was a $13.7 million increase from the net loss of ($7.6) million in 2020.

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 in late 2020. 

Net income was $ 5.9  million and $ 6.1  million in the years ended January 31, 2023 and 2022 , respectively.

The increase in net income was a result of the changes discussed above. 

Liquidity and capital resources

Cash and cash equivalents as of January 31, 2022 and 2021 were $8.2 million and $7.2 million, respectively. On January 31, 2022, less than $0.1 million was held in the United States and $8.2 million was held by the Company's foreign subsidiaries.

The Company has no plans to repatriate any foreign earnings, but the potential repatriation of foreign earnings is discussed further in Note 7 - Income taxes, in the Notes to the Consolidated Financial Statements.

Further, the Company's Renewed Senior Credit Facility permits the repatriation of foreign earnings to cure a breach of its debt covenants, should one occur.

See further discussion in Note 5 - Debt, in the Notes to the Consolidated Financial Statements.

The Company's working capital was $40.0 million on January 31, 2022 compared to $25.6 million on January 31, 2021.

Of the working capital components, cash increased $1.0 million primarily as a result of the activity discussed below.

Net cash used in operating activities was $(2.6) million in 2021 compared to net cash provided by operating activities of $0.2 million in 2020.

This decrease of $2.8 million was due primarily to increases in accounts receivable and inventory, partially offset by increases in net income and increases in accounts payable and accrued compensation and payroll taxes in the current period compared to the prior year period.

Net cash used in investing activities during 2021 and 2020 was $2.3 million and $2.0 million, respectively.

The increase of $0.3 million was primarily due to increased capital investment in the Middle East and Canada during the period. 

Net cash provided by financing activities was $6.2 million in 2021 compared to net cash used in financing activities of $4.1 million in 2020.

The main source of cash from financing activities during 2021 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 2021. Additionally, during the current period, the Company had approximately $0.5 million less net repayments under its revolving credit facility, as compared to $3.2 million in the prior year period.

Further, the Company's debt totaled $21.9 million and $13.2 million as of January 31, 2022 and 2021, respectively.

This large increase in the Company's debt is mainly attributable to the sale and leaseback transaction noted above. For additional information, see Note 5 - Debt, in the Notes to Consolidated Financial Statements.

The Company believes it will have the ability to satisfy all working capital needs and any planned capital expenditures for the twelve months following the issuance of these financial statements, based on its existing cash on hand, positive cash flows from operations and available credit facilities.

There was no restricted cash held in the United States on January 31, 2022 or January 31, 2021. Restricted cash held by foreign subsidiaries was $1.6 million and $1.2 million as of January 31, 2022 and 2021, respectively.

Cash and cash equivalents as of 

January 31, 2023  were $ 5.8  million compared to $ 8.2  million on 

January 31, 2022 . On January 31, 2023  $ 0.1  million was held in the United States, and $ 5.7 million was held by the Company's foreign subsidiaries. The Company's working capital was $ 41.9  million on 

January 31, 2023  compared to $ 40.0  million on January 31, 2022 .

January 31, 2023 , the Company had $ 9.9 million of borrowing capacity under the Renewed Senior Credit Facility in North America and $ 10.2 million of borrowing capacity under its foreign revolving credit agreements. 

The Company had $ 4.4 million borrowed under the Renewed Senior Credit Facility and $ 5.7 million borrowed under its foreign revolving credit agreements at 

January 31, 2023 .

Net cash used in operating activities in the years ended January 31, 2023 and 2022  was $ 1.2  million and $ 2.6  million, respectively.

decrease of $ 1.4  million was due primarily to increases in accounts receivable and prepaid expenses and other current assets, partially offset by increases in accounts payable and accrued compensation and payroll taxes in the current year compared to the prior year.

Net cash 

used in investing activities in the years ended January 31, 2023 and 2022  was $ 6.4  million and $ 2.3  million, respectively.

increase  of $ 4.1  million was primarily due to investment in the Middle East and Canada during the period. 

Net cash provided by financing activities in the years ended January 31, 2023 and 2022  was $ 4.5  million and $ 6.2  million, respectively.  The main source of cash from financing activities during the year ended 

January 31, 2023  was net proceeds from borrowings of approximately $ 5.5 million under the Company's credit facilities, as compared to the year ended January 31, 2022 , when net proceeds were approximately $ 0.5 million.

Additionally, during the year ended January 31, 2022 , the Company received net proceeds of $ 9.5 million as a result of the sale and leaseback of its land and buildings in Lebanon, Tennessee (the "Property"), partially offset by payment of $4.8 million to settle the mortgage debt. Debt totaled $ 24.3 million and $ 21.9 million as of 

January 31, 2023  and 

2022 , respectively. For additional information, see Note 5 - Debt, in the Notes to Consolidated Financial Statements.

The Company believes it will have the ability to satisfy all working capital needs and any planned capital expenditures for the twelve months following the issuance of the Consolidated Financial Statements, based on its existing cash on hand, cash flows from operations and available credit facilities.

There was no restricted cash held in the United States on January 31, 2023  or January 31, 2022 . Restricted cash held by foreign subsidiaries was $ 1.0 million and $ 1.6 million as of 

January 31, 2023  and 

2022 , respectively.

Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.

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Revolving line - North America (1)

Mortgages (2)

Mortgage note (2)

Revolving lines - foreign (3)

5 unchanged sentences

Interest obligations exclude floating rate interest on debt payable under the North American revolving line of credit.

Based on the amount of such debt on January 31, 2022, and the weighted average interest rate of 4.25% on that debt, such interest was being incurred at an annual rate of less than $0.1 million.

Based on the amount of such debt on January 31, 2023 , and the weighted average interest rate of 8.50%  on that debt, such interest was being incurred at an annual rate of approximately $ 0.4 million.

Scheduled maturities, excluding interest.

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Refer to Note 7 - Income taxes, in the Notes to Consolidated Financial Statements for a description of the uncertain tax position obligations.

Revolving line - North America . 

On September 20, 2018, the Company and certain of its U.S.

and Canadian subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a three-year $18 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 $18.0 million senior secured revolving credit facility, subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”).

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 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.

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is a borrower under the Renewed Senior Credit Facility (collectively, the “Borrowers”).

The Borrowers are using borrowings under the Renewed Senior Credit Facility (i) to fund capital expenditures;

The Borrowers have used and will continue to use borrowings under the Renewed Senior Credit Facility (i) to fund future capital expenditures;

(ii) to fund ongoing working capital needs;

and (iii) for other corporate purposes, including potentially additional stock repurchases under the Company's $3.0 million stock repurchase program.

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 is based on a fixed charge coverage ratio ("FCCR") range.

Interest on alternate base rate borrowings are based on 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 pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility. 

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

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

The applicable margin is based on a fixed charge coverage ratio ("FCCR") range.

Interest on alternate base rate borrowings is the alternate base rate (as 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 is 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 pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility. 

Subject to certain exceptions, borrowings under the Renewed Senior Credit Facility are secured by substantially all of the North American Loan Parties’

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’

The Renewed Senior Credit Facility matures on September 20, 2026.

Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’

ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions.

In addition, the North American Loan Parties may not make capital expenditures in excess of $5.0 million annually, plus a limited carryover of unused amounts.

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 January 31, 2022, the calculated ratio was substantially 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 January 31, 2022.

The Renewed Senior Credit Facility also contains a free cash flow financial covenant (the "FCF covenant") 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 for any five consecutive days in which 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 January 31, 2023 , the calculated ratio was greater than 1.10 to 1.00.

In order to cure any future breach of the FCF 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 FCF covenant.

The Company was in compliance with these covenants as of January 31, 2023 .

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.

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 January 31, 2022, the Company had borrowed an aggregate of $0.6 million at a rate of 4.25% and had $8.5 million available under the Renewed Senior Credit Facility, before application of a $2.5 million availability block that can be reduced by the Company's financial performance.

This block on the Company's availability under its Renewed Senior Credit Facility was removed completely based on its financial performance as of and for the year ended January 31, 2022.

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 U.A.E.

Dirhams (approximately $2.2 million at January 31, 2022) from a bank in the U.A.E.

The facility has an interest rate of approximately 3.77% 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 May 2022.

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

Dirhams (approximately $5.3 million at January 31, 2022) 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 2023.

The Company has a third credit arrangement for project financing with a bank in the U.A.E. for 3.0 million U.A.E.

Dirhams (approximately $0.8 million at January 31, 2022).

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 January 31, 2023 , the Company had borrowed an aggregate of $ 4.4 million at a rate of 

8.50% and had $ 9.9 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.

Revolving lines -  

 The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E., Egypt, and Saudi Arabia as discussed further below.

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

Dirhams (approximately $ 2.2 million at January 31, 2023 ) from a bank in the U.A.E.

The facility has an interest rate of approximately 

The facility was renewed in July 2022 and is now set to expire in July 2025.

The Company has a revolving line for 

17.5 million U.A.E.

Dirhams (approximately $ 4.8 million at January 31, 2023 ) from a bank in the U.A.E.

The facility has an interest rate of approximately 

8.38%  and expired  in January 2023, however the Company is in the process of renewing it.

T he Company is in regular communication with the bank throughout the renewal process and the facility has continued without interruption or penalty.

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

1.0 million U.A.E.

Dirhams (approximately $ 0.3 million at January 31, 2023 ).

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 4.5% and is expected to expire in June 2023 in connection with the completion of the project. 

The facility has an interest rate of approximately 

8.38% and is expected to expire in June 2023 in connection with the completion of the project.

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

2.0 million U.A.E.

Dirhams (approximately $ 0.5 million at January 31, 2023 ).

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 approxi mately 

8.38% and is expected t o expire in May 2024 in connection with the completion of the project.

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 $ 3.3 million at January 31, 2023 ).

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

The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. The facility has an interest rate of approximately 

8.00% and expired in June 2022, however the Company has started the renewal process for this credit arrangement.

T he Company is in regular communication with the bank throughout the renewal process and the facility has continued without interruption or penalty.

In December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for 28.2 million Egyptian Pounds.

As this project has progressed and the Company has made collections, the facility has decreased to a current amount of 

11.2 million Egyptian Pounds (approximately $ 0.4 million at January 31, 2023 ).

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 

8.00% and expired in  November 2022, however, the Company is in the process of extending it in connection with the completion of the project. T he Company is in regular communication with the bank throughout the process and the facility has continued without interruption or penalty.

In August 2022, 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 $ 3.3 million at January 31, 2023 ).

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

The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable, to be tested annually at fiscal year-end. The facility has an interest rate of approximately 

18.25% and is set to expire in August 2023.

In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi Arabia for a revolving line of 

25.0 million Saudi Riyal (approximately $ 6.7 million at January 31, 2023 ) This credit arrangement is in the form of project financing at rates competitive in Saudi Arabia.

The line is secured by certain assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary.

The facility has an interest rate of approximately 

9.15% and is set to expire in April 2023.

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

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Some credit arrangement covenants require a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt.

In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt by the respective subsidiary.

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 January 31, 2022).

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

The line was secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary.

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 $1.8 million at January 31, 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 June 2022 in connection with the completion of the project.

The Company’s credit arrangements used by its Middle Eastern subsidiaries are subject to renewal on an annual basis. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E. as of January 31, 2022. The Company was not in compliance with a covenant under its 28.2 million Egyptian Pound project financing in Egypt as of January 31, 2022.

The Company did not meet its required debt to equity ratio as of January 31, 2022. The Company has received a waiver from the bank as of January 31, 2022. On January 31, 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 January 31, 2022, the Company's interest rates ranged from 3.77% to 8.0%, with a weighted average rate of 7.31%, and the Company had facility limits totaling $16.4 million under these credit arrangements. As of January 31, 2022, $1.2 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, as of January 31, 2022, the Company had borrowed $6.0 million, and had an additional $6.1 million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of January 31, 2022 and 2021 were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt.

The Company guarantees only a portion of the subsidiaries' debt, including foreign debt.

As of January 31, 2023 , the amount of foreign subsidiary debt guaranteed by the Company was approximately $0.5 million. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of January 31, 2023 , 

with the exception of those arrangements that have expired and have not yet been renewed.

Although certain of the arrangements have expired and the borrowings could be required to be repaid immediately by the banks, the Company is in regular communication with the respective banks throughout the renewal process and all of the arrangements have continued without interruption or penalty.

On January 31, 2023 , interest rates were based on the Emirates Inter Bank Offered Rate plus 3.00% to 3.50% per annum for the U.A.E.

credit arrangements, two of which have a minimum interest rate of 4.50% per annum, based on the stated interest rate in the agreement for the Egypt credit arrangement, and based on the Saudi Inter Bank Offered Rate plus 3.5% for the Saudi Arabia credit arrangement.

Based on these base rates, as of January 31, 2023 , the Company's interest rates ranged from 

8.00% to 18.25% , with a weighted average rate of 10.72% , and the Company had facility limits totaling $ 21.5 million under these credit arrangements.

As of January 31, 2023 , $ 5.6 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, as of January 31, 2023 , the Company had borrowed $ 5.7 million and had an additional $ 10.2 million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of January 31, 2023 and 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 a portion of the proceeds to repay its borrowings under the Senior Credit Facility.

The Company expects to use its liquidity for strategic investments and 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  

On May 1, 2020, the Company entered into a loan agreement under the SBA's 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 were eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds were 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 documentation to the Small Business Administration ("SBA"). On June 24, 2021, the Company was notified by its lender that its PPP loan had been forgiven by the SBA. 

Based on the facts and circumstances of the Company's PPP loan and according to the applicable accounting guidance described herein, the Company elected to account for the PPP loan proceeds as a grant that had 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, net in the consolidated statements of operations. 

Prior a dditional 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 were applied for each month and were 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 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 are recognized in other income, net in the consolidated statements of operations. 

 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 the Property for $10.4 million.

The transaction generated net cash proceeds of $9.1 million.

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. 

The Company used the remaining proceeds to repay its borrowings under the Senior Credit Facility, for strategic investments, and for general corporate needs.

Concurrent with the sale of the Property, the Company entered into a 15-year lease agreement (the “Lease Agreement”), whereby the Company is leasing back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent increases of 2.00%.

Under the Lease Agreement, the Company has four consecutive options to extend the term of the lease by five years for each such option.  

In accordance with ASC 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 8.00% 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 $ 9.2 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of 

January 31, 2023 . The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

Liquidity from Canadian government grants

The Company's subsidiary, Perma-Pipe Canada, Ltd., received relief in the form of grants from the Canadian government of approximately $0.7 million during the year ended January 31, 2022.

Grants to the Company ended in the second quarter of 2021 and no additional grants have been received since then.

The proceeds from these grants were recognized in other (expense)/income in the consolidated statement of operations.

Accounts receivable

In 2013, the Company started a project in the Middle East as a sub-contractor, with billings in the aggregate amount of approximately $41.9 million.

The Company completed all its deliverables in 2015 under the related contract, but the system has not yet been commissioned by the customer.

Nevertheless, the Company has collected approximately $38.3 million as of January 31, 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, $2.0 million of this retention amount was reclassified to a long-term receivable account.

In 2015, the Company completed a project in the Middle East with billings in the aggregate amount of approximately $41.9 million.

The system has not yet been commissioned by the customer.

Nevertheless, the Company has settled approximately $ 39.1 million as of January 31, 2023 , with a remaining balance due in the amount of $ 2.7 million, all of which pertains to retention clauses within the agreements with the Company's customer, and which become payable by the customer when this project is fully tested and commissioned.

Of this retention amount, $ 2.5 million is classified in 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.

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 credit 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 January 31, 2022.

The Company continues to engage with the customer to ensure full payment of open balances, and during June 2022 received a partial payment to settle $0.9 million of the customer's outstanding balances.

Further, the Company has been engaged by the customer to perform additional work in 2023  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 the remaining outstanding balances as of January 31, 2023 .

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.

Stock repurchase plan

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

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 January 31, 2022, the Company had repurchased its stock with a total value of $2.0 million, leaving $1.0 million remaining authorized for potential repurchase under the program. 

On December 7, 2022 the Board of Directors authorized the use of $1.0 million remaining under the share repurchase program previously approved on October 4, 2021 that expired on October 3, 2022.

Share repurchases may be executed through open market or in privately negotiated transactions over the course of the 12 months following the Board of Directors authorization. 

The repurchase program approved on October 4, 2021 authorized the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock.

Stock repurchases were permitted to be executed through open market or privately negotiated transactions, depending upon current market conditions and other factors.

In total, the Company used $2.0 million of the $3.0 million authorized to repurchase its outstanding shares of common stock under the program. 

On July 26, 2022, the Company retired 

239,168  shares of treasury stock previously repurchased under the stock repurchase program.

The retirement was recorded as a reduction to common stock based on the par value of the shares, and the excess over par value was recorded as a decrease to retained earnings in accordance with ASC 505-30, Equity - Treasury Stock .

Critical accounting estimates and policies

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If actual amounts ultimately differ from previous estimates, the revisions are included in the Company's results of operations for the period in which the actual amounts become known.

Revenue recognition. 

In accordance with Accounting Standards Update No.

2014-19, “Revenue from Contracts with Customers”

(“ASC 606”), the Company recognizes revenue when a customer obtains control of promised goods or services. See Note 4 - Revenue recognition, in the Notes to Consolidated Financial Statements, for more detail. 

Over time revenue recognition. 

Certain domestic divisions have contracts that recognize revenues using periodic recognition of income.

Revenue recognition.

In accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers , the Company recognizes revenue for certain contracts when a customer obtains control of promised goods or services. 

Other contracts recognize revenues using periodic recognition of income.

For these contracts, the Company uses the "over time" accounting method.

Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete.

The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract.

Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete. The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract.

Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined.

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Such revisions are recognized in the period in which they are determined.

Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable, the amount can be reliably estimated and the amount is not subject to reversal. See Note 4 - Revenue recognition, in the Notes to Consolidated Financial Statements, for more detail.

Income taxes.

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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-K

Item 7. Management’s Discussion and Analysis