Perma-Pipe International Holdings, Inc. 10-Q

Item 1. Financial Statements   PERMA-PIPE INTERNATIONAL HOLDINGS, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)       Three Months Ended April 30,       2023     2022   Net sales   $ 29,657     $ 31,222   Cost of sales     22,883       24,173   Gross profit     6,774       7,049                     Operating expenses                 General and administrative expenses     5,460       5,650   Selling expenses     1,239       1,239   Total operating expenses     6,699       6,889                     Income from operations     75       160                     Interest expense, net     512       368   Other income     72       49   Loss before income taxes     ( 365 )     ( 159 )                   Income tax expense     758       726                     Net loss   $ ( 1,123 )   $ ( 885 )                   Weighted average common shares outstanding                 Basic     8,004       7,919   Diluted     8,004       7,919                     Loss per share                 Basic   $ ( 0.14 )   $ ( 0.11 ) Diluted   $ ( 0.14 )   $ ( 0.11 )   See accompanying notes to consolidated financial statements. Note: Per share calculations could be impacted by rounding.     2 Table of Contents     PERMA-PIPE INTERNATIONAL HOLDINGS, INC.  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (In thousands)       Three Months Ended April 30,       2023     2022   Net loss   $ ( 1,123 )   $ ( 885 )                   Other comprehensive loss                 Foreign currency translation adjustments, net of tax     ( 437 )     ( 932 ) Comprehensive loss   $ ( 1,560 )   $ ( 1,817 )   See accompanying notes to consolidated financial statements.   3 Table of Contents     PERMA-PIPE INTERNATIONAL HOLDINGS, INC.  CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)       April 30, 2023     January 31, 2023         (Unaudited)           ASSETS                 Current assets                 Cash and cash equivalents   $ 8,776     $ 5,773   Restricted cash     1,009       1,020   Trade accounts receivable, less allowance for credit losses of $ 676 at April 30, 2023 and $ 612 at January 31, 2023     39,897       42,010   Inventories, net     12,878       14,738   Prepaid expenses and other current assets     8,099       7,357   Unbilled accounts receivable     11,907       11,634   Costs and estimated earnings in excess of billings on uncompleted contracts     2,974       3,126   Total current assets     85,540       85,658   Long-term assets                 Property, plant and equipment, net of accumulated depreciation     28,562       26,518   Operating lease right-of-use asset     4,338       4,527   Deferred tax assets     636       696   Goodwill     2,199       2,227   Other long-term assets     3,518       3,340   Total long-term assets     39,253       37,308   Total assets   $ 124,793     $ 122,966   LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities                 Trade accounts payable   $ 14,317     $ 14,754   Accrued compensation and payroll taxes     1,544       1,179   Commissions and management incentives payable     3,571       2,735   Revolving line - North America     4,067       4,387   Current maturities of long-term debt     9,335       6,227   Customers' deposits     1,578       1,951   Outside commission liability     2,406       2,029   Operating lease liability short-term     823       912   Other accrued liabilities     3,896       5,549   Billings in excess of costs and estimated earnings on uncompleted contracts     3,449       1,743   Income taxes payable     2,013       2,324   Total current liabilities     46,999       43,790   Long-term liabilities                 Long-term debt, less current maturities     4,277       4,389   Long-term finance obligation     9,184       9,215   Deferred compensation liabilities     1,678       1,608   Deferred tax liabilities     915       909   Operating lease liability long-term     4,210       4,252   Other long-term liabilities     1,077       1,019   Total long-term liabilities     21,341       21,392   Stockholders' equity                 Common stock, $ .01 par value, authorized 50,000 shares; 8,004 issued and outstanding at April 30, 2023 and January 31, 2023     80       80   Additional paid-in capital     62,791       62,562   Treasury stock, 3 shares at April 30, 2023 and January 31, 2023     ( 26 )     ( 26 ) Retained earnings     494       1,617   Accumulated other comprehensive loss     ( 6,886 )     ( 6,449 ) Total stockholders' equity     56,453       57,784   Total liabilities and stockholders' equity   $ 124,793     $ 122,966     See accompanying notes to consolidated financial statements.   4 Table of Contents     PERMA-PIPE INTERNATIONAL HOLDINGS, INC.  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (In thousands, except share data)         Common Stock     Additional Paid-in Capital     Retained Earnings     Treasury Stock     Accumulated Other Comprehensive Loss     Total Stockholders' Equity   Total stockholders' equity at January 31, 2023   $ 80     $ 62,562     $ 1,617     $ (26)     $ (6,449)     $ 57,784                                                     Net loss     -       -       ( 1,123 )     -       -       ( 1,123 ) Stock-based compensation expense     -       229       -       -       -       229   Foreign currency translation adjustment     -       -       -       -       (437)       ( 437 ) Total stockholders' equity at April 30, 2023   $ 80     $ 62,791     $ 494     $ (26)     $ (6,886)     $ 56,453             Common Stock     Additional Paid-in Capital     Accumulated Deficit     Treasury Stock     Accumulated Other Comprehensive Loss     Total Stockholders' Equity   Total stockholders' equity at January 31, 2022   $ 82     $ 61,766     $ ( 2,295 )   $ ( 1,992 )   $ ( 3,104 )   $ 54,457                                                     Net loss     -       -       ( 885 )     -       -       ( 885 ) Common stock issued under stock plans, net of shares used for tax withholding     -       16       -       -       -       16   Stock-based compensation expense     -       236       -       -       -       236   Foreign currency translation adjustment     -       -       -       -       ( 932 )     ( 932 ) Total stockholders' equity at April 30, 2022   $ 82     $ 62,018     $ ( 3,180 )   $ ( 1,992 )   $ ( 4,036 )   $ 52,892     Shares   2023     2022   Balances at beginning of year     8,003,954       8,151,754   Treasury stock purchased     -       ( 7,935 ) Shares issued, net of shares used for tax withholding     -       94,416   Prior period adjustments     -       ( 234,281 ) Balances at period end     8,003,954       8,003,954     See accompanying notes to consolidated financial statements.   5 Table of Contents     PERMA-PIPE INTERNATIONAL HOLDINGS, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)   (In thousands)   Three Months Ended April 30,       2023     2022   Operating activities                 Net loss   $ ( 1,123 )   $ ( 885 ) Adjustments to reconcile net loss to net cash provided by/(used in) operating activities                 Depreciation and amortization     915       995   Deferred tax expense     77       157   Stock-based compensation expense     229       236   Provision on uncollectible accounts     26       ( 25 ) Gain from disposal of fixed assets     ( 5 )     ( 1 ) Changes in operating assets and liabilities                 Accounts receivable     1,862       3,493   Inventories, net     1,813       ( 1,817 ) Costs and estimated earnings in excess of billings on uncompleted contracts     1,858       ( 3,799 ) Accounts payable     ( 227 )     2,042   Accrued compensation and payroll taxes     1,279       ( 484 ) Customers' deposits     ( 371 )     533   Income taxes receivable and payable     ( 318 )     ( 625 ) Prepaid expenses and other current assets     ( 570 )     ( 923 ) Unbilled accounts receivable     ( 359 )     ( 4,298 ) Other assets and liabilities     ( 1,274 )     ( 1,707 ) Net cash provided by/(used in) operating activities     3,812       ( 7,108 ) Investing activities                 Capital expenditures     ( 3,227 )     ( 400 ) Proceeds from insurance recovery for property and equipment     5       -   Proceeds from sales of property and equipment     -       70   Net cash used in investing activities     ( 3,222 )     ( 330 ) Financing activities                 Proceeds from revolving lines     28,333       16,870   Payments of debt on revolving lines     ( 25,527 )     ( 11,566 ) Payments of principal on finance obligation     ( 27 )     ( 21 ) Payments of other debt     ( 61 )     ( 86 ) Decrease in drafts payable     ( 176 )     ( 29 ) Payments on finance lease obligations, net     ( 83 )     ( 90 ) Stock options exercised and taxes paid related to restricted shares vested     -       17   Net cash provided by financing activities     2,459       5,095   Effect of exchange rate changes on cash, cash equivalents and restricted cash     ( 57 )     471   Net increase/(decrease) in cash, cash equivalents and restricted cash     2,992       ( 1,872 ) Cash, cash equivalents and restricted cash - beginning of period     6,793       9,771   Cash, cash equivalents and restricted cash - end of period   $ 9,785     $ 7,899   Supplemental cash flow information                 Interest paid   $ 521     $ 350   Income taxes paid     939       1,138     See accompanying notes to consolidated financial statements.   6 Table of Contents   PERMA-PIPE INTERNATIONAL HOLDINGS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) April 30, 2023 (Tabular amounts presented in thousands, except per share amounts)   Note 1 - Basis of presentation   The interim consolidated financial statements of Perma-Pipe International Holdings, Inc., and subsidiaries (collectively, "PPIH", "Company", or "Registrant") are unaudited, but include all adjustments that the Company's management considers necessary to present fairly the financial position and results of operations for the periods presented. These adjustments consist of normal recurring adjustments. Information and footnote disclosures have been omitted pursuant to Securities and Exchange Commission ("SEC") rules and regulations. The consolidated balance sheet as of  January 31, 2023 is derived from the audited consolidated balance sheet as of that date. The results of operations for any interim period are not necessarily indicative of future or annual results. Interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10 -K. The Company's fiscal year ends on January 31. Years and balances described as  2023 and  2022 are for the fiscal year ending January 31,  2024  and the fiscal year ended  January 31, 2023 , respectively.   Significant New Accounting Policies   Refer to the Company's Annual Report on Form 10 -K for the year ended January 31, 2023  as filed with the SEC on April 27, 2023  for discussion of the Company's significant accounting policies. During the three months ended April 30, 2023 , the following accounting policy was adopted:    Current Expected Credit Loss   In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016 - 13, Financial Instruments - Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amended guidance requires the application of a current expected credit loss (“CECL”) model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.  The Company adopted this guidance effective February 1, 2023, which was not material to the consolidated financial statements for the three months ended April 30, 2023 .   Subsequent Events   The Company has evaluated subsequent events through June 14, 2023, the date the financial statements were issued. Any material subsequent events that occurred during this time have been properly recognized and/or disclosed in these consolidated financial statements.     Note 2 - Business segment reporting   The Company is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. The Company engineers, manufactures and sells pre-insulated specialty piping systems, and leak detection systems. Pre-insulated specialty piping systems include: (i) insulated and jacketed district heating and cooling piping systems for efficient energy distribution from central energy plants to multiple locations, (ii) primary and secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products, (iii) the coating and/or insulation of oil and gas gathering and transmission pipelines, and (iv) liquid and powder based anti-corrosion coatings applied both to the external and internal surfaces of steel pipe, including shapes like bends, reducers, tees, and other spools/fittings used in pipelines for the transportation of oil and gas products and potable water. The Company's leak detection systems are sold with its piping systems or on a stand-alone basis to monitor areas where fluid intrusion may contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services or damage equipment or property.   Note 3 - Accounts receivable   The majority of the Company's accounts receivable are due from geographically dispersed contractors and manufacturing companies. Credit is extended based on an evaluation of a customer's financial condition. In the United States, collateral is not generally required. In the United Arab Emirates ("U.A.E."), Saudi Arabia, Egypt and India, letters of credit are usually obtained for significant orders. Accounts receivable are due within various time periods specified in the terms applicable to the specific contract and are stated at amounts due from customers net of any allowance for claims and credit losses. The allowance for credit losses is based on specifically identified amounts in customers' accounts, where future collectability is deemed uncertain. Management exercises its judgment in adjusting the provision as a consequence of known items, such as current economic factors and credit trends. Past due trade accounts receivable balances are written off when an amount is deemed uncollectible. The write-off is recorded against the allowance for credit losses.    7 Table of Contents   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 April 30, 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 amount, $ 1.6 million is classified in other  long-term assets on the Company's consolidated balance sheets.   The Company has been engaged in ongoing active efforts to collect this 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 2022 and 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 April 30, 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.   For the three months ended April 30, 2023 ,  one  customer accounted for  18.8 % of the Company's consolidated net sales, and during the same period in 2022 ,  no  individual customer accounted for greater than  10%  of the Company’s consolidated net sales.    As of  April 30, 2023 and January 31, 2023 ,  one  customer accounted for 16.3 % and  11.9 % of the Company's accounts receivable, respectively.   Note 4 - Revenue recognition    The Company accounts for its revenues under ASC 606, Revenue from Contracts with Customers .   Revenue from contracts with customers:   The Company defines a contract as an agreement that has approval and commitment from both parties, defined rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability is reasonably assured.   The Company’s standard revenue transactions are classified into two main categories:     1 ) Systems and Coating - which include all bundled products in which PPIH engineers and manufactures pre-insulated specialty piping systems, provides insulation and anti-corrosion coatings to pipes used in land-lines and subsea flowlines, and to subsea oil production equipment.      2 ) Products - which include cables, leak detection products, heat trace products, material/goods not bundled with piping or flowline systems, and field services not bundled into a project contract.   In accordance with ASC 606 - 10 - 25 - 27 through 29, the Company recognizes specialty piping and coating systems revenue over time as the manufacturing process progresses because one of the following conditions exist:     1 ) the customer owns the material that is being coated, so the customer controls the asset and thus the work-in-process; or     2 ) the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured as evidenced by the Company’s right to payment for work performed to date plus profit margin for products that have no alternative use to the Company.    Products revenue is recognized when goods are shipped or services are performed (ASC 606 - 10 - 25 - 30 ).   A breakdown of the Company's revenues by revenue class for the  three months ended April 30, 2023  and 2022  are as follows (in thousands):       Three Months Ended April 30,       2023     2022       Sales     % of Total     Sales     % of Total   Products   $ 2,842       9 %   $ 2,912       9 %                                   Specialty Piping Systems and Coating                                 Revenue recognized under input method     10,338       35 %     10,617       34 % Revenue recognized under output method     16,477       56 %     17,693       57 % Total   $ 29,657       100 %   $ 31,222       100 %   The input method as noted in ASC 606 - 10 - 55 - 20 is used by certain U.S. operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract over time. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the "over time" method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer. Costs include all material, labor, and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when projects costs are incurred.     8 Table of Contents   The output method as noted in ASC 606 - 10 - 55 - 17 is used by all other operating entities to measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract. Due to the types of end customers, generally these contracts require formal inspection protocols or specific export documentation for units produced, or produced and shipped, therefore, the output method is the most faithful depiction of the Company’s performance. Depending on the conditions of the contract, revenue may be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped.    Some of the Company’s operating entities invoice and collect milestones or other contractual obligations prior to the transfer of goods and services, but do  not recognize revenue until the performance obligations are satisfied under the methods discussed above.   Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract and revenue is recognized using the modified contract value. Contract modifications that occur during the manufacturing process (changes in scope of work, job performance, material costs, and/or final contract settlements) are recognized in the period in which the revisions are known. Provisions are made for estimated losses on uncompleted contracts in the contract liabilities account in the period in which such losses are determined.   Contract assets and liabilities   Contract assets represent revenue recognized in excess of amounts billed for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities represent billings in excess of costs for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impact the period end balances in these accounts.   The following table shows the reconciliation of cost in excess of billings and billings in excess of cost:    (In thousands)   April 30, 2023     January 31, 2023   Costs incurred on uncompleted contracts   $ 17,909     $ 18,342   Estimated earnings     9,657       9,370   Earned revenue     27,566       27,712   Less billings to date     28,041       26,329   (Billings in excess of cost)/costs in excess of billings, net   $ ( 475 )   $ 1,383   Balance sheet classification                 Contract assets: Costs and estimated earnings in excess of billings on uncompleted contracts   $ 2,974     $ 3,126   Contract liabilities: Billings in excess of costs and estimated earnings on uncompleted contracts     ( 3,449 )     ( 1,743 ) (Billings in excess of cost)/costs in excess of billings, net   $ ( 475 )   $ 1,383     The Company anticipates that substantially all costs incurred for uncompleted contracts as of  April 30, 2023 will be billed and collected within one year and that substantially all billings made for uncompleted contracts as of April 30, 2023 will be billed and collected within one year.    Unbilled accounts receivable:   The Company has recorded $ 11.9  million and $ 11.6  million of unbilled accounts receivable on the consolidated balance sheet s as of April 30, 2023 and January 31, 2023 , res pectively, from revenues generated by its subsidiaries in the Middle East, North Africa and India. The Company has fulfilled all performance obligations and has recorded revenue under the respective contracts. The deliverables under these contracts have been accepted by the customer and billing will be made once the customer takes possession of or arranges shipping for the products. The Company anticipates that substantially all of the amounts included in unbilled accounts receivable as of  April 30, 2023  will be billed within one year.   Practical expedients:   Costs to obtain a contract are not considered to be incremental or material, and project duration generally does not span more than one year. Accordingly, the Company applies the practical expedient for these types of costs and as such are expensed in the period incurred.   As the Company's contracts are generally less than one year, the Company has applied the practical expedient regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.   9 Table of Contents   Note 5 - Income taxes    The determination of the consolidated provision for income taxes, deferred tax assets and liabilities and related valuation allowances requires management to make judgments and estimates. As a company with subsidiaries in foreign jurisdictions, the process of calculating income taxes involves estimating current tax obligations and exposures in each jurisdiction as well as making judgments regarding the future recoverability of deferred tax assets. Income earned in the U.A.E. is not subject to local country income tax. Additionally, the relative proportion of taxable income earned domestically versus internationally can fluctuate significantly from period to period. Changes in the estimated level of annual pre-tax income, tax laws and the results of tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company's projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.    The Company's worldwide effective tax rates ("ETR") for the  three months ended April 30, 2023 and 2022  were ( 207.7 %) and ( 455.9 %), respectively. The change in the ETR is due to the 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 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. The earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered. The Company's liability was $ 0.6 million as of April 30, 2023 related to these taxes.     Note 6 - Impairment of long-lived assets   The Company's assessment of long-lived assets, and other identifiable intangibles is based upon factors that market participants would use in accordance with the accounting guidance for the fair value measurement of assets. At April 30, 2023 , the Company performed a qualitative analysis assessment to determine if it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values. The Company assessed three asset groups as part of this analysis: United States, Canada and Middle East. The qualitative assessment indicated that it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values for all three  asset groups. Therefore, it was determined that there was  no impairment of the Company's long-lived assets for the three months ended April 30, 2023 . The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.   Goodwill. The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. All identifiable goodwill as of April 30, 2023 and January 31, 2023 was attributable to the purchase of the remaining 50 % interest in Perma-Pipe Canada, Ltd., which occurred in 2016.   (In thousands)     January 31, 2023       Foreign exchange change effect       April 30, 2023   Goodwill   $ 2,227     $ ( 28 )   $ 2,199     The Company performs an impairment assessment of goodwill annually as of January 31,  or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. At April 30, 2023 , the Company elected to perform a qualitative analysis assessment to determine if it was more likely than not that the fair value of the Company's Canadian reporting unit exceeded its carrying value, including goodwill. The qualitative assessment did not  identify any triggering events that would indicate potential impairment of the Company's Canadian reporting unit. Therefore, it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment for the  three months ended April 30, 2023 . The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.   10 Table of Contents   Note 7 - Stock-based compensation    The Company has prior incentive plans under which previously granted awards remain outstanding but under which no new awards may be granted. At April 30, 2023 the Company had reserved a total of 307,446  shares for grants and issuances under these incentive stock plans, which includes a reserve for issuances pursuant to unvested or unexercised prior awards.   The Company's prior incentive plans provided for the grant of deferred shares, non-qualified stock options, incentive stock options, restricted shares, restricted stock units, and performance-based restricted stock units intended to qualify under section 422 of the Internal Revenue Code. The prior incentive plans authorized awards to officers, employees, consultants, and independent directors.   The Company's  2021  Omnibus Stock Incentive Plan dated  May 26, 2021  was approved by the Company's stockholders in  May 2021 ( "2021  Plan"). The  2021  Plan will expire in  May 2024.  The  2021  Plan authorizes awards to officers, employees, consultants and independent directors. Grants were made to the Company's employees, officers and independent directors under the  2021  Plan, as described below.   Stock-based compensation expense   The Company has granted stock-based compensation awards to eligible employees, officers or independent directors. The Company recognized the following stock-based compensation expense for the periods presented:       Three Months Ended April 30,   (In thousands)   2023     2022   Restricted stock-based compensation expense   $ 229     $ 236     Stock Options   The Company did not grant any stock options during the three months ended April 30, 2023 . The following table summarizes the Company's stock option activity:   (Shares in thousands)   Options     Weighted Average Exercise Price (Per share)     Weighted Average Remaining Contractual Term (In years)     Aggregate Intrinsic Value   Outstanding at January 31, 2023     40     $ 10.85       1.1     $ 19   Outstanding at April 30, 2023     40       10.85       0.9       29                                     Options exercisable at April 30, 2023     40     $ 10.85       0.9     $ 29     There was no vesting, expiration or forfeiture of previously unvested stock options during the three months ended April 30, 2023 . As of April 30, 2023 , there were no remaining unvested stock options outstanding, and therefore no unrecognized compensation expense related to unvested stock options.   11 Table of Contents   Restricted stock   The following table summarizes the Company's restricted stock activity for the  three months ended April 30, 2023 :   (Shares in thousands)   Restricted Shares     Weighted Average Price (Per share)     Aggregate Intrinsic Value   Outstanding at January 31, 2023     267     $ 8.55     $ 2,652   Granted     1       10.96           Forfeited or retired for taxes     ( 1 )     6.52           Outstanding at April 30, 2023     267     $ 8.56     $ 2,288     As of April 30, 2023 , there was $ 0.9  million of unrecognized compensation expense related to unvested restricted stock granted under the plans. That cost is expected to be recognized over a weighted average period of 2.0  years .   Note 8  - Loss per share       Three Months Ended April 30,   (In thousands, except per share data)   2023     2022   Basic weighted average common shares outstanding     8,004       7,919   Dilutive effect of equity compensation plans     -       -   Weighted average common shares outstanding assuming full dilution     8,004       7,919                     Stock options and restricted stock not included in the computation of diluted earnings per share of common stock because the option exercise prices or grant date prices exceeded the average market prices of the common shares     35       39   Stock options and restricted stock with exercise prices or grant date prices below the average market prices     210       279                     Net loss   $ ( 1,123 )   $ ( 885 )                   Loss per share                 Basic   $ ( 0.14 )   $ ( 0.11 ) Diluted   $ ( 0.14 )   $ ( 0.11 )   12 Table of Contents   Note 9  - Debt   Debt totaled $ 27.0 million and $ 24.3 million at April 30, 2023  and January 31, 2023 , respectively.   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”).   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 or the Secured Overnight Financing Rate ("SOFR"), 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 SOFR borrowings is the SOFR 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, as well as an additional SOFR adjustment ranging from 0.10 % to 0.25 %, based on the term of the interest 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 April 30, 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 North American Loan Parties' EBITDA (as defined in the Renewed Senior Credit Facility), would result in pro forma compliance with the FCF covenant. The Company was in compliance with these covenants as of  April 30, 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 April 30, 2023 , the Company had borrowed an aggregate of $ 4.1  million at a rate of 9.0 %  and had $ 7.5  million available under 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.   13 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 its land and buildings in Lebanon, Tennessee (the "Property") for $ 10.4 million. The transaction generated net cash proceeds of $ 9.1  million. Concurrently with the sale, the Company paid off the approximately $ 0.9 million 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  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.     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 the fair value of the underlying assets. 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 $ 9.2  million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of April 30, 2023 . The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.   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.   United Arab Emirates   The Company has a revolving line for 8.0  million U.A.E. Dirhams (approximately $ 2.2  million at April 30, 2023 ) from a bank in the U.A.E. As of April 30, 2023  the facility has an interest rate of approximately  8.4 % and is set to expire in May 2024.   The Company has a revolving line for 17.5  million U.A.E. Dirhams (approximately $ 4.8  million at April 30, 2023 ) from a bank in the U.A.E. As of April 30, 2023  the facility has an interest rate of approximately  8.4 % and is set to expire in May 2024.   The Company has a credit agreement for capital expenditure financing with a bank in the U.A.E. for 2.0  million U.A.E. Dirhams (approximately $ 0.5  million at April 30, 2023 ). As of April 30, 2023  the facility has an interest rate of approximately  8.7 % and is expected to expire in July 2023.   Egypt   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 $ 3.2  million at April 30, 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. As of April 30, 2023  the facility has an interest rate of approximately 8.0 %  and expired in June 2022 , however the Company has started the renewal process for this credit arrangement. The 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 8.9  million Egyptian Pounds (approximatel y $ 0.3  mi llion at April 30, 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  21.1 % and, as of   November 2022, is no longer available for borrowings by the Company. The facility will expire in connection with final customer balance collections and the completion of the project.    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 $ 3.2   million at April 30, 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. As of April 30, 2023  the facility has an interest rate of approximately  8.0 %  and is set to expire in August 2023 .   Saudi Arabia   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  April 30, 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 was set to expire in April 2023. Upon renewal of the credit arrangement in May 2023, the line was increased to 37.0 million Saudi Riyal (approximately $ 9.9  million at April 30, 2023 ). As of   April 30, 2023 ), the facility has an interest rate of approximately  9.2 % and is set to expire in May 2024.   14 Table of Contents   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 April 30, 2023 , the amount of foreign subsidiary debt guaranteed by the Company was approxim ately $ 1.2  million.    The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of April 30, 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 April 30, 2023 , interest rates were based on (i) 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; (ii) either the Central Bank of Egypt corporate loan rate plus 3.5 % per annum or the stated interest rate in the agreements for the Egypt credit arrangements; and (iii) the Saudi Inter Bank Offered Rate plus 3.5 % for the Saudi Arabia credit arrangement. Based on these base rates, as of April 30, 2023 , the Company's interest rates ranged from  8.0 % to 21.1 %, with a weighted average rate of 11.5 %, and the Company had facility limits totaling $ 21.2  million under these credit arrangements. As of April 30, 2023 ,  $ 2.7  million o f availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. Additionally, as of April 30, 2023 , the Company had borrow ed $ 8.9  million  and had an additional $ 10.0  million of borrowing remaining available under the foreign revolving credit arrangements. The foreign revolving lines balances as of April 30, 2023 and January 31, 2023 , were included as current maturities of long-term debt in the Company's consolidated balance sheets.    Mortgages. On July  28, 2016, the Company entered into a mortgage agreement secured by the Company's manufacturing facility located in Alberta, Canada that matures on December  23, 2042. As of April 30, 2023 , the remaining balance on the mortgage in Canada is approximately CAD 6.3  million (approximately $ 4.6  million at April 30, 2023 ). The interest rate is variable, and was 8.6 %   at April 30, 2023 . Principal payments began in January 2018.   Note 10  - Leases   Operating Leases. In August 2020, the Company entered into a new lease in Abu Dhabi for land upon which the Company intends to build a facility. The annual payments were initially approximately 1.2  million U.A.E. Dirhams (approximately $ 0.8  million at April 30, 2023 ), inclusive of rent and common charges, with escalation clauses in the agreement. Rent payments were deferred until August 2022 and have now commenced. The lease expires in August 2050.    In March and December 2022, the Company served Notices of Termination to its lessor for the Company's lease of land and buildings in Fujairah in the U.A.E. The Company served the Notices of Termination in connection with the Company's intended relocation to a different facility in Abu Dhabi. The Company vacated portions of the leased space in December 2022 and is expected to vacate the remaining space in 2023. The first Notice of Termination required that the Company pay an additional amount equal to three months' rent after that termination to enable the lessor to prepare the assets for lease by another party. As a result of the termination, the Company has recognized adjustments to the amounts recorded in the consolidated financial statements as of April 30, 2023 . The termination resulted in decreases of $ 0.3 million, $ 4.0 million and $ 3.6 million to operating lease liability short-term, operating lease liability long-term and operating lease right-of-use asset, respectively, in the consolidated balance sheets as of April 30, 2023 . The termination also resulted in a decrease in rent expense of $ 1.1  million in the consolidated statement of operations for the year ended January 31, 2023.    Finance Leases. In 2019,  the Company obtained two finance leases for a total of CAD 1.1 million (approximately $ 0.8 million at the prevailing exchange rates on the transaction dates) to finance vehicle equipment. The interest rates for these finance leases were 8.0 % per annum with monthly principal and interest payments of less than $ 0.1 million. These leases mature in August 2023.     The Company has several significant operating lease agreements, with lease terms of one to thirty  years, which consist of real estate, vehicles and office equipment leases. These leases do not require any contingent rental payments, impose any financial restrictions or contain any residual value guarantees.  Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right-of-use ("ROU") assets as the Company is not reasonably certain to exercise the options.  The Company does not have any arrangements where it acts as a lessor, other than one sub-lease arrangement.    At April 30, 2023 , the Company had total operating lease liabilities of $ 5   million and operating ROU assets of $ 4.3  million , which are reflected in the consolidated balance sheets. At April 30, 2023 , the Company also had total finance lease liabilities of $ 0.1  million included in current maturities of long-term debt, and total finance ROU assets of $ 0.4  million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheets.   15 Table of Contents   Supplemental balance sheet information related to leases is as follows (in thousands):    Operating and Finance leases:   April 30, 2023     January 31, 2023   Finance leases assets:                 Property and Equipment - gross   $ 825     $ 1,161   Accumulated depreciation and amortization     ( 422 )     ( 700 ) Property and Equipment - net   $ 403     $ 461                     Finance lease liabilities:                 Finance lease liability short-term   $ 79     $ 164   Total finance lease liabilities   $ 79     $ 164                     Operating lease assets:                 Operating lease ROU assets   $ 4,338     $ 4,527                     Operating lease liabilities:                 Operating lease liability short-term   $ 823     $ 912   Operating lease liability long-term     4,210       4,252   Total operating lease liabilities   $ 5,033     $ 5,164     Total lease costs consist of the following (in thousands):          Three Months Ended April 30,   Lease costs Consolidated Statements of Operations Classification   2023     2022   Finance Lease Costs                   Amortization of ROU assets Cost of sales   $ 53     $ 64   Interest on lease liabilities Interest expense     3       10   Operating lease costs Cost of sales, SG&A expenses     456       ( 107 ) Short-term lease costs (1) Cost of sales, SG&A expenses     179       66   Sub-lease income SG&A expenses     ( 20 )     ( 20 ) Total Lease costs   $ 671     $ 13     ( 1 ) Includes variable lease costs, which are immaterial.   16 Table of Contents   Supplemental cash flow information related to leases is as follows (in thousands):       Three Months Ended April 30,     2023     2022   Cash paid for amounts included in the measurement of lease liabilities:                 Financing cash outflows from finance leases   $ 83     $ 90   Operating cash outflows from finance leases     3       10   Operating cash outflows from operating leases     468       343                     ROU Assets obtained in exchange for new lease obligations:                 Operating leases liabilities   $ 129     $ 132         Three Months Ended April 30,     2023     2022   ROU Assets obtained in exchange for new lease obligations:                 Operating leases liabilities     129       132     Weighted-average lease terms and discount rates are as follows:        April 30, 2023   Weighted-average remaining lease terms (in years):         Finance leases     0.3   Operating leases     20.2             Weighted-average discount rates:         Finance leases     16.3 % Operating leases     8.2 %   Maturities of lease liabilities as of April 30, 2023 , are as follows (in thousands):       Operating Leases     Finance Leases   For the nine months ending January 31, 2024   $ 1,108     $ 81   For the year ending January 31, 2025     694       -   For the year ending January 31, 2026     487       -   For the year ending January 31, 2027     453       -   For the year ending January 31, 2028     415       -   For the year ending January 31, 2029     378       -   Thereafter     7,147       -   Total lease payments     10,682       81   Less: amount representing interest     ( 5,649 )     ( 2 ) Total lease liabilities at April 30, 2023   $ 5,033     $ 79     Rent expense on operating leases, which is recorded on straight-line basis, was $ 0.7  million and $ 0.9 million for the three months ended  April 30, 2023  and 2022 , respectively.   Note 11  - Restricted cash   Restricted cash held by foreign subsidiaries is related to fixed deposits that also serve as security deposits and guarantees.    (In thousands)   April 30, 2023     January 31, 2023   Cash and cash equivalents   $ 8,776     $ 5,773   Restricted cash     1,009       1,020   Cash, cash equivalents and restricted cash shown in the statement of cash flows   $ 9,785     $ 6,793     17 Table of Contents   Note 12  - Fair value   The carrying values of cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair value due to their short-term nature. The carrying amount of the Company's short-term debt, revolving line of credit and long-term debt approximate fair value because the majority of the amounts outstanding accrue interest at variable market rates.   Note 13  - Recent accounting pronouncements   The Company evaluated recent accounting pronouncements and does not expect any to have a material impact on its consolidated financial statements or related disclosures.   Note 14  - Treasury stock   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. During the three months ended  April 30, 2023 , the Company has not made any repurchases of its outstanding shares of common stock.   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.   18 Table of Contents