Perma-Pipe International Holdings, Inc. 10-K

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   General   Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely," and "probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors, including, but not limited to, those under the headings Cautionary Statements Regarding Forward Looking Information and Item 1A. Risk Factors.   The analysis presented below and discussed in more detail throughout this MD&A was organized to provide instructive information for better understanding the Company's results of operations, financial condition and cash flows. However, this MD&A should be read in conjunction with the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, including the notes thereto and the risk factors contained herein. The Company's fiscal year ends on January 31. Years, 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: Piping Systems. 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.    Ukraine War   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.   See Item 1A. Risk Factors for additional information.    Liquidity Position   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”).  As of  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. See Item 1A. Risk Factors for additional information.    11 Table of Contents   Results of Operations Consolidated Results of Operations:     ($ in thousands)   Year Ended January 31,       2023     2022     Change favorable/(unfavorable)       Amount     Percent of Net Sales     Amount     Percent of Net Sales     Amount   Net sales   $ 142,569             $ 138,552             $ 4,017                                             Gross profit     38,301       27 %     32,530       23 %     5,771                                             General and administrative expenses     21,994       15 %     19,893       14 %     (2,101 )                                           Selling expense     5,163       4 %     4,526       3 %     (637 )                                           Interest expense, net     2,119               828               (1,291 )                                           Other income     533               1,044               (511 )                                           Income before income taxes     9,558               8,327               1,231                                             Income tax expense     3,613               2,265               (1,348 )                                           Net income     5,945               6,062               (117 )   Year ended   January 31, 2023  Compared to year ended January 31, 2022   Net sales   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   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. The  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 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.    12 Table of Contents   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 .   Income taxes   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   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, 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 . As o f  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. This  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. The  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.   13 Table of Contents   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.   The following table summarizes the Company's estimated contractual obligations on January 31, 2023   (In thousands)   Year Ending January 31,   Contractual obligations   Total     2024     2025     2026     2027     2028     Thereafter   Revolving line - North America (1)   $ 4,387     $ 4,387     $ -     $ -     $ -     $ -     $ -   Mortgage note (2)     4,772       251       251       251       251       251       3,517   Revolving lines - foreign (3)     5,714       5,714       -       -       -       -       -   Long-term finance obligation (4)     9,327       112       137       168       201       -       8,709   Term loan - foreign     5       5       -       -       -       -       -   Subtotal     24,205       10,469       388       419       452       251       12,226   Finance lease obligations     145       145       -       -       -       -       -   Operating lease obligations (5)     10,995       1,533       650       443       442       404       7,523   Uncertain tax position obligations (6)     901       -       -       -       -       -       901   Total   $ 36,246     $ 12,147     $ 1,038     $ 862     $ 894     $ 655     $ 20,650     (1) Interest obligations exclude floating rate interest on debt payable under the North American revolving line of credit. Based on the amount of such debt on January 31, 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. (2) Scheduled maturities, excluding interest. (3) Scheduled maturities of foreign revolver line, excluding interest. (4) This schedule represents the cash payments to be made under the lease agreement for the land and buildings sold by the Company in Lebanon, Tennessee and leased back from the purchaser in April 2021. These amounts differ from the liabilities presented as debt in the consolidated balance sheet as the debt amount represents future payments discounted to the present date. Refer to Note 5 - Debt, in the Notes to the Consolidated Financial Statements for further discussion of the transaction.  (5) Minimum contractual amounts, assuming no changes in variable expenses. (6) Refer to Note 7 - Income taxes, in the Notes to Consolidated Financial Statements for a description of the uncertain tax position obligations.   Financing   Revolving lines -   North America .  On September 20, 2018, the Company and certain of its U.S. and Canadian subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a three-year $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. Each of the North American Loan Parties other than Perma-Pipe Canada, Inc. is a borrower under the Renewed Senior Credit Facility (collectively, the “Borrowers”).   14 Table of Contents   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. 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’ assets. The Renewed Senior Credit Facility matures on September 20, 2026. Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties may not 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 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. 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, 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 -   foreign .  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  8.38% . 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. for  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. subsidiary. 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. for  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. subsidiary. 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.   15 Table of Contents   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. The lines are secured by certain equipment, certain assets (such as accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt. The Company guarantees only a portion of the subsidiaries' debt, including foreign debt. 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.    16 Table of Contents   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 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 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. 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 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 .   17 Table of Contents   Critical accounting estimates and policies   The Company's significant accounting policies are discussed in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. The application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the Company, as well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates, the revisions are included in the Company's results of operations for the period in which the actual amounts become known.   Revenue recognition. In accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers , the Company recognizes revenue for certain contracts when a customer obtains control of promised goods or services.  Other contracts recognize revenues 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. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable, the amount can be reliably estimated and the amount is not subject to reversal. See Note 4 - Revenue recognition, in the Notes to Consolidated Financial Statements, for more detail.   Income taxes. Deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary differences have been recorded at the current tax rate. The Company assesses its deferred tax assets for realizability at each reporting period. The Company has not recognized any tax benefits on losses in the United States due to a full valuation allowance applied against its deferred tax assets.   The Company recognizes a tax position in its consolidated financial statements only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, See Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.   New accounting pronouncements. See Recent accounting pronouncements in Note 2 - Significant accounting policies, in the Notes to Consolidated Financial Statements.   Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not applicable.