What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-09-11 compared with 2024-06-13 · 152 added, 74 removed, 138 unchanged (62% of the section changed)

12 unchanged sentences

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,

Three Months Ended July 31,

Six Months Ended July 31,

Change favorable (unfavorable)

Percent of Net Sales

General and administrative expenses

2 unchanged sentences

Other (expense) income

Loss before income taxes

Income before income taxes

Income tax expense

2 unchanged sentences

Net income (loss) attributable to common stock

Three months ended April 30, 2024

Three months ended April 30, 2023

Three months ended July 31, 2024

Three months ended July 31, 2023

Net sales were $

1 unchanged sentence

35.1 million in the

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

three months ended July 31, 2024 and 2023, respectively.

million, or 7%,

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

was a result of increased sales volumes.

Gross profit:

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.

Gross profit was $13.5 million, or 36% of net sales, and $9.5 million, or 27% of net sales, in the three months ended July 31, 2024 and 2023, respectively.

The increase of $4.0 million, was primarily driven by increased sales volumes and better margins due to product mix.

General and administrative expenses:

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.

General and administrative expenses were $6.0 million and $5.3 million in the three months ended July 31, 2024 and 2023, respectively.

The increase of $0.7 million, was due to higher payroll expenses and professional service fees in the quarter.

Selling expenses:

Selling expenses remained consistent and were $

1.4 million and $

1.5 million in the

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

three months ended July 31, 2024 and 2023, respectively.

Interest expense:

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

Net interest expense remained consistent and was $0.5 million and $0.6 million in the three months ended July 31, 2024 and 2023, respectively.

Other income:

Other income was consistent and less than $0.1 million in the three months ended July 31, 2024 and 2023 , respectively.

Income tax expense:

The Company's ETR was 23% and 45% in the three months ended July 31, 2024 and 2023, respectively.

The change in the ETR is due to the ability to recognize tax benefits on losses in the United States in the current year whereas the prior year had a full valuation allowance and changes in the mix of income and loss in various jurisdictions.

For further information, see Note 6 - Income taxes, in the Notes to Consolidated Financial Statements.

Net income attributable to common stock:

Net income attributable to common stock was $3.3 million and $1.0 million in the three months ended July 31, 2024 and 2023 , respectively.

The increase of $2.3 million was mainly due to increased sales activity and better margin performance in the quarter.

Six months ended July 31, 2024

Six months ended July 31, 2023

Net sales were $

71.8 million and $

64.8 million in the

six months ended July 31, 2024 and 2023, respectively.

million, or 11%

, was a result of increased sales volumes.

Gross profit:

Gross profit was $24.0 million, or 33% of net sales, and $16.2 million, or 25% of net sales, in the six months ended July 31, 2024 and 2023, respectively.

The increase of $7.8 million, was primarily driven by increased sales volumes and better margins due to product mix.

General and administrative expenses:

General and administrative expenses were $12.1 million and $10.7 million in the six months ended July 31, 2024 and 2023, respectively.

The increase of $1.4 million, was due to higher payroll expenses and professional service fees.

Selling expenses:

Selling expenses remained consistent and were $

2.6 million and $

2.7 million in the

six months ended July 31, 2024 and 2023, respectively.

Interest expense:

Net interest expense remained consistent and was $1.0 million and $1.1 million in the six months ended July 31, 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.

Other (expense) income resulted in expense of $(0.1) million and income of $0.2 million in the six months ended July 31, 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 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.

The Company's ETR was 25% and 97% in the six months ended July 31, 2024 and 2023, respectively.

For further information, see Note 6 - 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.

Net income (loss) attributable to common stock was $4.7 million and $(0.1) million in the six months ended July 31, 2024 and 2023 , respectively.

The increase of $4.8 million was mainly due to increased sales activity and better margin performance.

Liquidity and capital resources

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.

Cash and cash equivalents as of July 31, 2024 were $9.5 million compared to $5.8 million on January 31, 2024.

On July 31, 2024, $0.5 million was held in the United States, and $9.0 million was held at the Company's foreign subsidiaries.

The Company's working capital was $44.3 million on July 31, 2024 compared to $41.1 million on January 31, 2024.

Of the working capital components, accounts receivable decreased by $6.7 million and cash and cash equivalents increased by $3.7 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.

As of July 31, 2024, the Company ha d $4.7 million of borrowing capacity under the Renewed Senior Credit Facility in North America and $12.6 million of borrowing capacity under its foreign revolving credit agreements.

The Company had $6.7 million borrowed under the Renewed Senior Credit Facility and $7.8 million borro wed under its foreign revolving credit agreements at July 31, 2024.

Net cash from operating activities was $ 3.8 million and $ 3.5 million in the six months ended July 31, 2024 and 2023 , respectively.

The increase of $ 0.3 million was primarily attributable to changes in accounts receivable and customer deposits, partially offset by changes to accounts payable and prepaids expenses and other current assets.

Net cash from investing activities in the six months ended July 31, 2024 and 2023 was $( 3.2 ) million and $( 6.8 ) million, respectively.

The decrease of $( 3.6 ) million was due primarily to fewer capital expenditures in the United States and Canada.

Net cash from financing activities in the six months ended July 31, 2024 and 2023 was $ 2.2 million and $ 3.7 million, respectively.

The main source of cash from financing activities in the six months ended July 31, 2024 , consisted of net proceeds from borrowings of approximately $2.7 million under the Company's credit facilities, as compared to net proceeds of approximately $4.8 million in the six months ended July 31, 2023 .

Debt totaled $ 27.9 million and $ 25.7 million as of July 31, 2024 and January 31, 2024 , respectively.

See Note 10 - 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.

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

Accordingly, t here was no repurchase activity with respect to the Company's shares of common stock during the three and six months ended July 31, 2024.

See Note 15 - Treasury stock, for further discussion relating to this topic.

22 unchanged sentences

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

April 30, 2024.

July 31, 2024.

The Renewed Senior Credit Facility contains customary events of default.

2 unchanged sentences

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

July 31, 2024, the Company had borrowed an aggregate of

million at a rate of 10.0%

2 unchanged sentences

Revolving lines - foreign

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

The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E.

and Saudi Arabia

as discussed further below.

United Arab Emirates

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

Dirhams (approximately $2.2 million at April 30, 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.

The Company has a revolving line for

8.0 million U.A.E.

Dirhams (approximately $

2.2 million at

July 31, 2024) from a bank in the U.A.E.

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

8.6%, and expired in July 2024, however, the Company has started the process to renew and extend this credit arrangement and the credit facility has continued without interruption and penalty.

The Company had borrowed an aggregate of

as of July 31, 2024 and $0.2 million

as of January 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

July 31, 2024 and January 31, 2024, the Company had unused borrowing availability of approximately $1.0 million and $1.9 million, respectively.

The Company has a revolving line for

20.5 million U.A.E.

Dirhams (approximately $

5.6 million at

July 31, 2024) from a bank in the U.A.E.

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

The facility expired in August 2024, however, the Company has started the process to renew and extend this credit arrangement and the credit facility has continued without interruption or penalty.

The Company had borrowed an aggregate o

f $1.0 million

as of July 31, 2024 and $0.1 million

as of January 31, 2024, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

July 31, 2024 and January 31, 2024, the Company had unused borrowing availability of approximately

$1.2 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

April 30, 2024).

July 31, 2024).

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

1 unchanged sentence

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.

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

and expires in November 2024.

As of July 31, 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.

July 31, 2024 and

January 31, 2024, the Company had unused borrowing capacity

of $2.1 million and $3.2 m illion, 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.

1 unchanged sentence

2.1 million Egyptian Pounds (approximatel

April 30, 2024).

y $0.1 mi llion at

July 31, 2024).

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

3 unchanged sentences

The facility will expire in connection with final customer balance collections and the completion of the project.

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.

The Company had approximately

$0.1 million outstanding

as of July 31, 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

1 unchanged sentence

9.9 million at

April 30, 2024).

July 31, 2024).

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

1 unchanged sentence

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.

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

The Company had borrowed an aggregate o

f $2.6 million and $3.2 million

as of July 31, 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.

July 31, 2024 and

January 31, 2024, was

$6.3 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.

4 unchanged sentences

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.

ately $1.1 million and $0.1 million at July 31, 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

July 31, 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.

July 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;

1 unchanged sentence

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.

Based on these base rates, as of

July 31, 2024, the Company's interest rates ranged from

20.8%, with a weighted average rate of

11.5%, and the Company had facility limits totaling

million under these credit arrangements.

July 31, 2024

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

Additionally, as of

July 31, 2024

, the Company had borrow

$7.8 million and had an additional $12.6 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 July 31, 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 16).

I n 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.

July 31, 2024, the remaining balance on the mortgage in Canada is approximately CAD

5.9 million (approximately $

4.3 million at

July 31, 2024).

The interest rate is variable, and was

July 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 July 31, 2024 and January 31, 2024, respectively.

Finance obligation - buildings and land.

8 unchanged sentences

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 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 $8.9 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of July 31, 2024

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

2 unchanged sentences

The system has not yet been commissioned by the customer.

Nevertheless, the Company has settled approximately $

Nevertheless, the Company has received approximately $

40.1 million as of

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

July 31, 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.

3 unchanged sentences

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 $

The Company continues to engage with the customer to ensure full payment of the open balances, and during the

six months ended July 31, 2024, and at various times throughout 2023, the Company received partial payments to settle $

0.3 million and $

2 unchanged sentences

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

April 30, 2024.

July 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.

6 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-Q

Item 2. Management’s Discussion and Analysis