What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-09-15 compared with 2025-06-13 · 135 added, 92 removed, 143 unchanged (61% 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

6 unchanged sentences

Net income attributable to common stock

Three months ended April 30, 2025

Three months ended April 30, 2024

Three months ended July 31, 2025

Three months ended July 31, 2024

Net sales were $

1 unchanged sentence

37.5 million in the

three months ended April 30, 2025 and 2024, respectively.

million, or 36%,

three months ended July 31, 2025 and 2024, respectively.

was a result of increased sales volumes in the Middle East and in North America.

Gross profit:

Gross profit was $16.7 million, or 36% of net sales, and $10.5 million, or 31% of net sales, in the three months ended April 30, 2025 and 2024, respectively.

The increase of $6.2 million, was driven primarily by increased volume of activity and better margins due to product mix.

Gross profit was $14.4 million and $13.5 million in the three months ended July 31, 2025 and 2024, respectively.

The increase of $0.9 million, was driven primarily by increased volume of activity in the quarter.

General and administrative expenses:

General and administrative expenses were $7.7 million and $6.1 million in the three months ended April 30, 2025 and 2024, respectively.

The increase of $1.6 million, was due to higher payroll expenses and professional fees in the quarter.

General and administrative expenses were $10.0 million and $6.0 million in the three months ended July 31, 2025 and 2024, respectively.

The increase of $4.0 million, was mainly due to higher payroll expenses and professional fees in the quarter.

This includes a one-time charge due to an acceleration of certain executive compensation expense in the quarter as a result of a departure from the organization.

Selling expenses:

Selling expenses remained consistent and were $

Selling expenses were $

1.2 million and $

1.4 million in the

three months ended April 30, 2025 and 2024, respectively.

three months ended July 31, 2025 and 2024, respectively.

decrease of $

0.2 million, was due to lower payroll expense in the quarter.

Interest expense:

Net interest expense remained consistent and was $0.4 million and $0.5 million in the three months ended April 30, 2025 and 2024, respectively.

Other expense:

Other expense remained consistent and was less than $0.1 million in the three months ended April 30, 2025 and 2024 .

Net interest expense remained consistent and was $0.4 million and $0.5 million in the three months ended July 31, 2025 and 2024, respectively.

Income tax expense:

The Company's ETR was 21% and 30% in the three months ended April 30, 2025 and 2024, respectively.

The change in the ETR is due to the mix of income and loss in various jurisdictions.

The Company's ETR was 54% and 23% in the three months ended July 31, 2025 and 2024, respectively.

The change in the ETR is due to the mix of income and loss in various jurisdictions, primarily an increase in income in UAE, and a tax deduction limitation that was attributable to an acceleration of certain executive compensation.

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 $5.0 million and $1.4 million in the three months ended April 30, 2025 and 2024 , respectively.

The increase of $3.6 million, was mainly due to increased sales volumes and better project execution in the quarter.

Net income attributable to common stock was $0.9 million and $3.3 million in the three months ended July 31, 2025 and 2024 , respectively.

The decrease of $2.4 million, was mainly due to higher payroll expenses in connection with a one-time charge of $2.1 million related to an acceleration of certain executive compensation as a result of a departure from the organization.

Public Float:

The Company performed its public float calculation pursuant to the SEC's Public Float Test as of the last business day of its second fiscal quarter ended July 31, 2025.

Based on this calculation, the Company concluded that its public float exceeded the threshold of $75 million to retain its filer status as a Smaller Reporting Company ("SRC").

As a result, the Company's filer status has changed and henceforth will be classified as an accelerated filer.

Accordingly, the Company will be subject to the requirements within this classification, including an accelerated timeline to file certain periodic reports and will no longer be eligible for the scaled-down financial disclosure requirements provided to entities that meet the definition of an SRC.

This change in filer status goes into effect for fiscal year ended January 31, 2026, which is the first annual report filed for the fiscal year in which the Company loses its SRC status.

Six months ended July 31, 2025 vs.

Six months ended July 31, 2024

Net sales were $94.6 million and $71.8 million in the six months ended July 31, 2025 and 2024, respectively.

The increase o f $22.8 million was a result of increased sales volumes in the Middle East and in North America.

Gross profit:

Gross profit was $31.1 million and $24.0 million in the six months ended July 31, 2025 and 2024, respectively.

The increase of $7.1 million, was driven primarily by increased volume of activity and better margins due to product mix.

General and administrative expenses:

General and administrative expenses were $17.8 million and $12.1 million in the six months ended July 31, 2025 and 2024, respectively.

The increase of $5.7 million, was due to higher payroll expenses and professional fees.

This includes a one-time charge due to an acceleration of certain executive compensation expense as a result of a departure from the organization.

Selling expenses:

Selling expenses remained consistent and were $2.3 million and $2.6 million in the six months ended July 31, 2025 and 2024, respectively.

The decrease of $0.3 million was primarily attributable to lower payroll expenses.

Interest expense:

Net interest expense was $0.8 million and $1.0 million in the six months ended July 31, 2025 and 2024, respectively.

The decrease of $0.2 million was the result of an overall reduction in interest rates during the current year.

Income tax expense:

The Company's ETR was 30% and 25% in the six months ended July 31, 2025 and 2024, respectively.

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 $5.8 million and $4.7 million in the six months ended July 31, 2025 and 2024 , respectively.

The increase of $1.1 million, was mainly due to increased sales volumes and better project execution during the current year, offset by higher payroll expenses in connection with a one-time charge due to an acceleration of certain executive compensation expense as a result of the recent departure of the former chief executive officer.

Liquidity and capital resources

Cash and cash equivalents as of April 30, 2025 were $18.8 million compared to $15.7 million on January 31, 2025.

On April 30, 2025, $0.7 million was held in the United States, and $18.1 million was held at the Company's foreign subsidiaries.

The Company's working capital was $58.9 million on April 30, 2025 compared to $54.7 million on January 31, 2025.

Cash and cash equivalents as of July 31, 2025 were $17.3 million compared to $15.7 million on January 31, 2025.

On July 31, 2025, $0.2 million was held in the United States, and $17.1 million was held at the Company's foreign subsidiaries.

The Company's working capital was $58.5 million on July 31, 2025 compared to $54.7 million on January 31, 2025.

Of the working capital components, accounts receivable increased by $4.1 million and cash and cash equivalents increased by $1.6 million as the result of the movements discussed below.

As of April 30, 2025, the Company ha d $5.0 million of borrowing capacity under the Renewed Senior Credit Facility in North America and $14.5 million of borrowing capacity under its foreign revolving credit agreements.

The Company had $8.5 million borrowed under the Renewed Senior Credit Facility and $6.3 million borro wed under its foreign revolving credit agreements at April 30, 2025.

Net cash provided by (used in) operating activities was $ 0.7 million and $(0.1) million in the three months ended April 30, 2025 and 2024 , respectively.

The increase of $ 0.8 million was primarily attributable to changes in inventories, customer deposits, prepaid expenses and other current assets and net income, partially offset by changes to accounts receivable and unbilled accounts receivable.

Net cash used in investing activities in the three months ended April 30, 2025 and 2024 was $0.9 million and $0.6 million, respectively.

The increase of $0.3 million was primarily due to a greater amount of capital expenditures in the quarter.

Net cash provided by financing activities in the three months ended April 30, 2025 and 2024 was $ 3.2 million and $ 2.6 million, respectively.

Debt totaled $ 27.9 million and $ 24.5 million as of April 30, 2025 and January 31, 2025 , respectively.

As of July 31, 2025, the Company ha d $3.0 million of borrowing capacity under the Renewed Senior Credit Facility in North America and $14.9 million of borrowing capacity under its foreign revolving credit agreements.

The Company had $9.7 million borrowed under the Renewed Senior Credit Facility and $5.8 million borro wed under its foreign revolving credit agreements at July 31, 2025.

Net cash (used in) provided by operating activities was $( 1.3 ) million and $2.7 million in the six months ended July 31, 2025 and 2024 , respectively.

The decrease of $4.0 million was primarily attributable to changes in accounts receivable and unbilled accounts receivable, partially offset by increases related to inventories, customer deposits, accounts payable, prepaid expenses and other current assets, and net income.

Net cash used in investing activities in the six months ended July 31, 2025 and 2024 was $3.5 million and $1.2 million, respectively.

The increase of $2.3 million was primarily due to increases in the amount of capital expenditures during the year.

Net cash provided by financing activities in the six months ended July 31, 2025 and 2024 was $ 6.3 million and $ 2.2 million, respectively.

Debt totaled $ 31.3 million and $ 24.5 million as of July 31, 2025 and January 31, 2025 , respectively.

See Note 10 - Debt, in the Notes to Consolidated Financial Statements for further discussion relating to this topic.

As of July 31, 2025, Perma-Pipe had $17.3 million of cash and cash equivalents on hand and committed debt facility agreements with commercial banks aggregating $63.0 million, for which $17.9 million was available.

The Company believes these amounts are sufficient to meet future business requirements for at least the next 12 months and beyond.

Revolving lines - North America

3 unchanged sentences

The Renewed Senior Credit Facility matures on September 20, 2026.

April 30, 2025, the Company had borrowed an aggregate of

million at a rate of 9.0%

million available under the Renewed Senior Credit Facility.

As of July 31, 2025, the Company had borrowed an aggregate of $9.7 million at a rate of 9.0% and had $3.0 million available under the Renewed Senior Credit Facility.

As of January 31, 2025, the Company had borrowed an aggregate of $6.8 million and had $3.7 million available under the Renewed Senior Credit Facility.

The Company was in compliance with respect to the covenants under the Credit Agreement as of

April 30, 2025.

July 31, 2025.

Finance obligation - buildings and land.

On April 14, 2021, the Company entered into a purchase and sale agreement, pursuant to which 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 all of 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 $8.7 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of July 31, 2025

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

Revolving lines - foreign

6 unchanged sentences

Dirhams (approximately $

April 30, 2025

July 31, 2025

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

April 30, 2025

July 31, 2025

, the facility has an interest rate of approximately

and expires in July 2025.

The Company had borrowed an aggregate of $0.4 million

as of April 30, 2025

and January 31, 2025

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

April 30, 2025 and January 31, 2025

and expires in November 2025, of which, the Company has started the process to renew and extend this credit arrangement.

The Company had no borrowings outstanding under the credit facility

as of July 31, 2025

, and $0.4 million

as of January 31, 2025

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

July 31, 2025 and January 31, 2025

, the Company had unused borrowing availability of approximately $2.2 million and $1.6 million, respectively.

2 unchanged sentences

Dirhams (approximately $ 4.8

April 30, 2025

July 31, 2025

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

April 30, 2025

July 31, 2025

, the facility has an interest rate of approximately

and expires in August 2025.

Company had no outstanding balance

as of April 30, 2025

and expires in November 2025, of which, the Company has started the process to renew and extend this credit arrangement.

Company had borrowed an aggregate of $2.4 million

as of July 31, 2025

and $0.1 million

2 unchanged sentences

The Company had unused borrowing availability of approximately $0.3 million and $2.5 million as of

April 30, 2025 and January 31, 2025

July 31, 2025 and January 31, 2025

, respectively.

The Company has a revolving line for 47.7 million U.A.E.

Dirhams (approximately $13.0 million at

July 31, 2025) from a bank in the U.A.E.

July 31, 2025, the facility has a minimum 8% interest rate and expires in December 2025.

The Company had unused borrowing availability $5.3 million and $6.5 million as of

July 31, 2025 and

January 31, 2025, respectively.

The Company has a guarantee for 48.6 million U.A.E.

Dirhams (approximately $13.2 million at

July 31, 2025) from a bank in the U.A.E.

There is no interest rate on this facility, however, it earns a 1% commission.

July 31, 2025, approximately $11.0 million has been utilized in the form of a bank guarantee, with $2.2 million of availability remaining.

Additionally, in August 2025, a line of credit was added to the agreement for 51.4 million U.A.E Dirhams (approximately $14.0 million at

July 31, 2025) which will incur an additional .8% commission.

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

million Egyptian Pounds (approximately $

April 30, 2025

July 31, 2025

This credit arrangement is in the form of project financing, for which 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.

April 30, 2025

July 31, 2025

, the facility has an interest rate of approximately

and expires in November 2025.

As of April 30, 2025 and January 31, 2025, the Company had an immaterial amount outstanding, which is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

As of July 31, 2025 and January 31, 2025, the Company had an immaterial amount outstanding, 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, 2025

July 31, 2025

January 31, 2025

3 unchanged sentences

million Egyptian Pounds (approximately $0.1 million at

April 30, 2025

July 31, 2025

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

4 unchanged sentences

The Company had no outstanding balance

as of April 30, 2025

and $0.1 million

as of January 31, 2025

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

July 31, 2025 and January 31, 2025

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 Riyals (approximately $

April 30, 2025

July 31, 2025

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 expired in May 2025.

The Company is in the process of renewing this credit arrangement with substantially the same terms and conditions and is in regular communication with the bank throughout this process ensuring the facility continues without interruption or penalty.

April 30, 2025

The line is secured by certain assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary, and expires in April 2026.

July 31, 2025

, the facility has an interest rate of approximately

The Company had borrowed an aggregate of $3.3 million and $1.5 million

as of April 30, 2025 and January 31, 2025

as of July 31, 2025 and January 31, 2025

, 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, 2025

July 31, 2025

January 31, 2025

5 unchanged sentences

The Company guarantees only a portion of the subsidiaries' debt, including foreign debt.

April 30, 2025 and January 31, 2025 , the amount of foreign subsidiary debt guaranteed by the Company was approxim

ately $10.0 million.

July 31, 2025 and January 31, 2025 , the amount of foreign subsidiary debt guaranteed by the Company was approxim

ately $8.6 million and $4.8 million, respectively.

The Company was in compliance with respect to the covenants under the credit arrangements in the U.A.E., Egypt, and Saudi Arabia as of

April 30, 2025,

with the exception of an arrangement that has expired and has not yet been renewed.

Although a certain arrangement has expired and the borrowings could be required to be repaid immediately by the bank, the Company is in regular communication with the bank throughout the renewal process and the arrangement has continued without interruption or penalty.

April 30, 2025, 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, 2025.

Although certain arrangements are set to expire and the borrowings could be required to be repaid immediately by the bank, the Company is in regular communication with the bank throughout the renewal process and the arrangements have continued without interruption or penalty.

July 31, 2025, 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;

2 unchanged sentences

Based on these base rates, as of

April 30, 2025, the Company's interest rates ranged from

July 31, 2025, the Company's interest rates ranged from

20.8%, with a weighted average rate of

1 unchanged sentence

million under these credit arrangements.

April 30, 2025

July 31, 2025

$24.4 million

1 unchanged sentence

Additionally, as of

April 30, 2025

July 31, 2025

, the Company had borrow

$6.3 million and had an additional $14.5 million of borrowing remaining available under the foreign revolving credit arrangements.

$5.8 million and had an additional $14.9 million of borrowing availability remaining 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, 2025 and January 31, 2025.

as of July 31, 2025 and January 31, 2025.

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

3 unchanged sentences

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.

April 30, 2025, the remaining balance on the mortgage in Canada is approximately CAD

July 31, 2025, the remaining balance on the mortgage in Canada is approximately CAD

5.6 million (approximately $

4.1 million at

April 30, 2025).

July 31, 2025).

The interest rate is variable, and was

April 30, 2025.

July 31, 2025.

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 April 30, 2025 and January 31, 2025.

Finance obligation - buildings and land.

On April 14, 2021, the Company entered into a purchase and sale agreement, pursuant to which 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.

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

as of July 31, 2025 and January 31, 2025.

Accounts receivable:

3 unchanged sentences

40.7 million as of

April 30, 2025, with a remaining balance due in the amount of $

July 31, 2025, with a remaining balance due in the amount of $

1.2 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.

4 unchanged sentences

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

three months ended April 30, 2025, and at various times throughout 2024, the Company received partial payments to settle $

six months ended July 31, 2025, and at various times throughout 2024, the Company received partial payments to settle $

0.6 million and $

2 unchanged sentences

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

April 30, 2025.

July 31, 2025.

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