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Item 7. Management’s Discussion and Analysis

2024-04-26 compared with 2023-04-27 · 200 added, 200 removed, 78 unchanged (84% of the section changed)

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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.

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.

Years, results and balances described as 2023 and 2022 are for the fiscal years ended January 31, 2024 and 2023 , 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. 

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

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

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

Oil and Gas Market

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

2023  as compared to the year ended January 31,  

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

Risk Factors for additional information. 

Liquidity Position

The Company further enhanced its liquidity position on September 17, 2021 when it executed an extension of a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a new five-year $18 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”). 

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

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

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

Supply Chain Constraints and Inflationary Impacts

Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company could experience delays and has incurred increased prices for raw materials used in the Company's production processes.

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

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

Risk Factors for additional information. 

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.

Results of Operations

Consolidated Results of Operations

($ in thousands)

(In thousands, except per share data, or unless otherwise specified)

Year Ended January 31,

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Selling expense

Interest expense, net

Income before income taxes

Income tax expense

Year ended  

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

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

The increase  of $ 4.0 million 

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

Gross profit was $ 38.3  million, or 

27%  of net sales and $ 32.5 million, or 

23% of net sales, in the 

years ended January 31, 2023 and 2022 , respectively.

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

Interest expense

Other (expense) income

Income before income tax

Income tax (benefit) expense

Net income attributable to non-controlling interest

Net income attributable to common stock

Year ended January 31, 2024 Compared to year ended January 31, 2023

Net sales were $ 150.7 million and $ 142.6 million in the years ended January 31, 2024 and 2023 , respectively.

The increase of $ 8.1 million was primarily a result of higher sales volumes in Saudi Arabia.

Gross profit was $ 41.5 million, or 28% of net sales and $ 38.3 million, or 27% of net sales, in the years ended January 31, 2024 and 2023 , respectively.

The increase of $ 3.2 million was driven primarily by higher sales volumes and improved gross margins in Saudi Arabia.

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.

General and administrative expenses were $ 22.6 million and $ 22.0 million in the years ended January 31, 2024 and 2023 , respectively.

The increase of $ 0.6 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. 

Interest expense, net

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

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

Other income, net

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

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

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

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

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

Net income 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. 

Selling expenses were $ 5.5 million and $ 5.2 million in the years ended January 31, 2024 and 2023 , respectively.

The increase of $ 0.3 million was driven by higher payroll expenses.

Interest expense

Interest expense remained consistent and was $ 2.3 million and $ 2.1 million in the years ended January 31, 2024 and 2023 , respectively.

The increase of $ 0.2 million was related to increased borrowings and, to a lesser extent, higher interest rates.

Other expense

Other expense was $ 1.2 million, as compared to other income of $ 0.5 million in the years ended January 31, 2024 and 2023 , respectively.

The current year amount includes certain one-time adjustments, including a charge associated with the termination of the Company's pension plan and the settlement of a legal proceeding.

The prior 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 Company's worldwide effective tax rates ("ETR") were (33.6%) and 37.8% in the years ended January 31, 2024 and 2023 , respectively.

The change in ETR was largely due to a partial release of the U.S.

valuation allowance and changes in the mix of income and loss in various tax jurisdictions.

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

Net income attributable to common stock

Net income attributable to common stock was $10.5 million and $5.9 million in the years ended January 31, 2024 and 2023 , respectively.

The increase in net income was a result of the changes discussed above, less amounts attributable to non-controlling interest.

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 .

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

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

January 31, 2023 .

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

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

Net cash 

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

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

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

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

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

January 31, 2023  and 

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

Cash and cash equivalents were $5.8 million as of January 31, 2024 and January 31, 2023 , respectively.

On January 31, 2024 , approximately $ 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 $ 41.1 million on January 31, 2024 compared to $ 41.9 million on January 31, 2023 .

As o f January 31, 2024 , the Company had $ 4.0 million of borrowing capacity under the Renewed Senior Credit Facility in North America and $ 15.4 million of borrowing capacity under its foreign revolving credit agreements.

The Company had $ 5.5 million borrowed under the Renewed Senior Credit Facility and $ 6.4 million borrowed under its foreign revolving credit agreements at January 31, 2024 .

Net cash from operating activities in the years ended January 31, 2024 and 2023 was $ 14.7 million and $ (1.2) million, respectively.

The current year increase of $ 15.9 million was due primarily to a rise customer deposits and accounts payable, partially offset by increases in accounts receivable, unbilled accounts receivable, and prepaid expenses and other current assets, as compared to the prior year.

Net cash from investing activities in the years ended January 31, 2024 and 2023 was $ 11.1 million and $ 6.4 million, respectively.

The increase of $ 4.7 million was primarily due to investments capital assets in the Middle East and Canada during the period.

Net cash from financing activities in the years ended January 31, 2024 and 2023 was $ (3.3) million and $ 4.5 million, respectively.

The decrease of $7.8 million during the year ended January 31, 2024 consisted of using the remaining $1.0 million authorized as part of the Company's share repurchase program to reacquire its outstanding shares of common stock, as compared to $0.1 million during the year ended January 31, 2023.

Additionally, a net repayment was made from borrowings under the Company's credit facilities of approximately $6.8 million, as compared to net proceeds received from borrowings of approximately $5.5 million during the year ended January 31, 2023 .

Further, d ebt totaled $ 25.7 million and $ 24.4 million as of January 31, 2024 and 2023 , respectively.

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

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

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

January 31, 2023  and 

2022 , respectively.

There was no restricted cash held in the United States on January 31, 2024 or January 31, 2023 .

Restricted cash held by foreign subsidiaries was $ 1.4 million and $ 1.0 million as of January 31, 2024 and 2023 , 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, 2024

(In thousands)

Year Ending January 31,

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Long-term finance obligation (4)

Term loan - foreign

Finance lease obligations

1 unchanged sentence

Uncertain tax position obligations (6)

Loan payable to GIG (7)

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.

Based on the amount of such debt on January 31, 2024 , and the weighted average interest rate of 10.0% on that debt, such interest was being incurred at an annual rate of approximately $ 0.6 million.

Scheduled maturities, excluding interest.

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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. 

These amounts differ from the liabilities presented as debt in the consolidated balance sheets 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.

Minimum contractual amounts, assuming no changes in variable expenses.

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

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.

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

Refer to Note 12 - Non-controlling interest, in the Notes to Consolidated Financial Statements for further discussion regarding the loan payable to Gulf Insulation Group ("GIG").

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, London Inter-Bank Offered Rate ("LIBOR") or a LIBOR successor rate index, plus, in each case, an applicable margin.

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, SOFR 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’

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 rate 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.

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 financial covenants requiring the North American Loan Parties to achieve a ratio of its EBITDA (as defined in the Renewed Senior Credit Facility) 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, 2024 , 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 .

In order to cure any future breach of these covenants 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 compliance on a pro forma basis.

The Company was in compliance with respect to these covenants as of January 31, 2024 .

The Renewed Senior Credit Facility contains customary events of default.

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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 -  

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

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

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

The facility has an interest rate of approximately 

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

The Company has a revolving line for 

17.5 million U.A.E.

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

The facility has an interest rate of approximately 

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

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

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

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.

January 31, 2024

, the Company had borrowed an aggregate of $

million at a rate of

million available under the Renewed Senior Credit Facility.

January 31, 2023

, the Company had borrowed an aggregate of $

million and had $

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 further described below:

United Arab Emirates

The Company has a revolving line for

million U.A.E.

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

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

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

The facility has an interest rate of approximately 

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.

Dirhams (approximately $

January 31, 2024

) from a bank in the U.A.E.

as of January 31, 2024, the facility has an interest rate of approximately

and is set to expire in May 2024.

The Company had borrowed an aggregate of $0.2 million and $0.6 million as of January 31, 2024 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

As of January 31, 2024 and January 31, 2023, the Company had unused borrowing availability of approximately $1.9 million and $1.6 million, respectively.

The Company has a revolving line for

million U.A.E.

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

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

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

The facility has an interest rate of approxi mately 

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

In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 

100.0 million Egyptian Pounds (approximately $ 3.3 million at January 31, 2023 ).

Dirhams (approximately $

January 31, 2024

) from a bank in the U.A.E.

as of January 31, 2024, the facility has an interest rate of approximately

and is set to expire in May 2024.

The Company had borrowed an aggregate of $0.1 million and $1.0 million as of January 31, 2024 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

As of January 31, 2024 and January 31, 2023, the Company had unused borrowing availability of approximately $1.0 million and $1.8 million, respectively.

In June 2021, and as renewed or amended subsequently thereafter, 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

January 31, 2024).

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 ).

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.

January 31, 2024, the facility has an interest rate of approximately

20.75% and expired in August 2023.

This credit arrangement was subsequently renewed in November 2023 with substantially the same terms and conditions and expires in November 2024.

The Company had borrowed an aggregate of $1.4 million and $3.1 million

as of January 31, 2024 and

January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

Further, as of

January 31, 2024 and January 31, 2023, the Company had unused borrowing capacity of $3.2 million and $2.0 million, respectively.

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

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

2.1 million Egyptian Pounds (approximately $

0.1 million at

January 31, 2024).

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.

The facility has an interest rate of approximately

20.75% 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.

The Company had approximately $

0.1 million and $

0.4 million outstanding

as of January 31, 2024 and

January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

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

million Saudi Riyal (approximately $

January 31, 2024

.) 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, and as of January 31, 2024, the facility has an interest rate of approximately

and is set to expire in May 2024.

The Company had borrowed an aggregate of $3.2 million and $1.1 million as of January 31, 2024 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

The unused borrowing availability attributable to this credit arrangement at

January 31, 2024 and January 31, 2023, was $6.1 million and $2.3 million, respectively.

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

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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. 

The amount of foreign subsidiary debt guaranteed by the Company was approximately $0.1 at January 31, 2024

and January 31, 2023, respectively.

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, 2024

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

Although certain of the arrangements may 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.

January 31, 2024

, 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 1.5% to 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 rates, as of January 31, 2024, the Company's interest rates ranged from

, with a weighted average rate of

, and the Company had facility limits totaling $

million under these credit arrangements.

January 31, 2024

million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, the Company had borrowed approximately $6.4 million and had an additional $15.4 million of remaining borrowing capacity available under the foreign revolving credit arrangements.

The foreign revolving line balances were included as current maturities of long-term debt in the Company's consolidated balance sheets as of January 31, 2024 and January 31, 2023, respectively.

In June 2023, the Company assumed a promissory note of approximately $2.8 million in connection with the formation of the joint venture with GIG.

In accordance with the promissory note, all principal is due and payable on the maturity date of April 9, 2026, with the option to prepay, in whole or in part, at any time prior to the maturity date, without premium or penalty.

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 January 31, 2024 , the remaining balance on the mortgage in Canada is approximately 6.1 million Canadian Dollars ("CAD") (approximately $ 4.5 million at January 31, 2024 ).

The interest rate is variable, and was 10.19% at January 31, 2024 .

The principal balance is included as a component of long-term debt, less current maturities in the Company's consolidated balance sheets and is presented net of issuance costs of $0.1 million as of January 31, 2024 and January 31, 2023, respectively.

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.

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 fifteen-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 2.0%.

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

As of January 31, 2024 and 2023, the Company had a net book value relating to this asset of $1.9 million and $2.1 million, respectively.

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 8.0% 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 $

million is recognized in current maturities of long-term debt and the long-term portion of $

million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of

January 31, 2024

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

Accounts receivable

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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.

Nevertheless, the Company has settled approximately $ 39.7 million as of January 31, 2024 , with a remaining balance due in the amount of $ 2.2 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, $ 1.4 million is classified in a long-term asset account.

The Company has been actively involved in ongoing efforts to collect the outstanding amount.

The Company continues to engage with the customer to ensure full payment of open balances, and at various times throughout 2023 and in June 2022, the Company received a partial payment to settle $0.6 million and $0.9 million of the customer's outstanding balances, respectively.

Further, the Company has been engaged by the customer to perform additional work in

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, 2024

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 .

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.

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.

During the 12 months ended January 31, 2024, the Company used the remaining $1.0 million of the $3.0 million authorized to repurchase its outstanding shares of common stock.

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 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.

2 unchanged sentences

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.

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

Other contracts recognize revenues using periodic recognition of income.

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

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

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

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

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

1 unchanged sentence

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.

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 further information relating to input and output accounting methods.

Income taxes.

2 unchanged sentences

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.

The Company is now recognizing a tax benefit on losses in the United States after removal of a partial 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.

4 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis