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Item 2. Management’s Discussion and Analysis

2024-06-13 compared with 2023-12-08 · 154 added, 178 removed, 58 unchanged (85% of the section changed)

4 unchanged sentences

Risk Factors 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.

This MD&A should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, contained elsewhere in this report.

Percentages set forth below in this MD&A have been rounded to the nearest percentage point. 

RESULTS OF OPERATIONS

The Company's fiscal year ends on January 31.

Years and balances described as 2024 and 2023 are for the fiscal year ending January 31, 2025 and the fiscal year ended January 31, 2024, respectively.

This MD&A should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, contained elsewhere in this report.

Percentages set forth below in this MD&A have been rounded to the nearest percentage point.

CONSOLIDATED RESULTS OF OPERATIONS

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

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

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

($ in thousands)

Three Months Ended October 31,

Nine Months Ended October 31,

Change favorable (unfavorable)

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

Three Months Ended April 30,

Change favorable (unfavorable)

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Percent of Net Sales

General and administrative expenses

1 unchanged sentence

Interest expense

Other expense

Income before income taxes

Other (expense) income

Loss before income taxes

Income tax expense

2 unchanged sentences

Net income (loss) attributable to common stock

Three months ended October 31, 2023

Three months ended October 31, 2022

Three months ended April 30, 2024

Three months ended April 30, 2023

Net sales were $

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29.7 million in the

three months ended October 31, 2023 and 2022, respectively. 

 million, or 21%

, was  a result of increased sales volumes in Saudi Arabia. 

Gross profit:

Gross profit was $13.2 million, or 29% of net sales, and $11.1 million, or 29% of net sales, in the three months ended October 31, 2023 and 2022, respectively.

The increase of $2.1 million was primarily driven by increased sales volumes in Saudi Arabia.

General and administrative expenses:

General and administrative expenses were $5.7 million and $5.3 million in the three months ended October 31, 2023 and 2022, respectively.

The increase of $0.4 million, or 8%, was due to higher payroll costs in the quarter.  

Selling expenses:

Selling expenses were $

1.5 million and $

1.3 million in the 

three months ended October 31, 2023 and 2022, respectively. 

increase of $

0.2 million was consistent with prior quarter results.  

Interest expense:

Net interest expense remained consistent and was $0.6 million and $0.7 million in the three months ended October 31, 2023 and 2022, respectively.  

Other expense:

Other expense was $(0.5) million and $(0.9) million for  the three months ended October 31, 2023 and 2022 , respectively.

The components of other expense were both related to the pension plan termination. 

Income tax expense:

The Company's worldwide effective tax rates ("ETR") were 31%  and 40%  in the three months ended October 31, 2023 and 2022 , respectively. The change in the ETR is due primarily to the inability to recognize tax benefits due to losses incurred in the United States resulting in a full valuation allowance and due to changes in the mix of income and loss in various jurisdictions.

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

Net income attributable to common stock:

Net income attributable to common stock was $1.9 

million and $ 1.7 million in the three months ended October 31, 2023 and 2022 , respectively. The 

increase of $0.2  million was mainly due to increased sales activity in the quarter. 

Nine months ended October 31, 2023 vs.

Nine months ended October 31, 2022

Net sales were $

 million and $

 million in the 

nine months ended October 31, 2023

, respectively. 

 million, or

 was a result of increased sales volumes in Saudi Arabia.

three months ended April 30, 2024 and 2023, respectively.

million, or 15%

, was a result of increased sales volumes in the Middle East and India.

Gross profit:

Gross profit was $ 29.4  million, or 

27%  of net sales, and $ 28.1  million, or 

26%  of net sales, in the nine months ended October 31, 2023 and 2022 , respectively.

increase  of $ 1.3  million was driven by increased sales volumes in Saudi Arabia.

Gross profit was $10.5 million, or 31% of net sales, and $6.8 million, or 23% of net sales, in the three months ended April 30, 2024 and 2023, respectively.

The increase of $3.7 million was primarily driven by increased sales volumes in the Middle East and India.

General and administrative expenses:

General and administrative expenses were $ 16.4  million and $ 16.2  million in the 

nine months ended October 31, 2023 and 2022 , respectively.

increase  of $ 0.2  million was consistent with prior year results.

General and administrative expenses were $6.1 million and $5.5 million in the three months ended April 30, 2024 and 2023, respectively.

The increase of $0.6 million, or 11%, was due to higher professional service fees in the quarter.

Selling expenses:

Selling expenses were $ 4.2  million and $ 3.9  million in the nine months ended October 31, 2023 and 

2022 , respectively.

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

Selling expenses remained consistent and were $

1.2 million in the

three months ended April 30, 2024 and 2023, respectively.

Interest expense:

Net interest expense remained consistent and was $ 1.8  million and $ 1.6  million in the nine months ended October 31, 2023 and 2022 , respectively. 

increase of $ 0.2  million was attributable to increases in interest rates and borrowing activity during the year.

Other expense:

Other expense was $(0.4) million and $(1.0) million for the nine months ended October 31, 2023 and 2022 , respectively.

The components of other expense were both related to the pension plan termination.  

Net interest expense remained consistent and was $0.5 million in the three months ended April 30, 2024 and 2023, respectively.

Other (expense) income:

Other (expense) income was $(0.1) million and $0.1 million for the three months ended April 30, 2024 and 2023 , respectively.

The change was primarily due to exchange rate fluctuations in foreign currency transactions.

Income tax expense:

The Company's worldwide effective tax rates ("ETR") were 31%  and 40%  in the nine months ended October 31, 2023 and 2022 , respectively. The change in the ETR is due primarily to the inability to recognize tax benefits due to losses incurred in the United States resulting in a full valuation allowance and due to changes in the mix of income and loss in various jurisdictions.

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

Net income attributable to common stock:

Net income (loss) attributable to common stock was $ 1.8  million and $ 2.7  million in the nine months ended October 31, 2023 and 2022 , respectively. 

decrease  of $ 0.9  million was mainly due to increased selling, general and administrative expenses as compared to the same period in 2022. 

The Company's worldwide effective tax rate ("ETR") was 30% and (208%) in the three months ended April 30, 2024 and 2023, respectively.

The change in the ETR is due to the inability to recognize tax benefits and losses in the United States due to a partial valuation allowance in the prior period and changes in the mix of income and loss in various jurisdictions.

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

Net income (loss) attributable to common stock:

Net income (loss) attributable to common stock was $1.4 million and $ (1.1) million in the three months ended April 30, 2024 and 2023 , respectively.

The increase of $2.5 million was mainly due to increased sales activity in the quarter, and better project execution.

Liquidity and capital resources

Cash and cash equivalents as of October 31, 2023 were $6.0 million compared to $5.8 million on January 31, 2023.

On October 31, 2023, $0.1 million was held in the United States, and $5.9 million was held at the Company's foreign subsidiaries. The Company's working capital was $37.1 million on October 31, 2023 compared to $41.9 million on January 31, 2023.

Of the working capital components, accounts receivable increased by $5.1 million and cash and cash equivalents increased by $0.2 million as the result of the movements discussed below.

As of October 31, 2023, the Company ha d $4.6  million of borrowing capacity under the Renewed Senior Credit Facility in North America and $13.7  million of borrowing capacity under its foreign revolving credit agreements.

The Company had $6.7  million borrowed under the Renewed Senior Credit Facility and $9.5  million borro wed under its foreign revolving credit agreements at October 31, 2023.

Net cash provided by operating activities was $ 7.6  million and net cash used in operating activities was $ 5.1  million in the nine months ended October 31, 2023 and 2022 , respectively. The 

increase of $ 12.7  million was due primarily attributable to decreases in unbilled accounts receivable, inventory and costs and estimated earnings in excess of billings on uncompleted contracts, partially offset by changes to accounts receivable and accounts payable. 

Net cash provided by (used in) operating activities  in the 

nine months ended October 31, 2023 and 2022 was $ 8.2  million and $ 3.1 million, respectively.

increase of $ 5.1 million was due primarily to investments in the Middle East and Canada.

Net cash provided by financing activities  in the 

nine months ended October 31, 2023 and 2022 was $ 1.2  million and $ 7.6 million, respectively.

The main source of cash from financing activities during the 

nine months ended October 31, 2023  was net proceeds from borrowings of approximately $4.8 million under the Company's credit facilities, as compared to the nine months ended October 31, 2022 , when net proceeds were approximately $11.3 million.

Debt totaled $ 27.2 million and $ 24.3  million as of October 31, 2023 and January 31, 2023 , respectively.

See Note 9 - Debt, in the Notes to Consolidated Financial Statements for further discussion relating to this topic.

Cash and cash equivalents as of April 30, 2024 were $7.7 million compared to $5.8 million on January 31, 2024.

On April 30, 2024, $0.3 million was held in the United States, and $7.4 million was held at the Company's foreign subsidiaries.

The Company's working capital was $39.6 million on April 30, 2024 compared to $41.1 million on January 31, 2024.

Of the working capital components, accounts receivable decreased by $2.3 million and cash and cash equivalents increased by $1.9 million as the result of the movements discussed below.

As of April 30, 2024, the Company ha d $5.0 million of borrowing capacity under the Renewed Senior Credit Facility in North America and $13.0 million of borrowing capacity under its foreign revolving credit agreements.

The Company had $5.3 million borrowed under the Renewed Senior Credit Facility and $8.4 million borro wed under its foreign revolving credit agreements at April 30, 2024.

Net cash from operating activities was $ 1.4 million and $ 3.8 million in the three months ended April 30, 2024 and 2023 , respectively.

The decrease of $ 2.5 million was due primarily attributable to increases in prepaid expenses and other current assets and inventory, partially offset by changes to accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts.

Net cash from investing activities in the three months ended April 30, 2024 and 2023 was $ 2.0 million and $ 3.2 million, respectively.

The decrease of $ 1.2 million was due primarily to fewer investments in the United States and Canada.

Net cash from financing activities in the three months ended April 30, 2024 and 2023 was $ 2.6 million and $ 2.5 million, respectively.

The main source of cash from financing activities during the three months ended April 30, 2024 consisted of net proceeds from borrowings of approximately $1.9 million under the Company's credit facilities, an increase in drafts payable of $0.9 million, and approximately $0.1 million attributable to fewer payments on finance lease obligations, as compared to net proceeds of approximately $2.8 million during the three months ended April 30, 2023 .

Debt totaled $ 27.3 million and $ 25.7 million as of April 30, 2024 and January 31, 2024 , respectively.

See Note 9 - Debt, in the Notes to Consolidated Financial Statements for further discussion relating to this topic.

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.

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.

See Note 14 - Treasury stock, for further discussion relating to this topic.

Revolving lines - North America . 

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.

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.

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

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 (as defined in the Renewed Senior Credit Facility, "SOFR"), plus, in each case, an applicable margin.

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 SOFR borrowings is SOFR plus an applicable margin ranging from 2.00% to 2.50% , based on the FCCR in the most recently reported pe riod, 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’

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 any unused amounts.

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 of 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 October 31, 2023 , the calculated ratio was less than 1.10 to 1.00.

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 North American Loan Parties' EBITDA, would result in compliance on a pro forma basis.

The Company was in compliance with respect to these covenants as of 

October 31, 2023 .

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.

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

April 30, 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.

October 31, 2023, the Company had borrowed an aggregate of

 million at a rate of 10.0%

 and had $4.6

 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.

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.

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.

April 30, 2024, the Company had borrowed an aggregate of

million at a rate of 10.0%

million available under the Renewed Senior Credit Facility.

As of January 31, 2024, the Company had borrowed an aggregate of $5.5 million and had $4.0 million available under the Renewed Senior Credit Facility.

Revolving lines - foreign

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

United Arab Emirates

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

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

As of October 31, 2023 the facility has an interest rate of approximately 9.0% and is set to expire in May 2024. The Company had borrowed an aggregate of $0.1 million and $0.6 million as of October 31, 2023 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 Company has a revolving line for 19.5 million U.A.E.

Dirhams (approximately $5.3 million at October 31, 2023) from a bank in the U.A.E.

As of October 31, 2023 the facility has an interest rate of approximately 9.0% and is set to expire in May 2024.

The Company had borrowed an aggregate of $1.3 million and $1.1 million as of October 31, 2023 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 Company has a revolving line for 8.0 million U.A.E.

Dirhams (approximately $2.2 million at April 30, 2024) from a bank in the U.A.E.

As of April 30, 2024 the facility has an interest rate of approximately 8.8%, and is set to expire in July 2024, with intentions to be subsequently renewed and extended thereafter.

The Company had borrowed an aggregate of $0.2 million as of April 30, 2024 and January 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

The Company had unused borrowing availability of approximately $1.9 million as of April 30, 2024 and January 31, 2024, respectively.

The Company has a revolving line for 20.5 million U.A.E.

Dirhams (approximately $5.6 million at April 30, 2024) from a bank in the U.A.E.

As of April 30, 2024 the facility has an interest rate of approximately 8.7%, and is set to expire in August 2024, with intentions to be subsequently renewed and extended thereafter.

The Company had borrowed an aggregate of $0.1 million as of April 30, 2024 and January 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

As of April 30, 2024 and January 31, 2024, the Company had unused borrowing availability of approximately $1.6 million and $1.0 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

 million at

October 31, 2023).

100.0 million Egyptian Pounds (approximately

April 30, 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. As of

October 31, 2023 the facility has an interest rate of approximately

 and expired in June 2022.

This credit arrangement was subsequently renewed in August 2022 with substantially the same terms and conditions, expect for the facility interest rate which increased to 20.8%, and expired in August 2023. 

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

The Company had borrowed an aggregate of $1.6 million and $3.1 million 

as of October 31, 2023 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 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

 mi llion at

October 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.

April 30, 2024 the facility has an interest rate of approximately

and expired in June 2022.

This credit arrangement was subsequently renewed in August 2023 with substantially the same terms and conditions, except for the facility interest rate which increased to 20.8%, and expires in August 2024.

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

As of April 30, 2024, the Company had substantially nothing outstanding with respect to this credit arrangement, and approximately $1.4 million outstanding at January 31, 2024, which is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

Further, as of

April 30, 2024 and

January 31, 2024, the Company had unused borrowing capacity of $2.1 million and $3.2 million, respectively.

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

2.1 million Egyptian Pounds (approximatel

April 30, 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 20.8%

 and, as of  November 2022, is no longer available for borrowings by the Company.

The facility has an interest rate of approximately 11.0%

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 $

0.3 million outstanding 

as of October 31, 2023 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 37.0 million Saudi Riyals (approximately $9.9 million at October 31, 2023).

The Company had approximately $0.1 million outstanding

as of April 30, 2024 and January 31, 2024, 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

37.0 million Saudi Riyals (approximately $

9.9 million at

April 30, 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.

The facility was renewed in May 2023, and the line was increased to 37.0 million Saudi Riyal (approximately $9.9 million at October 31, 2023).

As of October 31, 2023, the facility has an interest rate of approximately 9.5% and is set to expire in May 2024. The Company had borrowed an aggregate of $3.8 million and $1.1 million as of October 31, 2023 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 facility was renewed in May 2024 with substantially the same terms and conditions and expires in May 2025.

April 30, 2024, the facility has an interest rate of approximately

The Company had borrowed an aggregate of $4.1 million and $3.2 million

as of April 30, 2024 and January 31, 2024, 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

April 30, 2024 and

January 31, 2024, was $5.4 million and $6.1 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 October 31, 2023, the amount of foreign subsidiary debt guaranteed by the Company was approxim ately $0.1 million. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of October 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 October 31, 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 October 31, 2023, the Company's interest rates ranged from 8.0% to 20.8%, with a weighted average rate of 12.1%, and the Company had facility limits totaling $27.2  million under these credit arrangements.

As of October 31, 2023 , 

$6.7  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 October 31, 2023 , the Company had borrow ed $9.5  million  and had an additional $13.7  million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of October 31, 2023 and January 31, 2023, 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 approxim

ately $0.3 million and $0.1 million at April 30, 2024 and January 31, 2024, respectively.

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, 2024, with the exception of those arrangements that have expired or are set to expire 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, 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 base rates, as of April 30, 2024, the Company's interest rates ranged from 8.7% to 20.8%, with a weighted average rate of 11.5%, and the Company had facility limits totaling $24.7 million under these credit arrangements.

As of April 30, 2024 , $6.7 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, 2024 , the Company had borrow ed $8.4 million and had an additional $13.0 million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances were included as a component of current maturities of long-term debt in the Company's consolidated balance sheets as of April 30, 2024 and January 31, 2024.

In June 2023, the Company assumed a promissory note of approximately $2.8 million in connection with the formation of the joint venture with Gulf Insulation Group (see Note 15).

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.

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 leases 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 all of the fair value of the underlying asset.

The Company utilized an incremental borrowing rate of 8.0% to determine the finance obligation to record for the amounts received and will continue to depreciate the assets. The current portion of the finance obligation of $ 0.1  million is recognized in current maturities of long-term debt and the long-term portion of $ 9.1  million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of 

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

Accounts receivable: 

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 leases 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 $0.2 million is recognized in current maturities of long-term debt and the long-term portion of $9.0 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of April 30, 2024

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

Accounts receivable:

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

The system has not yet been commissioned by the customer.

Nevertheless, the Company has settled appro ximately $39.5  million as of October 31, 2023 , with a remaining balance due in the amount of $2.4  million , all of w hich 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, $1.6  million is classified in a long-term receivable account.

Regardless of the contractual due date for payment, the Company has been actively engaged in ongoing efforts to collect the outstanding amount.

The Company continues to engage with the customer to ensure full payment of open balances.

In September 2023 and June 2022, a partial payment was received to settle $0.4 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 2023 and 2022 under customary trade terms that supports the continued cooperation between the Company and the customer.

As a result, the Company did not reserve any allowance against the remaining outstanding balances as of October 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 uncollected amounts.

Nevertheless, the Company has settled approximately $

40.1 million as of

April 30, 2024, with a remaining balance due in the amount of $

1.8 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, $

1.0 million is classified in other

long-term assets on the Company's consolidated balance sheets.

The Company has been actively involved in ongoing efforts to collect this outstanding balance.

The Company continues to engage with the customer to ensure full payment of the open balances, and during the three months ended April 30, 2024, and at various times throughout 2023, the Company received partial payments to settle $

0.3 million and $

0.6 million, respectively, of the customer's outstanding balances.

Further, the Company has been engaged by the customer to perform additional work in 2024 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, 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are described in Item 7.

MD&A and in the Notes to the Consolidated Financial Statements for the year ended January 31, 2023 contained in the Company's latest Annual Report on Form 10-K.

MD&A and in the Notes to the Consolidated Financial Statements for the year ended January 31, 2024 contained in the Company's latest Annual Report on Form 10-K.

Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

2 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis