2022
ANNUAL REPORT
PARTNERS IN EXCELLENCE
MESSAGE TO STOCKHOLDERS
FOCUS ON GROWTH
Last year I was discussing how our business was able to begin to resume the pursuit of our growth
plans after being disrupted by the impact of the pandemic. This indeed has been the case and we
have made notable progress during 2022. In particular, we have established the foundation of our
plans in the Middle East, while benefiting from a bouyant oil and gas market in Canada.
While we did not execute any individually significant project
during the 2022 year, this was as we had anticipated. The
consequence of this is that we can more easily see the financial
results of our ‘core’ business undistorted by major projects.
Despite the lack of large projects in 2022, our revenues
still increased modestly. In addition, our margins improved
by a meaningful amount, generating almost $6 million of
additional gross profit. The increased overhead costs incurred
in achieving this amounted to under $3 million, allowing a
37% ($3 million) increase to our normal operations. What
we had not anticipated however was the increase to interest
costs which have arisen as the borrowing rates increased
during the past year as the world battles inflation. Our interest costs increased by more than $1 million, as rates
rose, and our working capital requirements increased. Further diminishing the Net Income was the increase in our
effective tax rate, which arises as a result of earnings in higher tax jurisdictions, while not reflecting the benefit
of present or past tax losses in other jurisdictions. Also, when recognizing that net income in 2022 is lower than
the prior year, account must be taken of a non-cash loss of almost $1 million that arose from the termination of a
pension plan related to the Filter segment of our business that was divested of a number of years ago.
Overall, I believe there have been meaningful improvements to the results of our operations, and the improvements
have followed the trajectory that was anticipated. In particular, I am encouraged that we have achieved these
improvements despite some ongoing pandemic related challenges, such as supply chain constraints and project
delays.
In recent years, we adopted a prudent approach to our capital expenditure and growth plans with a view toward
cash preservation during those difficult times. During 2022, we were able to make more aggressive progress in this
regard. While our capital expenditure increased versus the prior year, it was still not excessive for a business of our
size, and we were able to complete our relocation to Abu Dhabi in the UAE.
MESSAGE TO STOCKHOLDERS
Our recent opening ceremony for the facility was
very well attended and included Sheikh Dr. Saeed Bin
Tahnoon Al Nayan and many other dignitaries from
large companies. We expect this investment to allow us
to provide a significant amount of increased products
and services to customers that are now much closer
to us. Similarly, the recent commencement of our joint
venture in Saudi Arabia with a very respectable and
well-positioned partner holds much promise for us
to further expand our services to that market, which
continues to look buoyant for the future. We expect to begin to see some tangible benefit from these strategies in
the very near future. Finally, we have started an initial investment in the development of an upgraded ERP system,
which is preparing us to operate more effectively in the future.
The deepwater developments in the US Gulf of Mexico have been subdued for some time now, and we continue
to evaluate our position there. However, we recently announced a material project award which is scheduled to be
executed this year.
Since January 31, 2022, our share price has increased more than 25% and which we believe reflects an increased
confidence from the investment community in our business direction. We are committed to continuing to focus on
our investments and strategies to drive profitable growth.
While 2021 was challenging as we battled to endure the effects of the pandemic, this past year was also demanding,
although for different reasons. During 2022 we had a great deal of ‘catching up’ to do to accelerate our initiatives
that were long delayed by the pandemic. Our motives are clear: to bring meaningful improvement to the company
as quickly as possible. This focus will benefit us all, including the stockholders. It is warranted for me to extend
my personal gratitude to all our employees, stockholders and Board of Directors, and to recognize the efforts and
sacrifices that everyone has made in getting us to where we are today, including the patience and faith that they
have demonstrated in our mission.
Sincerely,
DAVID J. MANSFIELD
Chief Executive Officer
PRODUCT PORTFOLIO
We are more than a pipe company. By delivering the highest quality products and developing
innovative piping systems, we’ve established ourselves as a reliable supplier of engineered pipe and
foster enduring, rewarding relationships with our customers.
XTRU-THERM
Pre-insulated Pipe Sustem
POLY-THERM
Pre-insulated Pipe Sustem
MULTI-THERM
Pre-insulated Pipe Sustem
Applications: District Energy,
Environmental Protection, Oil &
Gas, Industrial
Applications: District Energy,
Environmental Protection, Oil &
Gas, Industrial
Applications: District Energy,
Environmental Protection, Oil &
Gas, Maritime, Industrial
ENI-GARD
Pre-insulated Pipe Sustem
TRACE-THERM
Pre-insulated Pipe Sustem
PERMA-BOND
Anti-Corrosion Coating
Applications: Environmental
Protection, Industrial
Applications: Oil & Gas
Applications: Oil & Gas,
Industrial
FLOW-THERM
Pre-insulated Pipe Sustem
FAB-COAT
Custom Coatings
GALVA-GARD
Pre-insulated Pipe System
Applications: Oil & Gas
Applications: Anti-Corrosion
Coating
Applications: District Energy
HI-GARD
Pre-insulated Pipe Sustem
PVC-THERM
Pre-insulated Pipe Sustem
Applications: Liquid and leak
detection systems
Applications: Environmental
Protection, Oil & Gas, Industrial
Applications: District Energy
PERMA-PIPE CORE VALUES
PERMA-PIPE is proud of the values upon which its business is based. Accordingly, it has and will
continue to uphold the highest business ethics and personal integrity in the PERMA-PIPE organization’s
actions, interactions and transactions.
SAFETY FIRST
No accidents, no injuries.
Be responsible for your own and others’ safety.
VALUE PEOPLE
Seek out and appreciate each other’s ideas,
thoughts and values.
ACT WITH INTEGRITY
Tell the truth, be reliable and transparent and
do the right thing.
BE A TEAM PLAYER
Work with your customers and coworkers to identify
and solve problems.
Never settle for the status quo.
RESPECT
Treat others as you want to be treated; with trust, dignity
and respect.
OWN IT
Own your actions, decisions and responsibilities.
PERMA-PIPE LOCATIONS
PERMA-PIPE International Holdings, Inc. (NASDAQ:PPIH) is a global engineered pipe services
company offering core competencies in anti-corrosion coatings, insulation solutions, containment
systems, leak detection systems, engineering support, field service and custom fabrication. We are
dedicated to upholding our core values and giving the markets we serve innovative piping solutions
with a partnership experience that exceeds expectations.
8 Operational Facilities in 6 countries
600+ employees worldwide
Camrose, Alberta
Canada
Lebanon, Tennessee
USA
Al Khobar
Saudi Arabia
Gujarat
India
New Iberia, Louisiana
USA
Beni Suef
Egypt
Fujairah
United Arab Emirates
Abu Dhabi,
United Arab Emirates
2022 SAFETY HIGHLIGHTS
At PERMA-PIPE, safety of our employees is our number one
priority today and every day.
In 2022, we continued our safety improvement programs
which have resulted in further improvement of our
incident rate, with six manufacturing facilities exhibiting
zero recordable incidents. We carried out diligent follow-up
of safety incidents to ensure that we captured the lessons
learned to avoid re-occurrences. Furthermore, we enhanced
our “Safety Talk” process that increased employee and
management engagement. Together with our Perma-Pipe
Life Saving Rules, these programs significantly contributed to
preventing potentially serious incidents.
Total Injuries
Total Injury Rate
Reduced
30%
From 2021
(TIR) Reduced
22%
From 2021
CORE COMPETENCIES
PERMA-PIPE’s Core Competencies are the backbone of what we do. Our engineered piping systems are used to
transport mediums that heat and cool buildings, provide energy solutions for transportation and industry, provide
water needs to communities, and transport various chemicals, slurries, and other industrial products, safely and
efficiently. Our anti-corrosion systems protect pipeline components from the adverse effects of corrosion and decay.
Our insulation systems preserve energy during the transportation of fluids, conserving energy and maximizing
energy efficiency. Our double-containment system provide solutions for ultra-high temperature products and those
that require additional protection for people and the environment. Our fabrication expertise allows us to provide
custom-built spools that provide ease and efficiency of field fabrication.
PermAlert’s leak detection system is designed to detect and locate leaks quickly. Our systems provide 24/7 active
monitoring of leaks across critical infrastructures such as pipelines, data centers and airports.
All of our Core Competencies allow us to provide our customers with a partnership experience which exceeds their
expectations, which is why we strive to be:
PARTNERS IN EXCELLENCE
COMMITMENT TO SUSTAINABILITY
Sustainability matters, and the decisions our clients make today will have an influence on future generations. We
are proud to serve one of the greenest and most energy conservation minded industries in the world, the District
Energy industry.
Most district energy systems use steam distribution systems to provide thermal energy for space heating and
hot water needs of connected buildings. District hot water systems can also be used to deliver thermal services,
which typically increases system efficiency through lower distribution losses. Hot water distribution is well suited
to incorporating advanced energy options such as solar thermal heat and waste heat recovery from industrial
processes and data centers. For cooling, most district energy systems use hybrid chiller plants, often coupled with
thermal storage. These systems lower the overall carbon footprint of any building development project, yielding a
more sustainable method of heating and cooling.
The Company has been at the forefront of engineering and fabricating piping system solutions to supply efficient
and sustainable district energy systems for below or above ground steam, hot and chilled water applications for
nearly a century.
Likewise, other fluids are moved every day through our piping systems with the least amount of heat loss, or
heat gain, leading to efficiency for our customers. Our double containment solutions provide lasting mechanical
protection and thermal efficiency, ensuring protection for the environment. We also provide robust anti-corrosion
coating solutions which protect our customers’ infrastructure for decades to come.
At PERMA-PIPE, we are committed to the protection of our customers’ assets, the environment in which we work
and live, and to the fundamental sustainability that our products provide.
PARTNERS IN EXCELLENCE
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Our operations take into account governance, social and environmental factors. Addressing ESG concerns and
finding solutions within our business units enables us to build better businesses internationally. We lessen the
environmental impact of our operations and that of our clients by being deliberate in the development of products
and services that are both environmentally sensitive and comply with regional governmental legislation.
All of our business units work in accordance with our Environmental Management Systems (EMS) and are, or
are being, accredited to the ISO 140001 standard. An overall framework for identifying, managing, monitoring
and controlling environmental issues is provided by the ISO 140001 standard. This gives us a framework for
assessing and reducing the environmental impact of our operations. Our environmental management systems
are continuously improved in order to minimize any environmental impact that arise as a result of our operations.
We advocate for consuming less energy in all of our endeavors and work to minimize, recycle and reuse waste
whenever possible. Our ability to succeed as a multinational corporation depends on having a positive impact in the
communities where we live and work. Providing a safe work environment is of paramount importance to us. Our
MENA businesses are ISO 45001 accredited, and we are pursuing that accreditation in North America.
Corporate governance is a key component to the success of any business. As a publicly traded company based in
the USA, the bar for corporate governance is high. We have strict oversight by an active Board of Directors and we
have robust guidelines under which our employees and business partners must adhere to. Our Ethics & Compliance
committee meets routinely to ensure that our standards are being adhered to and that they are continuously
improved to ensure the highest standards of ethical and legal compliance are maintained at all times.
Our company strives for ESG excellence every day. Our stakeholders, which include our workers, customers,
vendors, business partners, shareholders and communities all around the world, look to us to consistently display
integrity, respect, and sound business judgment when it comes to matters of the environment, social equality and
corporate governance.
PARTNERS IN EXCELLENCE
PARTNERS IN EXCELLENCE
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File No. 001-32530
Perma-Pipe International Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
24900 Pitkin Road, Suite 309, Spring, Texas
(Address of principal executive offices)
(847) 966-1000
(Registrant's telephone number, including area code)
36-3922969
(I.R.S. Employer Identification No.)
77386
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value per share
Trading symbol
PPIH
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and
"emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller
reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (the exclusion of the market
value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant)
was $70,329,129.52 based on the closing sale price of $9.23 per share as reported on the Nasdaq Global Market on July 29, 2022.
The number of shares of the registrant's common stock outstanding at April 25, 2023 was 8,007,002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2023 annual meeting of stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after January 31, 2023, are incorporated by reference in Part III of this Annual Report on Form 10-K.
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Perma-Pipe International Holdings, Inc.
FORM 10-K
For the fiscal year ended January 31, 2023
TABLE OF CONTENTS
Item
Part I
1. Business ............................................................................................................................................... 2
Products and Services ............................................................................................................................ 2
Employees ............................................................................................................................................ 3
Information about our Executive Officers ................................................................................................ 4
Available information ............................................................................................................................. 5
1A. Risk Factors .......................................................................................................................................... 5
1B. Unresolved Staff Comments ................................................................................................................... 10
2. Properties ............................................................................................................................................. 10
3. Legal Proceedings ................................................................................................................................. 10
4. Mine Safety Disclosures ......................................................................................................................... 10
Page
Part II
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ............................................................................................................................................. 11
[Reserved] ........................................................................................................................................... 12
6.
7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 12
7A. Quantitative and Qualitative Disclosures About Market Risk ....................................................................... 20
8. Financial Statements and Supplementary Data ......................................................................................... 20
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................ 20
9A. Controls and Procedures ........................................................................................................................ 20
9B. Other Information ................................................................................................................................. 21
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .......................................................... 21
Part III
10. Directors, Executive Officers and Corporate Governance ........................................................................... 22
11. Executive Compensation ........................................................................................................................ 22
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ............ 22
13. Certain Relationships and Related Transactions, and Director Independence .............................................. 22
14. Principal Accounting Fees and Services ................................................................................................... 22
Part IV
15. Exhibits and Financial Statement Schedules ............................................................................................. 23
Report of Independent Registered Public Accounting Firm (PCAOB Auditor ID Number 248) ........................ 24
16. Form 10-K Summary ............................................................................................................................. 58
Signatures ............................................................................................................................................ 59
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Cautionary Statements Regarding Forward Looking Information
PART I
Certain statements contained in this Annual Report on Form 10-K, which can be identified by the use of forward-
looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects,"
"could," "future," "potential," "believes," "plans," "likely," and "probable," or the negative thereof or other variations
thereon or comparable terminology, constitute "forward-looking statements," within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended
("Exchange Act"), and are subject to the safe harbors created thereby. These statements should be considered as
subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such
risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors,
including, but not limited to, the following:
Market Condition Risks
•
•
fluctuations in the price of oil and natural gas and its impact on customer order volume for the
Company's products;
the Company’s ability to purchase raw materials at favorable prices and to maintain beneficial
relationships with its suppliers;
• decreases in government spending on projects using the Company’s products, and challenges to the
Company’s non-government customers’ liquidity and access to capital funds;
Financial Risks
•
•
•
•
•
•
•
the Company’s ability to repay its debt and renew expiring international credit facilities;
the Company’s ability to effectively execute its strategic plan and achieve sustained profitability and
positive cash flows;
the Company's ability to collect a long-term account receivable related to a project in the Middle
East;
the Company's ability to interpret and adapt to changes in tax regulations and legislation;
the Company’s ability to use its net operating loss carryforwards;
reversals of previously recorded revenue and profits resulting from inaccurate estimates made in
connection with the Company’s "over time" revenue recognition;
the Company’s failure to establish and maintain effective internal control over financial
reporting;
Business Condition Risks
•
•
•
•
•
•
the timing of order receipt, execution, delivery and acceptance for the Company’s products;
the Company’s ability to successfully negotiate progress-billing arrangements for its large
contracts;
aggressive pricing by existing competitors and the entrance of new competitors in the markets in which
the Company operates;
the Company’s ability to manufacture products free of latent defects and to recover from suppliers who
may provide defective materials to the Company;
reductions or cancellations of orders included in the Company’s backlog;
risks and uncertainties specific to the Company's international business operations;
General Risks
•
•
•
•
the Company’s ability to attract and retain senior management and key personnel;
the Company’s ability to achieve the expected benefits of its growth initiatives;
the impact of pandemics and other public health crises on the Company and its operations; and
the impact of cybersecurity threats on the Company’s information technology systems.
1
Item 1. BUSINESS
Perma-Pipe International Holdings, Inc., collectively with its subsidiaries ("PPIH", the "Company" or the
"Registrant"), is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. The
Company was incorporated in Delaware on October 12, 1993. The Company's common stock is traded on the Nasdaq
Global Market and reported under the ticker symbol "PPIH". The Company's fiscal year ends on January 31. Years,
results and balances described as 2023, 2022 and 2021 are for the fiscal year ending January 31, 2024 and the
fiscal years ended January 31, 2023 and 2022, respectively.
PRODUCTS AND SERVICES
The Company engineers, designs, manufactures and sells specialty piping systems and leak detection systems.
Specialty piping systems include: (i) insulated and jacketed district heating and cooling piping systems for efficient
energy distribution from central energy plants to multiple locations, (ii) primary and secondary containment piping
systems for transporting chemicals, hazardous fluids and petroleum products, (iii) the coating and/or insulation of
oil and gas gathering and transmission pipelines, and (iv) liquid and powder based anti-corrosion coatings applied
both to the external and internal surfaces of steel pipe, including shapes like bends, reducers, tees, and other
spools/fittings used in pipelines for the transportation of oil and gas products and potable water. The Company's
leak detection systems are sold with its piping systems or on a stand-alone basis to monitor areas where fluid
intrusion may contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services
or damage equipment or property.
The Company frequently engineers and custom fabricates to job site dimensions and incorporates provisions for
thermal expansion due to cycling temperatures. Most of the Company's piping systems are produced for
underground installations and, therefore, require trenching, which is the responsibility of the general contractor,
and completed by unaffiliated installation contractors.
The Company’s piping systems are typically sold as a part of discrete projects, and customer demand can vary by
reporting period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Operating Facilities. The Company operates its business from the following locations:
Perma-Pipe, Inc.
Niles, IL
New Iberia, LA
Lebanon, TN
Perma-Pipe Canada, Ltd.
Camrose, Alberta, Canada
Perma-Pipe Egypt for Metal Fabrication and Insulation Industries
(Perma-Pipe Egypt) S.A.E.
Beni Suef, Egypt
Perma-Pipe Middle East LLC
Abu Dhabi, United Arab Emirates
Perma-Pipe Middle East FZC
Fujairah, United Arab Emirates
Perma-Pipe Saudi Arabia, LLC
Dammam, Kingdom of Saudi Arabia
Perma-Pipe India Pvt. Ltd
Gandhidham, India
Customers and sales channels. The Company's customer base is industrially and geographically diverse. In the
United States, the Company employs inside and outside sales managers who use and assist a network of
independent manufacturers' representatives, none of whom sell products that are competitive with the Company's
piping systems. The Company employs a direct sales force to market and sell products and services in Canada,
India, Egypt, and in several countries in the Middle East. On a country-by-country basis, and where advantageous,
the Company uses an agent network to assist in marketing and selling the Company's products and services.
For the years ended January 31, 2023 and 2022, no one customer accounted for greater than 10% of the Company's
consolidated net sales.
As of January 31, 2023, no one customer accounted for greater than 10% of accounts receivable. As of January 31,
2022, one customer accounted for 11.9% of accounts receivable.
2
Backlog. The Company’s backlog on January 31, 2023 was $38.5 million compared to $39.3 million on January 31,
2022, most of which is expected to be completed within the year ending January 31, 2024. The Company's backlog
has remained consistent year-over-year as completed projects have been replaced with new awards during the year.
The Company defines backlog as the expected total revenue value resulting from confirmed customer purchase
orders that have not yet been recognized as revenue. However, by industry practice, orders may be canceled or
modified at any time. If a customer cancels an order, the customer is normally responsible for all finished goods
produced or shipped, all direct and indirect costs incurred, and also for a reasonable allowance for anticipated
profits. No assurance can be given that these amounts will be recovered after cancellation. Any cancellation or delay
in orders may result in lower than expected revenue from the Company's reported backlog.
Intellectual property. The Company owns various patents covering its piping and electronic leak detection
systems, as well as for some of the features of its sensor cables. These patents are not material to the Company
either individually or in the aggregate because the Company believes its sales would not be materially reduced if
patent protection was not available. The Company owns numerous trademarks connected with its piping and leak
detection systems throughout the world.
Suppliers. The basic raw materials used in production are pipes and tubes made of carbon steel, steel alloys,
copper, ductile iron, or polymers and various chemicals such as polyols, isocyanate, urethane resin, polyethylene,
and fiberglass, which are mostly purchased in bulk quantities. The Company believes there are currently adequate
supplies and sources of availability of these needed raw materials.
The sensor cables used in the Company's leak detection and location systems are manufactured to the Company's
specifications by companies regularly engaged in manufacturing such cables. The Company assembles the
monitoring component of its leak detection and location systems from components purchased from many sources.
Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company
routinely experiences delays and increased prices for raw materials used in the Company's production processes.
To mitigate these impacts, the Company has implemented several strategies, including purchasing from alternative
suppliers and planning for material purchases further in advance to ensure the Company has materials when
needed. The Company also adjusts its pricing to customers to offset the impacts of the raw material price increases.
These impacts are expected to continue throughout 2023, and the resulting future disruptions to the Company’s
operations are uncertain.
Competition. The piping systems market is highly competitive. The Company believes that quality, service,
engineering design capabilities and support, a comprehensive product line, timely execution, plant location and price
are key competitive factors in the industry. The Company also believes it has a more comprehensive product line
than any competitor.
Research and Development. The Company's research and development efforts primarily focus on activities and
development to meet product specifications mandated by its customers and the industry.
Environmental impacts. The Company provides insulated pipe for district energy systems. A district energy
system is a highly efficient way to provide heating or cooling to buildings. A central plant produces steam or chilled
water that flows through insulated pipes to buildings. The goal of a district energy system is to centralize production
to deliver energy efficiency, reduce operating costs, and use less equipment compared to individual buildings with
their own boilers and chillers. In addition, district heating and cooling plants can provide better pollution control
than localized boilers and cooling equipment.
EMPLOYEES
As of January 31, 2023, the Company had approximately 194 full-time employees working in the United States, of
which approximately 77 were under two collective bargaining agreements expiring on April 30, 2023 and March 31,
2025. As of January 31, 2023, there were approximately 473 full-time employees working at the Company's
international locations. The Company considers its relationship with its employees to be good.
3
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth information regarding the executive officers of the Company as of April 27, 2023:
Name
David J. Mansfield
Offices and Positions; Age
Director, President and Chief Executive Officer; Age 63
Grant Dewbre
Chief Operating Officer; Age 54
D. Bryan Norwood
Vice President and Chief Financial Officer; Age 67
Executive officer of
the Company since
2016
2021
2018
David J. Mansfield: President, Chief Executive Officer ("CEO") and member of the Board of Directors since
November 2016. From 2015 to 2016, Mr. Mansfield served as Chief Financial Officer ("CFO") of Compressor
Engineering Corp. & CECO Pipeline Services Co., which provides products and services to the gas transmission,
midstream, gas processing, and petrochemical industries. In this position, he had overall responsibility for the
group’s financial affairs, including the development and execution of turnaround plans and the successful negotiation
of a corporate refinancing. From 2009 to 2014, Mr. Mansfield served as CFO and as Acting CEO of Pipestream, Inc.,
a venture capital-owned technology development company providing a suite of products to the oil and gas pipeline
industry. From 1992 to 2009, Mr. Mansfield was employed with Bredero Shaw, the world’s largest provider of
protective coatings for the oil and gas pipeline industry, most recently as Vice President Strategic Planning. During
his tenure with Bredero Shaw, Mr. Mansfield served in numerous roles including Vice President Controller, and
Commercial General Manager, Europe, Africa & the former Soviet Union region, and played a key role in strategy
development and merger and acquisition activities as the company grew from annual revenues of $100 million to
over $900 million. He is a Fellow member of the Association of Chartered Certified Accountants.
Grant Dewbre: Appointed Chief Operating Officer in July 2021. Mr. Dewbre was formerly Senior Vice President,
Middle East & North Africa for the Company since December 2017. He was responsible for facilities in Fujairah,
United Arab Emirates ("U.A.E."), Dammam, Saudi Arabia, Gujarat, India, and Beni Suef, Egypt. Before joining the
Company, Mr. Dewbre served as Managing Director for Seaway Heavy Lifting in Houston, Texas, a Dutch offshore
construction company, which was part of the Subsea 7 group from July 2015 to November 2017. In addition, he
was Senior Vice President for Ceona Offshore, a startup offshore construction specialist company based in London,
United Kingdom from December 2013 to June 2015. From March 2004 to November 2013, he held several roles,
including project management, sales, and commercial management, in Houston, Texas and Leiden, The
Netherlands, for Heerema Marine Contractors, a Dutch offshore construction company specialized in the installation
of fixed and floating offshore platforms as well as pipeline installation services. Mr. Dewbre has held various project
and plant management and commercial positions in the United States, United Kingdom, Malaysia, Azerbaijan, and
at other locations for Bredero Shaw, the world’s largest provider of protective coatings for the oil & gas pipeline
industry from October 1992 to February 2004.
D. Bryan Norwood: Appointed Vice President and CFO in November 2018. From 2014 to 2018, Mr. Norwood
served as CFO of API Perforating, LLC, an oilfield service company providing stage perforation and wireline
services. From 2012 to 2014, Mr. Norwood served as CFO of Dupre’ Energy Services, LLC, an oilfield service
company offering multiple services lines. From 2010 to 2012, Mr. Norwood was Vice President Finance for the
Environmental Services Division of PSC, LLC, a hazardous waste disposal company. From 1992 to 2010, Mr.
Norwood held several senior leadership positions, including CFO of Smith Equipment Rental and Services, LLC, a
regional oilfield service provider, Vice President and Treasurer of Key Energy Services, Inc., an oilfield multi-service
provider, and Corporate Controller and Vice President Finance-Americas with Bredero Shaw, the world's largest
provider of protective coatings for the oil and gas pipeline industry.
4
AVAILABLE INFORMATION
The Company files with, and furnishes to, the Securities and Exchange Commission ("SEC") reports, including annual
meeting materials, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K,
as well as amendments thereto. The Company maintains a website, www.permapipe.com, where these reports and
related materials are available free of charge as soon as reasonably practicable after the Company electronically
files with, or furnishes such material to, the SEC. The information on the Company's website is not part of this
Annual Report on Form 10-K and is not incorporated into this or any other filings by the Company with the SEC.
Item 1A. RISK FACTORS
The Company's business, financial condition, results of operations and cash flows are subject to various risks,
including, but not limited to, those set forth below, which could cause actual results to vary materially from recent
results or from anticipated future results. These risk factors should be considered together with information included
elsewhere in this Annual Report on Form 10-K.
Market Condition Risks
The Company's operations and earnings may be significantly affected by changes in oil and gas prices.
Oil and gas prices depend on local, regional, and global events or conditions that affect supply and demand. Any
material decline in oil or gas prices could have a material adverse effect on the demand for the Company's
products, its operations and financial condition.
The Company may be unable to purchase raw materials at favorable prices, or maintain beneficial
relationships with its suppliers, which could result in a shortage of supply, or increased pricing. There
can be no assurance regarding the availability of supply for key components of the Company's products. The lack
of supply of these components could result in an adverse effect on the financial condition of the Company. The steel
industry in particular is highly cyclical in nature, and at times, pricing can be highly volatile due to a number of
factors beyond the Company's control. The Company utilizes escalation clauses and bid expiration dates to mitigate
the impact of this volatility on its earnings. This volatility may negatively impact market conditions thus reducing
project activity and the Company's results of operations. If the United States or other countries in which the
Company operates impose tariffs on imports of raw materials, including steel, used in the Company's operations,
that could have a further adverse impact on our business.
The Company regularly updates its quoting system for the movements in raw material prices and seeks to recover
price differentials through increases in the selling price of the Company's products; however, the Company may not
always be successful, and any increase in raw material prices that is not offset by an increase in the Company's
prices that is accepted by customers could have an adverse effect on the Company's business, results of operations,
financial position and cash flows. In addition, if the Company is unable to acquire timely raw material supplies, it
may need to decline bid and order opportunities, which could also have an adverse effect on the Company's business,
results of operations, financial position and cash flows.
Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company
could experience delays and has incurred increased prices for raw materials used in our production processes. To
mitigate these impacts, the Company has implemented several strategies, including purchasing from alternative
suppliers and planning for material purchases farther in advance to ensure the Company has materials when
needed. The Company also adjusts its pricing to customers to offset the impacts of the raw material price increases.
The Company is unable to predict the duration of the current inflationary environment, raw material supply shortages
and transportation delays, and the resulting future disruptions to the Company’s operations are uncertain.
Decreases in government spending on projects using the Company’s products, and challenges to the
Company’s non-government customers’ liquidity and availability of capital funds, may adversely
impact demand for the Company’s products. Decreases in government spending on projects using the
Company's products can have a negative impact on the Company's sales volumes. Uncertainty about economic
market conditions poses risks that the Company's customers may postpone spending for capital improvement and
maintenance projects in response to tighter credit markets or negative financial news, which could have a material
adverse effect on the demand for the Company's products.
5
Financial Risks
The Company may be unable to maintain compliance with existing debt covenants, repay its debt or
renew its expiring international credit facilities. There is a risk that the Company may not be able to remain
in compliance with its credit agreement covenants. If there were an event of default under the Company's current
revolving credit facilities, the lenders could cause all amounts outstanding with respect to that debt to be due and
payable immediately. The Company cannot assure that its cash flow will be sufficient to fully repay amounts due
under any of the financing arrangements, if accelerated upon an event of default, or, that the Company would be
able to repay, refinance or restructure the payments under any such arrangements. Complying with the covenants
under the Company's domestic and/or foreign revolving credit facilities may limit management's discretion by
restricting options such as:
incurring additional debt;
•
• entering into transactions with affiliates;
• making investments or other restricted payments;
• paying dividends, capital returns, intercompany obligations and other forms of repatriation; and
•
creating liens.
The Company has approximately $4.0 million becoming due in the year ending January 31, 2024 under its various
foreign revolving lines of credit. The Company’s credit arrangements used by its Middle Eastern subsidiaries are
renewed on an annual basis. In addition to these credit arrangements, the Company also obtains financing in the
Middle East on a project-by-project basis. The Company has approximately $1.7 million becoming due in the year
ending January 31, 2024 under its project financing agreements. While the Company believes that it will be able to
renew its Middle East credit arrangements and will have continued access to individual project financing, there is no
assurance that such arrangements will be renewed or made available in similar amounts or on similar terms and
conditions as the current arrangements, or that such individual project financing will be available for projects that
the Company is interested in pursuing in the future.
Any replacement credit arrangements outside of the United States may further limit the Company’s ability to
repatriate funds from abroad. Repatriation of funds from certain countries may become limited based upon
regulatory restrictions or economically unfeasible because of the taxation of funds when moved to another subsidiary
or to the parent company. In addition, any refinancing, replacement or additional financing the Company may obtain
could contain similar or more restrictive covenants than those currently applicable to the Company. The Company’s
ability to comply with any covenants may be adversely affected by general economic conditions, political decisions,
industry conditions and other events beyond management’s control.
The Company may be unable to achieve sustained levels of profitability or positive cash flows in the
future. There is no guarantee that the Company will be able to achieve profitability or positive cash flows in the
future. The Company’s inability to successfully achieve profitability and positive cash flows may result in it
experiencing a serious liquidity deficiency resulting in material adverse consequences that could threaten its viability.
The Company extended credit to a customer for a project in the Middle East in 2013 and, if the
Company is unable to collect this account receivable, its future profitability could be adversely
impacted. One of the Company’s accounts receivable in the total amount of $2.7 million and $3.6 million as
of January 31, 2023 and 2022, respectively, has been outstanding for several years. As of January 31, 2023, the
entire balance represents a retention receivable that is payable upon the commissioning of the system. Due to
the long-term nature of the receivable, $2.5 million and $2.0 million were included in other long-term assets as of
January 31, 2023 and 2022, respectively. The Company completed all of its deliverables in 2015 under the related
contract, but the system has not yet been commissioned by the customer as additional activities must be completed
prior to the overall system completion and commissioning. Nevertheless, the Company has been engaged in ongoing
active efforts to collect this outstanding amount. The Company continues to engage with the customer to ensure
full payment of open balances, and during April 2022 received an updated acknowledgment of the outstanding
balances and assurances of payment from the customer. During 2022, the Company received a partial payment to
settle $0.9 million of the customer's outstanding balance. Further, the Company has been engaged by the customer
to perform additional work in the year ending January 31, 2024 under customary trade credit terms that supports
the continued cooperation between the Company and the customer. As a result, the Company did not reserve any
allowance against this outstanding receivable as of January 31, 2023. However, if the Company’s efforts to collect
6
on this account are not successful, the Company may recognize an allowance for all, or substantially all, of any such
then uncollected amounts.
The Company may be impacted by interpretations and changes in tax regulations and legislation
which could adversely affect the Company's results of operations. Tax interpretations, regulations, and
legislation in the various jurisdictions in which the Company operates are subject to measurement uncertainty and
the interpretations can impact net income, income tax expense or benefit, and income tax assets or liabilities. Tax
rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require
judgment by the Company that may be challenged by the applicable taxation authorities upon audit. Although the
Company believes its assumptions, judgements and estimates are reasonable, changes in tax laws or the Company's
interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for
income taxes in the Company's consolidated financial statements.
The Company’s ability to use its net operating loss carryforwards and certain other tax attributes may
be limited. The Company’s net operating loss (“NOL”) carryforwards in the U.S. could expire unused and be
unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under
U.S. tax law. As of January 31, 2023, the Company had $34.3 million of gross federal NOLs and $45.5 million of
gross state NOLs available to offset the Company’s future taxable income. Of the gross federal NOL amount, $26.9
million will begin to expire between tax years 2033 and 2038 and the remainder has an indefinite carryforward. The
state NOLs expire at various dates from 2023 to 2032. In addition, the Company's ability to use its NOLs may be
limited in the event of future changes in its stock ownership. As a result, if the Company earns net taxable income,
the Company’s ability to use its pre-change NOLs to offset U.S. federal taxable income may be subject to limitations,
which could potentially result in a future tax liability of the Company. In addition, at the state level, there may be
periods in the future during which the use of NOLs is suspended or otherwise limited, which could result in a state
tax liability which would otherwise not arise.
The Company may be required to reverse previously recorded revenue and profits as a result of
inaccurate estimates made in connection with the Company’s "over time" revenue recognition. Certain
of the Company's contracts recognize revenues using periodic recognition of income. For these contracts, the
Company uses the "over time" accounting method. This methodology allows revenue and profits to be recognized
proportionally over the life of a contract by comparing the amount of the cost incurred to date against the total
amount of cost expected to be incurred. The effect of revisions to revenue and total estimated cost is recorded
when amounts are known or can be reasonably estimated. Revisions can occur at any time and could be material.
On a historical basis, management believes that reasonably reliable estimates of the progress towards completion
on long-term contracts have been made. However, given the uncertainties associated with these types of contracts,
it is possible for actual cost to vary from estimates previously made, which may result in reductions or reversals of
previously recorded revenue and profits.
The Company’s failure to establish and maintain effective internal control over financial reporting
could harm its business and financial results. The Company’s management is responsible for establishing and
maintaining effective internal control over financial reporting. Internal control over financial reporting is a process
to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance
with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that the Company would prevent or detect a
misstatement of its financial statements or fraud.
As of January 31, 2023, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s internal control over financial reporting was not effective due to an identified material weakness. The
material weakness was regarding the design and operating effectiveness of controls related to the existence of
inventory during the fiscal year ended January 31, 2023. Specifically, the Company failed to appropriately perform
cycle count procedures at one of the Company's operating facilities, resulting in a significant adjustment during the
full physical inventory count at period end. Further, management review of the process and resulting adjustments
on a periodic basis failed to identify the issue. The material weakness did not result in any material misstatements
to the Company’s consolidated financial statements. A material weakness is defined as a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. If
the current material weakness is not remediated, or if additional material weaknesses or significant deficiencies in
7
the Company’s internal control over financial reporting are discovered or occur in the future, the Company’s
consolidated financial statements may contain material misstatements and the Company could be required to restate
its financial results. The failure to maintain an effective system of internal control over financial reporting could limit
the Company’s ability to report its financial results accurately and in a timely manner or to detect and prevent fraud
and could also cause a loss of investor confidence and decline in the market price of the Company’s common stock.
See further discussion of the material weakness, including the Company's planned remediation procedures, in Item
9A., Controls and Procedures.
Business Condition Risks
Delays in the timing of order receipt, execution, delivery and acceptance for the Company’s
products generally negatively impact the Company’s operating results. Since the Company's revenues are
based on discrete projects, the Company's operating results in any reporting period generally are negatively
impacted as a result of large declines in the level of overall market demand or delays in the timing of project
execution phases.
The Company may not be able to successfully negotiate progress-billing arrangements for its large
contracts, which could adversely impact the Company’s working capital needs, cash flows and credit
risk. The Company sells systems and products under contracts that allow the Company to either bill upon the
completion of certain agreed upon milestones, or upon actual shipment of the system or product. The Company
attempts to negotiate progress-billing milestones on large contracts to help manage its working capital and cash
flows, and to reduce the credit risk associated with these large contracts. Consequently, changes in accepted billing
terms of contracts could impact the Company's requirements for working capital and cash flows.
Aggressive pricing by existing competitors and the entrance of new competitors in the markets in
which the Company operates could drive down the Company's profits and reduce the Company's
revenue. The Company's business is highly competitive. Some of the Company's competitors are larger and have
more resources than the Company. Additionally, many of the Company's products are also subject to competition
from alternative technologies and alternative products. In periods of declining demand, the Company's fixed cost
structure may limit its ability to cut costs, which may be a competitive disadvantage compared to companies with
more flexible cost structures, or may result in reduced operating margins, operating losses and negative cash flows.
The Company may be subject to claims for damages for defective products. The Company warrants its
products to be free of certain defects. The Company has, from time to time, had claims alleging defects in its
products. The Company may experience material product liability claims in the future and it could incur significant
costs to defend such claims. While the Company currently has product liability insurance that it believes to be
sufficient, the Company cannot be certain that its product liability insurance coverage will be adequate for liabilities
that may be incurred in the future or that such coverage will continue to be available to the Company on
commercially reasonable terms. Any claims relating to defective products that result in liabilities exceeding the
Company's insurance coverage could have a material adverse effect on the Company's business, results of
operations, financial position and cash flows.
The Company may not be able to recover costs and damages from vendors that supply defective
materials. The Company may receive defective materials from its vendors that are incorporated into the Company's
products during the manufacturing process. While the Company mitigates this risk through contract terms,
traceability and specifications, and has recourse to recover from vendors the costs to repair, remake or replace
defective products, such costs could be greater than the amount that can be recovered. Such excess costs could
have an adverse effect on the Company's business, results of operations, financial position and cash flows.
Product and service orders included in the Company’s backlog may be reduced or cancelled. The
Company defines backlog as the revenue value resulting from confirmed customer purchase orders that have not
yet been recognized as revenue. However, by industry practice, orders may be canceled or modified at any time. If
a customer cancels an order, the customer is normally responsible for all finished goods produced or shipped, all
direct and indirect costs incurred and also for a reasonable allowance for anticipated profits. No assurance can be
given that these amounts will be recovered after cancellation. Any reduction or cancellation of orders may result in
revenues that are lower than expected.
8
The Company's results of operations could be adversely affected by changes in international
regulations and other activities of governmental agencies related to the Company’s operations.
International sales represent a significant portion of the Company's total sales. The Company's sales to foreign
customers were 63.8% and 66.2% in the years ended January 31, 2023 and 2022, respectively. The Company's
anticipated growth and profitability may require increasing foreign sales volume and may necessitate further
international expansion. The Company's results of operations could be adversely affected by changes in trade,
monetary and fiscal policies, laws and regulations, other activities of governments, agencies and similar
organizations, and other factors. These factors include, but are not limited to, changes in a country's or region's
economic or political conditions, trade regulations affecting production, pricing and marketing of products, local
labor conditions and regulations, reduced protection of intellectual property rights, changes in the regulatory or legal
environment, restrictions on currency exchange activities, burdensome taxes and tariffs and other trade barriers. We
cannot predict the impact of changes in foreign policies adopted by the current U.S. administration will have on our
business. International risks and uncertainties, including changing social and economic conditions as well as
terrorism, political hostilities and war, could lead to reduced international sales and reduced profitability associated
with such sales. In addition, these risks can include extraordinarily delayed collections of accounts receivable.
Because the Company conducts a significant portion of its business activities in the Gulf Cooperation Council ("GCC"),
the political and economic events of the countries that comprise the GCC can have a material effect on the
Company’s business, results of operations, financial condition, and cash flows.
Due to the international scope of the Company’s operations, it is subject to a complex system of commercial and
trade regulations around the world. The Company’s foreign subsidiaries are governed by laws, rules and business
practices that differ from those of the United States. If the activities of these entities do not comply with U.S. laws
or business practices or the Company’s Code of Business Conduct, then violations of these laws may result in severe
criminal or civil sanctions, which could disrupt the Company’s business, and result in an adverse effect on the
Company’s reputation, business and results of operations or financial condition. The Company cannot predict the
nature, scope, or effect of future regulatory requirements to which its operations might be subject or the manner
in which existing laws might be administered or interpreted.
General Risks
The Company may be unable to retain its senior management and key personnel. The Company's ability
to meet its strategic and financial goals will depend to a significant extent on the continued contributions of its
senior management and key personnel. Future success will also depend in large part on the Company's ability to
identify, attract, motivate, effectively utilize and retain highly qualified managerial, sales, marketing and technical
personnel. The loss of senior management or other key personnel or the inability to identify, attract and retain
qualified personnel in the future could make it more difficult to manage the Company's business and could adversely
affect operations and financial results.
The Company may not be able to achieve the expected benefits from its growth initiatives. The
Company's cyclical or general expansion may result in unanticipated adverse consequences, including significant
strain on management, operations and financial systems, as well as on the Company's ability to attract and retain
competent employees. In the future, the Company may seek to grow its business by investing in new or existing
facilities, making acquisitions, entering partnerships and joint ventures, or constructing new facilities, which could
introduce additional risks, including:
strain on working capital;
•
• diversion of management's attention away from other activities, which could impair the operation of existing
businesses;
failure to successfully integrate an acquired business or facility into existing operations;
inability to maintain key pre-acquisition business relationships;
loss of key personnel of an acquired business or facility;
exposure to unanticipated liabilities; and
failure to realize efficiencies, synergies and cost savings.
•
•
•
•
•
As a result of these and other factors, including general economic risks, the Company may not be able to realize
the expected benefits from future acquisitions, new facility developments, partnerships, joint ventures or other
investments.
9
The Company and its operations may be negatively impacted by pandemics and other public health
crises. Pandemics and other public health crises may impact the Company's office locations and manufacturing
facilities, as well as those of its customers and third-party vendors, including through the effects of facility closures,
reductions in operating hours and other social distancing efforts. The Company’s results of operations, financial
condition, liquidity and cash flow may in the future be materially adversely affected by pandemics and other public
health crises, although the extent of any such impacts cannot be predicted.
The Company's information technology systems may be negatively affected by cybersecurity threats.
The Company faces risks relating to cybersecurity attacks that could cause the loss of confidential information and
other business disruptions. The Company relies extensively on computer systems to process transactions and
manage its business, and its business is at risk from and may be impacted by cybersecurity attacks. The Company
employs a number of measures to prevent, detect and mitigate these threats, which include data and email
encryption, strong password management policy,
frequent
backups. However, there is no guarantee such efforts will be successful in preventing a cyber-attack. A successful
attack could adversely affect the Company's reputation and results of operations, including through lawsuits by third
parties. The Audit Committee of the Board of Directors is responsible for overseeing the adequacy and effectiveness
of the Company's cybersecurity policies and programs.
firewall systems, anti-virus software, and
Item 1B. UNRESOLVED STAFF COMMENTS - None.
Item 2. PROPERTIES
Location
Illinois
Louisiana
Tennessee
Texas
Canada
India
Kingdom of Saudi Arabia Owned building and office space on leased land
United Arab Emirates
Leased and/or Owned
Leased building and office space
Owned building and leased land
Leased building and office space
Leased office space
Owned building with office space on owned land; leased land and leased office space
Leased building, office space and land
Leased office space and building on leased land; owned building with office space on
leased land
Leased building and office space
Egypt
For further information, see Note 6 - Leases, in the Notes to Consolidated Financial Statements.
Item 3.
LEGAL PROCEEDINGS - As of January 31, 2023, the Company had no material pending litigation.
Item 4. MINE SAFETY DISCLOSURES - Not applicable.
10
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the Nasdaq Global Market under the symbol "PPIH".
As of April 25, 2023, there were approximately 58 stockholders of record and other additional stockholders for whom
securities firms or banks acted as nominees.
The Company has never declared or paid a cash dividend and does not anticipate paying any cash dividends on its
common stock in the foreseeable future. Management presently intends to retain all available funds for the
development of the Company's business and for use as working capital, including potentially repurchasing its
common stock. The Company's credit facilities also restrict dividend payments. Future dividend policy will depend
upon the Company's earnings, capital requirements, financial condition, credit agreement restrictions and other
relevant factors. For further information, see "Financing" in Item 7 and Note 5 - Debt, in the Notes to Consolidated
Financial Statements.
The Transfer Agent and Registrar for the Company's common stock is Broadridge Corporate Issuer Solutions, Inc.,
P.O. Box 1342 Brentwood, NY 11717, (877) 830-4936 or (720) 378-5591.
Unregistered Sales of Equity Securities and Use of Proceeds
The Company has not made any sale of unregistered securities during the preceding three fiscal years.
Issuer Purchases of Equity Securities
On December 7, 2022 the Board of Directors authorized the use of $1.0 million remaining under the share
repurchase program previously approved on October 4, 2021 that expired on October 3, 2022. Share repurchases
may be executed through open market or in privately negotiated transactions over the course of the 12 months
following the Board of Directors authorization. The repurchase program approved on October 4, 2021 authorized
the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock.
Stock repurchases were permitted to be executed through open market or privately negotiated transactions,
depending upon current market conditions and other factors. In total, the Company used $2.0 million of the $3.0
million authorized to repurchase its outstanding shares of common stock under the program.
On July 26, 2022, the Company retired 239,168 shares of treasury stock previously repurchased under the stock
repurchase program. The retirement was recorded as a reduction to common stock based on the par value of the
shares, and the excess over par value was recorded as a decrease to retained earnings in accordance with
Accounting Standards Codification ("ASC") 505-30, Equity - Treasury Stock.
The following table sets forth information with respect to repurchases by the Company of its shares of common
stock during 2021 and 2022 (In thousands, except per share data):
Period
October 1, 2021 - October 31, 2021
November 1, 2021 - November 30, 2021
December 1, 2021 - December 31, 2021
January 1, 2022 - January 31, 2022
July 1, 2022 - July 31, 2022
December 1, 2022 - December 31, 2022
Total
Total number
of shares
purchased
59 $
21
56
98
5
3
242
11
Total number
of shares
purchased as
part of
publicly
announced
plans or
programs
Approximate
dollar value
of shares
that may yet
be purchased
under the
plans or
programs
Average
price paid
per share
8.45
8.55
7.99
8.81
8.85
8.61
59 $
21
56
98
5
3
242
2,505
2,323
1,872
1,008
964
939
Item 6. [RESERVED]
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A"), which can be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes,"
"plans," "likely," and "probable," or the negative thereof or other variations thereon or comparable terminology,
constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act and are subject to the safe harbors created thereby. These
statements should be considered as subject to the many risks and uncertainties that exist in the Company's
operations and business environment. Such risks and uncertainties could cause actual results to differ materially
from those projected as a result of many factors, including, but not limited to, those under the headings Cautionary
Statements Regarding Forward Looking Information and Item 1A. Risk Factors.
The analysis presented below and discussed in more detail throughout this MD&A was organized to provide
instructive information for better understanding the Company's results of operations, financial condition and cash
flows. However, this MD&A should be read in conjunction with the Consolidated Financial Statements in Item 8 of
this Annual Report on Form 10-K, including the notes thereto and the risk factors contained herein. The Company's
fiscal year ends on January 31. Years, results and balances described as 2022 and 2021 are for the fiscal years
ended January 31, 2023 and 2022, respectively.
The Company is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. Since
the Company's revenues are significantly dependent upon discrete projects, the Company's operating results in any
reporting period could be negatively impacted as a result of variations in the level of the Company's discrete project
orders or delays in the timing of the specific project phases.
Ukraine War
The war in Ukraine and resulting Russian oil and gas boycotts have added to the surge in oil prices which has
impacted some of the Company's material and freight costs. However, the Company has not experienced any direct
impact from the disruption in this region. The Company does not source materials from this region, nor does it serve
this market in any material nature.
Oil and Gas Market
Increases in oil prices helped to improve demand for the Company's products in the oil and gas markets during
the year ended January 31, 2023 as compared to the year ended January 31, 2022, the Company's activity level in
Canada has increased significantly due to the rise in energy prices. See Item 1A. Risk Factors for additional
information.
Liquidity Position
The Company further enhanced its liquidity position on September 17, 2021 when it executed an extension of a
Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as
administrative agent and lender, providing for a new five-year $18 million Senior Secured Revolving Credit Facility,
subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”). 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. See further discussion of the Company's liquidity position as of January 31, 2023 in "Liquidity
and capital resources" below. Additionally, as of January 31, 2023, the Company had borrowed $5.7 million and
had an additional $10.2 million of borrowing remaining available under its foreign revolving credit arrangements.
12
Supply Chain Constraints and Inflationary Impacts
Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company
could experience delays and has incurred increased prices for raw materials used in the Company's production
processes. To mitigate these impacts, the Company has implemented several strategies, including purchasing from
alternative suppliers and planning for material purchases further in advance to ensure the Company
has materials when needed. The Company also adjusts its pricing to customers to offset the impacts of the raw
material price increases. See Item 1A. Risk Factors for additional information.
Results of Operations
Consolidated Results of Operations:
($ in thousands)
Year Ended January 31,
2023
2022
Change
favorable/
(unfavorable)
Net sales
Gross profit
Percent
of Net
Sales
Percent
of Net
Sales
Amount
$ 142,569
Amount
$ 138,552
Amount
$
4,017
38,301
27%
32,530
23%
5,771
General and administrative expenses
21,994
15%
19,893
14%
(2,101)
Selling expense
Interest expense, net
Other income
Income before income taxes
Income tax expense
Net income
5,163
4%
4,526
3%
(637)
2,119
533
9,558
3,613
5,945
828
1,044
8,327
2,265
6,062
(1,291)
(511)
1,231
(1,348)
(117)
Year ended January 31, 2023 Compared to year ended January 31, 2022
Net sales
Net sales were $142.6 million and $138.6 million in the years ended January 31, 2023 and 2022, respectively. The
increase of $4.0 million was primarily a result of higher sales volumes in North America and Saudi Arabia.
Gross profit
Gross profit was $38.3 million, or 27% of net sales and $32.5 million, or 23% of net sales, in the years ended
January 31, 2023 and 2022, respectively. The increase of $5.8 million was driven by higher sales volumes and
improved gross margins as a result of the mix of projects globally.
General and administrative expense
General and administrative expenses were $22.0 million and $19.9 million in the years ended January 31, 2023 and
2022, respectively. The increase of $2.1 million was primarily related to higher compensation costs.
13
Selling expenses
Selling expenses were $5.2 million and $4.5 million in the years ended January 31, 2023 and 2022,
respectively. The increase of $0.7 million was due to the expansion of the Company's sales force in the current
period.
Interest expense, net
Net interest expense was $2.1 million and $0.8 million in the years ended January 31, 2023 and 2022,
respectively. The increase of $1.3 million was related to increased borrowings and higher interest rates.
Other income, net
Net other income was $0.5 million and $1.0 million in the years ended January 31, 2023 and 2022, respectively. The
current year amount includes income from the release of the Company's liability for a past project and insurance
recovery income, partially offset by a non-cash pre-tax settlement charge resulting from the termination of the
Company's pension plan. The prior year amount includes the receipt of grants from the Canadian government in
response to the COVID-19 pandemic. Grants to the Company under these programs ended in the second quarter of
2021.
Income taxes
The Company's worldwide effective tax rates ("ETR") were 37.8% and 27.2% in the years ended January 31, 2023
and 2022, respectively. The change in the ETR was primarily due to additional United States tax expense due to the
inclusion of income from foreign jurisdictions with low effective tax rates, inability to recognize tax benefits on losses
in the United States due to a full valuation allowance and changes in the mix of income and loss in the various
tax jurisdictions.
For further information, see Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.
Net income
Net income was $5.9 million and $6.1 million in the years ended January 31, 2023 and 2022, respectively. The
increase in net income was a result of the changes discussed above.
Liquidity and capital resources
Cash and cash equivalents as of January 31, 2023 were $5.8 million compared to $8.2 million on January 31,
2022. On January 31, 2023 $0.1 million was held in the United States, and $5.7 million was held by the
Company's foreign subsidiaries. The Company's working capital was $41.9 million on January 31, 2023 compared
to $40.0 million on January 31, 2022. As of January 31, 2023, the Company had $9.9 million of borrowing capacity
under the Renewed Senior Credit Facility in North America and $10.2 million of borrowing capacity under its foreign
revolving credit agreements. The Company had $4.4 million borrowed under the Renewed Senior Credit Facility
and $5.7 million borrowed under its foreign revolving credit agreements at January 31, 2023.
Net cash used in operating activities in the years ended January 31, 2023 and 2022 was $1.2 million
and $2.6 million, respectively. This decrease of $1.4 million was due primarily to increases in accounts receivable
and prepaid expenses and other current assets, partially offset by increases in accounts payable and accrued
compensation and payroll taxes in the current year compared to the prior year.
Net cash used in investing activities in the years ended January 31, 2023 and 2022 was $6.4 million and $2.3 million,
respectively. The increase of $4.1 million was primarily due to investment in the Middle East and Canada during the
period.
14
Net cash provided by financing activities in the years ended January 31, 2023 and 2022 was $4.5 million and
$6.2 million, respectively. The main source of cash from financing activities during the year ended January 31,
2023 was net proceeds from borrowings of approximately $5.5 million under the Company's credit facilities, as
compared to the year ended January 31, 2022, when net proceeds were approximately $0.5 million. Additionally,
during the year ended January 31, 2022, the Company received net proceeds of $9.5 million as a result of the sale
and leaseback of its land and buildings in Lebanon, Tennessee (the "Property"), partially offset by payment of $4.8
million to settle the mortgage debt. Debt totaled $24.3 million and $21.9 million as of January 31, 2023 and 2022,
respectively. For additional information, see Note 5 - Debt, in the Notes to Consolidated Financial Statements.
The Company believes it will have the ability to satisfy all working capital needs and any planned capital expenditures
for the twelve months following the issuance of the Consolidated Financial Statements, based on its existing cash
on hand, cash flows from operations and available credit facilities.
There was no restricted cash held in the United States on January 31, 2023 or January 31, 2022. Restricted cash
held by foreign subsidiaries was $1.0 million and $1.6 million as of January 31, 2023 and 2022, respectively.
Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and
guarantees.
The following table summarizes the Company's estimated contractual obligations on January 31, 2023
(In thousands)
Contractual obligations
Revolving line - North America (1)
Mortgage note (2)
Revolving lines - foreign (3)
Long-term finance obligation (4)
Term loan - foreign
Subtotal
Finance lease obligations
Operating lease obligations (5)
Uncertain tax position obligations (6)
Year Ending January 31,
Total 2024 2025 2026 2027 2028 Thereafter
$ 4,387 $ 4,387 $
-
4,772
251
3,517
5,714 5,714
-
112
9,327
8,709
5
5
-
24,205 10,469
12,226
145
-
10,995 1,533
7,523
-
901
20,650
- $
251
-
137
-
388
-
650
-
$ 36,246 $ 12,147 $ 1,038 $
- $
251
-
201
-
452
-
442
-
894 $
- $
251
-
168
-
419
-
443
-
862 $
- $
251
-
-
-
251
-
404
-
655 $
145
901
Total
(1) Interest obligations exclude floating rate interest on debt payable under the North American revolving line of
credit. Based on the amount of such debt on January 31, 2023, and the weighted average interest rate of
8.50% on that debt, such interest was being incurred at an annual rate of approximately $0.4 million.
(2) Scheduled maturities, excluding interest.
(3) Scheduled maturities of foreign revolver line, excluding interest.
(4) This schedule represents the cash payments to be made under the lease agreement for the land and buildings
sold by the Company in Lebanon, Tennessee and leased back from the purchaser in April 2021. These amounts
differ from the liabilities presented as debt in the consolidated balance sheet as the debt amount represents
future payments discounted to the present date. Refer to Note 5 - Debt, in the Notes to the Consolidated
Financial Statements for further discussion of the transaction.
(5) Minimum contractual amounts, assuming no changes in variable expenses.
(6) Refer to Note 7 - Income taxes, in the Notes to Consolidated Financial Statements for a description of the
uncertain tax position obligations.
Financing
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
15
Senior Credit Facility are currently guaranteed by Perma-Pipe Canada, Inc. Each of the North American Loan Parties
other than Perma-Pipe Canada, Inc. is a borrower under the Renewed Senior Credit Facility (collectively, the
“Borrowers”).
The Borrowers have used and will continue to use borrowings under the Renewed Senior Credit Facility (i) to fund
future capital expenditures; (ii) to fund ongoing working capital needs; and (iii) for other corporate purposes,
including potentially additional stock repurchases. Borrowings under the Renewed Senior Credit Facility bear interest
at a rate equal to an alternate base rate, London Inter-Bank Offered Rate ("LIBOR") or a LIBOR successor rate
index, plus, in each case, an applicable margin. The applicable margin is based on a fixed charge coverage ratio
("FCCR") range. Interest on alternate base rate borrowings is the alternate base rate (as defined in the Renewed
Senior Credit Facility) plus an applicable margin ranging from 1.00% to 1.50%, based on the FCCR in the most
recently reported period. Interest on LIBOR or LIBOR successor rate borrowings is the LIBOR rate (as defined in
the Renewed Senior Credit Facility) plus an applicable margin ranging from 2.00% to 2.50%, based on the FCCR in
the most recently reported period. Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused
portion of the Renewed Senior Credit Facility.
Subject to certain exceptions, borrowings under the Renewed Senior Credit Facility are secured by substantially all
of the North American Loan Parties’ assets. The Renewed Senior Credit Facility matures on September 20, 2026.
Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among
other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate
acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition,
the North American Loan Parties may not make capital expenditures in excess of $5.0 million annually, plus a limited
carryover of unused amounts. Further, the North American Loan Parties may not make repurchases of the
Company's common stock in excess of $3.0 million.
The Renewed Senior Credit Facility also contains a free cash flow financial covenant (the "FCF covenant")
requiring the North American Loan Parties to achieve a ratio of its EBITDA to the sum of scheduled cash principal
payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior
Credit Facility to be not less than 1.10 to 1.00 for any five consecutive days in which the undrawn availability is less
than $3.0 million or any day in which the undrawn availability is less than $2.0 million. As of January 31, 2023, the
calculated ratio was greater than 1.10 to 1.00. In order to cure any future breach of the FCF covenant by the North
American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not
a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the Company’s
Consolidated EBITDA, would result in pro forma compliance with the FCF covenant. The Company was in compliance
with these covenants as of January 31, 2023.
The Renewed Senior Credit Facility contains customary events of default. If an event of default occurs and is
continuing, then PNC may terminate all commitments to extend further credit and declare all amounts outstanding
under the Renewed Senior Credit Facility due and payable immediately. In addition, if any of the North American
Loan Parties or certain of their subsidiaries become the subject of voluntary or involuntary proceedings under any
bankruptcy, insolvency or similar law, then any outstanding obligations under the Renewed Senior Credit Facility
will automatically become immediately due and payable. Loans outstanding under the Renewed Senior Credit Facility
will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate: (i) while a bankruptcy
event of default exists; or (ii) upon the lender's request, during the continuance of any other event of default.
As of January 31, 2023, the Company had borrowed an aggregate of $4.4 million at a rate of 8.50% and had $9.9
million available under the Renewed Senior Credit Facility. As of January 31, 2022, the Company had borrowed an
aggregate of $0.6 million and had $8.5 million available under the Renewed Senior Credit Facility.
Revolving lines - 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 has a revolving line for 8.0 million U.A.E. Dirhams (approximately $2.2 million at January 31, 2023)
from a bank in the U.A.E. The facility has an interest rate of approximately 8.38%. The facility was renewed in July
2022 and is now set to expire in July 2025.
16
The Company has a revolving line for 17.5 million U.A.E. Dirhams (approximately $4.8 million at January 31, 2023)
from a bank in the U.A.E. The facility has an interest rate of approximately 8.38% and expired in January 2023,
however the Company is in the process of renewing it. The Company is in regular communication with
the bank throughout the renewal process and the facility has continued without interruption or penalty.
The Company has a credit agreement for project financing with a bank in the U.A.E. for 1.0 million U.A.E. Dirhams
(approximately $0.3 million at January 31, 2023). This credit arrangement is in the form of project financing at rates
competitive in the U.A.E. The line is secured by the contract for a project being financed by the Company's U.A.E.
subsidiary. The facility has an interest rate of approximately 8.38% and is expected to expire in June 2023 in
connection with the completion of the project.
The Company has a credit agreement for project financing with a bank in the U.A.E. for 2.0 million U.A.E. Dirhams
(approximately $0.5 million at January 31, 2023). This credit arrangement is in the form of project financing at rates
competitive in the U.A.E. The line is secured by the contract for a project being financed by the Company's U.A.E.
subsidiary. The facility has an interest rate of approximately 8.38% and is expected to expire in May 2024 in
connection with the completion of the project.
In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a
revolving line of 100.0 million Egyptian Pounds (approximately $3.3 million at January 31, 2023). This credit
arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets
(such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement
established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to
undertake any additional debt. The facility has an interest rate of approximately 8.00% and expired in June 2022,
however the Company has started the renewal process for this credit arrangement. The Company is in regular
communication with the bank throughout the renewal process and the facility has continued without interruption or
penalty.
In December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for
28.2 million Egyptian Pounds. As this project has progressed and the Company has made collections, the facility has
decreased to a current amount of 11.2 million Egyptian Pounds (approximately $0.4 million at January 31, 2023).
This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by the
contract for a project being financed by the Company's Egyptian subsidiary. The facility has an interest rate of
approximately 8.00% and expired in November 2022, however, the Company is in the process of extending it in
connection with the completion of the project. The Company is in regular communication with the bank throughout
the process and the facility has continued without interruption or penalty.
In August 2022, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a
revolving line of 100.0 million Egyptian Pounds (approximately $3.3 million at January 31, 2023). This credit
arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets
(such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement
established a maximum leverage ratio allowable, to be tested annually at fiscal year-end. The facility has an interest
rate of approximately 18.25% and is set to expire in August 2023.
In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi
Arabia for a revolving line of 25.0 million Saudi Riyal (approximately $6.7 million at January 31, 2023) This credit
arrangement is in the form of project financing at rates competitive in Saudi Arabia. The line is secured by certain
assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary. The facility has an interest rate of
approximately 9.15% and is set to expire in April 2023.
These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the
countries in which the Company operates. The lines are secured by certain equipment, certain assets (such as
accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require
a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated
debt. In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional
debt. The Company guarantees only a portion of the subsidiaries' debt, including foreign debt. As of January 31,
2023, the amount of foreign subsidiary debt guaranteed by the Company was approximately $0.5 million.
17
The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi
Arabia as of January 31, 2023, with the exception of those arrangements that have expired and have not yet been
renewed. Although certain of the arrangements have expired and the borrowings could be required to be
repaid immediately by the banks, the Company is in regular communication with the respective banks throughout
the renewal process and all of the arrangements have continued without interruption or penalty. On January 31,
2023, interest rates were based on the Emirates Inter Bank Offered Rate plus 3.00% to 3.50% per annum for the
U.A.E. credit arrangements, two of which have a minimum interest rate of 4.50% per annum, based on the stated
interest rate in the agreement for the Egypt credit arrangement, and based on the Saudi Inter Bank Offered Rate
plus 3.5% for the Saudi Arabia credit arrangement. Based on these base rates, as of January 31, 2023, the
Company's interest rates ranged from 8.00% to 18.25%, with a weighted average rate of 10.72%, and the Company
had facility limits totaling $21.5 million under these credit arrangements. As of January 31, 2023, $5.6 million of
availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for
performance guarantees. Additionally, as of January 31, 2023, the Company had borrowed $5.7 million and had an
additional $10.2 million of borrowing remaining available under the foreign revolving credit arrangements. The
foreign revolving lines balances as of January 31, 2023 and 2022, were included as current maturities of long-term
debt in the Company's consolidated balance sheets.
Finance obligation - buildings and land. On April 14, 2021, the Company entered into a purchase and sale
agreement (the "Purchase and Sale Agreement"). Pursuant to the terms of the Purchase and Sale Agreement, the
Company sold the Property for $10.4 million. The transaction generated net cash proceeds of $9.1 million.
Concurrently with the sale of the Property, the Company paid off the approximately $0.9 million remaining on the
mortgage note on the Property to its lender. The Company used the remaining proceeds to repay its borrowings
under the Senior Credit Facility, for strategic investments, and for general corporate needs. Concurrent with the sale
of the Property, the Company entered into a 15-year lease agreement (the “Lease Agreement”), whereby the
Company is leasing back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent
increases of 2.00%. Under the Lease Agreement, the Company has four consecutive options to extend the term of
the lease by five years for each such option.
In accordance with ASC 842, Leases, this transaction was recorded as a failed sale and leaseback as the present
value of lease payments exceeded substantially all of the fair value of the underlying asset. The Company utilized
an incremental borrowing rate of 8.00% to determine the finance obligation to record for the amounts received
and will continue to depreciate the assets. The current portion of the finance obligation of $0.1 million is recognized
in current maturities of long-term debt and the long-term portion of $9.2 million is recognized in long-term finance
obligation on the Company's consolidated balance sheets as of January 31, 2023. The net carrying amount of the
financial liability and remaining assets will be zero at the end of the lease term.
Liquidity from Canadian government grants
The Company's subsidiary, Perma-Pipe Canada, Ltd., received relief in the form of grants from the Canadian
government of approximately $0.7 million during the year ended January 31, 2022. Grants to the Company ended
in the second quarter of 2021 and no additional grants have been received since then. The proceeds from these
grants were recognized in other (expense)/income in the consolidated statement of operations.
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
approximately $39.1 million as of January 31, 2023, with a remaining balance due in the amount of $2.7 million, all
of which pertains to retention clauses within the agreements with the Company's customer, and which become
payable by the customer when this project is fully tested and commissioned. Of this retention amount, $2.5
million is classified in a long-term receivable account.
The Company has been engaged in ongoing active efforts to collect the outstanding amount. The Company continues
to engage with the customer to ensure full payment of open balances, and during June 2022 received a partial
payment to settle $0.9 million of the customer's outstanding balances. Further, the Company has been engaged by
the customer to perform additional work in 2023 under customary trade terms that supports the continued
cooperation between the Company and the customer. As a result, the Company did not reserve any allowance
18
against the remaining outstanding balances as of January 31, 2023. However, if the Company’s efforts to collect on
this account are not successful, the Company may recognize an allowance for all, or substantially all, of any such
then uncollected amounts.
Stock repurchase plan
On December 7, 2022 the Board of Directors authorized the use of $1.0 million remaining under the share
repurchase program previously approved on October 4, 2021 that expired on October 3, 2022. Share repurchases
may be executed through open market or in privately negotiated transactions over the course of the 12 months
following the Board of Directors authorization.
The repurchase program approved on October 4, 2021 authorized the Company to use up to $3.0 million for the
purchase of its outstanding shares of common stock. Stock repurchases were permitted to be executed through
open market or privately negotiated transactions, depending upon current market conditions and other factors. In
total, the Company used $2.0 million of the $3.0 million authorized to repurchase its outstanding shares of common
stock under the program.
On July 26, 2022, the Company retired 239,168 shares of treasury stock previously repurchased under the stock
repurchase program. The retirement was recorded as a reduction to common stock based on the par value of the
shares, and the excess over par value was recorded as a decrease to retained earnings in accordance with ASC 505-
30, Equity - Treasury Stock.
Critical accounting estimates and policies
The Company's significant accounting policies are discussed in the Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report on Form 10-K. The application of certain of these policies requires significant
judgments or a historical based estimation process that can affect the results of operations and financial position of
the Company, as well as the related footnote disclosures. The Company bases its estimates on historical experience
and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates,
the revisions are included in the Company's results of operations for the period in which the actual amounts become
known.
Revenue recognition. In accordance with Accounting Standards Codification ("ASC") 606, Revenue from
Contracts with Customers, the Company recognizes revenue for certain contracts when a customer obtains control
of promised goods or services. Other contracts recognize revenues using periodic recognition of income. For these
contracts, the Company uses the "over time" accounting method. Under this approach, income is recognized in each
reporting period based on the status of the uncompleted contracts and the current estimates of costs to
complete. The amount of revenue recognized is determined by the relationship of costs incurred to the total
estimated costs of the contract. Provisions are made for estimated losses on uncompleted contracts in the period in
which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including
those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and
income. Such revisions are recognized in the period in which they are determined. Claims for additional
compensation due to the Company are recognized in contract revenues when realization is probable, the amount
can be reliably estimated and the amount is not subject to reversal. See Note 4 - Revenue recognition, in the Notes
to Consolidated Financial Statements, for more detail.
Income taxes. Deferred income taxes have been provided for temporary differences arising from differences in
the basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary
differences have been recorded at the current tax rate. The Company assesses its deferred tax assets for realizability
at each reporting period. The Company has not recognized any tax benefits on losses in the United States due to a
full valuation allowance applied against its deferred tax assets.
The Company recognizes a tax position in its consolidated financial statements only after determining that the
relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting
the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has
a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For further
information, See Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.
19
New accounting pronouncements. See Recent accounting pronouncements in Note 2 - Significant accounting
policies, in the Notes to Consolidated Financial Statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company for each of the two years in the years ended January 31,
2023 and 2022 and the notes thereto are set forth as an exhibit hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e)) under the Exchange Act as of January 31, 2023. This evaluation included consideration of the controls,
processes and procedures that are designed to ensure that information required to be disclosed by the Company in
the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that such
information is accumulated and communicated to the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this
evaluation, the certifying officers have concluded that, as of the end of the period covered by this Annual Report on
Form 10-K, our disclosure controls and procedures were not effective because of the material weakness described
below under "Management's Annual Report on Internal Control Over Financial Reporting."
Management's Annual Report on Internal Control Over Financial Reporting. The Company's management
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) under the Exchange Act. As required by Rule 13a-15(c) under the Exchange Act, the
Company's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of its internal control over financial reporting as of January 31, 2023. The
framework on which such evaluation was based is contained in the report entitled Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company's system of internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis.
Management has identified a material weakness in the Company's internal control over financial reporting regarding
the design and operating effectiveness of controls related to the existence of inventory during the fiscal year ended
January 31, 2023. Specifically, the Company failed to appropriately perform cycle count procedures at one of the
Company's operating facilities, resulting in a significant adjustment during the full physical inventory count at period
end. Further, management review of the process and resulting adjustments on a periodic basis failed to identify the
issue. The material weakness did not result in any material misstatements to the Company’s consolidated financial
statements.
As a result, at January 31, 2023 and on the date of this Annual Report, the Company's internal control over financial
reporting is not effective.
20
Remediation Plan for the Material Weakness in Internal Control over Financial Reporting: To address
the material weakness, the Company will do the following:
• Hire additional resources and expertise to oversee inventory management;
• Engage outside consultants for additional expertise to review current practices and advise management on
industry best practices regarding policies and procedures;
• Redesign cycle count parameters to ensure higher value and more active inventory parts are counted more
frequently and include additional review by finance and accounting personnel to ensure any necessary
adjustments are addressed in a timely manner;
• Perform full physical inventory counts periodically throughout the year at the Lebanon, Tennessee plant until
management determines that other inventory controls are operating effectively to prevent or detect a
material misstatement; and
• Review and update physical organization of inventory to better identify and segregate inventory.
The Company anticipates the actions described above and resulting improvements in controls will strengthen the
Company's processes, procedures and controls related to inventory management and will address the related
material weakness described above. However, the material weakness cannot be considered fully remediated until
the remediation processes have been in operation for a period of time and successfully tested.
Changes in Internal Control over Financial Reporting. While the Company continues to implement design
enhancements to our internal control procedures, we believe that, other than the changes described above regarding
the ongoing remediation efforts, there were no changes to our internal control over financial reporting which were
identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Exchange Act during
the fourth quarter of the fiscal year ending January 31, 2023 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Attestation Report of Registered Public Accounting Firm. This Annual Report does not contain an attestation
report of our independent registered public accounting firm related to internal control over financial reporting
because the rules for smaller reporting companies provide an exemption from the attestation requirement.
Item 9B. OTHER INFORMATION - Not applicable.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
- Not applicable.
21
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for its 2023 annual meeting of stockholders.
Information with respect to executive officers of the Company is included in Part I, Item 1, hereof under the caption
"Information about our Executive Officers".
Item 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for its 2023 annual meeting of stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table provides information regarding the number of shares of common stock that may be issued upon
exercise of outstanding options, warrants and rights under the Company's equity compensation plans and the
weighted average exercise price and number of shares of common stock remaining available for issuance under
those plans as of January 31, 2023.
Number of shares to be
issued upon exercise of
outstanding options,
warrants and rights
(a)(1)
40,100
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)(1)
$10.85
Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding shares
reflected in column (a))
(c)(2)
260,981
Plan Category
Equity compensation plans
approved by stockholders
(1) The amounts shown in columns (a) and (b) of the above table do not include 267,377 outstanding
shares of restricted stock granted under the Company's 2013 Omnibus Stock Incentive Plan as amended
on June 14, 2013, the 2017 Omnibus Stock Incentive Plan as amended on June 13, 2017 ("2017 Plan")
or the 2021 Omnibus Stock Incentive Plan dated May 26, 2021 ("2021 Plan").
(2) The 2017 Plan expired in June 2020. The 2021 Plan will expire on May 26, 2024.
The other information with respect to this item is incorporated herein by reference to the Company's definitive
proxy statement for its 2023 annual meeting of stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for its 2023 annual meeting of stockholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for its 2023 annual meeting of stockholders.
22
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
a. List of documents filed as part of this report:
(1) Financial Statements - Consolidated Financial Statements of the Company
Refer to Part II, Item 8 of this report.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
(3) Report of Registered Public Accounting Firm (Grant Thornton LLP, Houston, Texas, Auditor Firm
ID 248)
b. Exhibits: The exhibits, as listed in the Exhibit Index included herein, are submitted as a separate
section of this report.
c. The response to this portion of Item 15 is submitted under 15a(2) above.
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Perma-Pipe International Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Perma-Pipe International Holdings, Inc. (a
Delaware corporation) and subsidiaries (the “Company”) as of January 31, 2023 and 2022, the related consolidated
statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the two years in
the period ended January 31, 2023, and the related notes and financial statement schedule (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of January 31, 2023 and 2022, and the results of its operations and its cash
flows for each of the two years in the period ended January 31, 2023, in conformity with accounting principles
generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue at U.S. operating entities for specialty piping systems and coating is recognized using the input method
over time
As described further in Note 2 and 4 to the consolidated financial statements, the Company’s U.S. operating entities
record specialty piping and coating systems revenue over time based upon the costs incurred to date relative to the
estimated total contract costs. Significant changes in estimates could have a material effect on the Company’s results
of operations. We identified revenue being recognized using the input method over time as a critical audit matter.
The principal considerations for our determination that revenue recognition using the input method over time is a
critical audit matter are the Company’s estimates include all labor and materials necessary to complete the contract
to arrive at the total contract costs. These estimates are based on management’s assessment of the current status
of the contract and historical results.
24
Our audit procedures included the following, among others:
• Evaluated the design and implementation of controls that are designed to address the reasonableness of
estimates of costs to complete contracts;
• Obtained supporting documentation for a sample of contract costs incurred to date as well as recalculated
revenue recognition based on the percentage of completion;
• Evaluated the reasonableness of management's estimates related to the cost to complete for contracts through
testing of the key components of the estimated costs to complete, including: labor, materials, and
subcontractor costs;
• Performed a retrospective review to assess management's historical ability to accurately estimate the
transaction price and cost to complete the contracts including investigating significant cost changes; and
• Obtained confirmations of significant contract terms and status for a sample of contracts.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2004.
Houston, Texas
April 27, 2023
25
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses:
General and administrative expenses
Selling expense
Total operating expenses
Income from operations
Interest expense, net
Other income, net
Income before income tax
Income tax expense
Net income
Weighted average common shares outstanding
Basic
Diluted
Earnings per share
Basic
Diluted
Year ended January 31,
2023
2022
$
142,569 $
104,268
38,301
138,552
106,022
32,530
21,994
5,163
27,157
11,144
2,119
533
9,558
3,613
19,893
4,526
24,419
8,111
828
1,044
8,327
2,265
$
5,945 $
6,062
7,976
8,116
8,110
8,395
$
$
0.75 $
0.73 $
0.75
0.72
See accompanying Notes to Consolidated Financial Statements.
Note: Earnings per share calculations could be impacted by rounding.
26
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss)/income
Currency translation adjustments, net of tax
Minimum pension liability adjustment, net of tax
Other comprehensive (loss)/income
Year ended January 31,
2023
2022
$
5,945 $
6,062
(4,592)
1,247
(3,345)
(357)
540
183
Comprehensive income
$
2,600 $
6,245
See accompanying Notes to Consolidated Financial Statements.
27
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Trade accounts receivable, less allowance for doubtful accounts of $612 at
$
January 31, 2023 and $486 at January 31, 2022
Inventories, net
Prepaid expenses and other current assets
Unbilled accounts receivable
Costs and estimated earnings in excess of billings on uncompleted contracts
Total current assets
Long-term assets
Property, plant and equipment, net of accumulated depreciation
Operating lease right-of-use asset
Deferred tax assets
Goodwill
Other long-term assets
Total long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable
Accrued compensation and payroll taxes
Commissions and management incentives payable
Revolving line - North America
Current maturities of long-term debt
Customers' deposits
Outside commission liability
Operating lease liability short-term
Other accrued liabilities
Billings in excess of costs and estimated earnings on uncompleted contracts
Income taxes payable
$
$
Total current liabilities
Long-term liabilities
Long-term debt, less current maturities
Long-term finance obligation
Deferred compensation liabilities
Deferred tax liabilities
Operating lease liability long-term
Other long-term liabilities
Total long-term liabilities
Stockholders' equity
January 31,
2023
2022
5,773 $
1,020
42,010
14,738
7,357
11,634
3,126
85,658
26,518
4,527
696
2,227
3,340
37,308
122,966 $
14,754 $
1,179
2,735
4,387
6,227
1,951
2,029
912
5,549
1,743
2,324
43,790
4,389
9,215
1,608
909
4,252
1,019
21,392
8,214
1,557
44,449
13,760
5,444
2,656
2,309
78,389
24,756
11,213
811
2,342
5,890
45,012
123,401
13,618
1,612
2,047
634
6,750
3,072
1,255
1,496
4,616
1,277
2,020
38,397
5,059
9,327
3,379
712
11,270
800
30,547
Common stock, $.01 par value, authorized 50,000 shares; 8,004 issued and
outstanding at January 31, 2023 and 8,152 issued and outstanding at
January 31, 2022
Additional paid-in capital
Treasury stock, 3 shares at January 31, 2023 and 234 shares at January 31,
2022
Retained earnings/(accumulated deficit)
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
$
80
62,562
82
61,766
(26)
1,617
(6,449)
57,784
122,966 $
(1,992)
(2,295)
(3,104)
54,457
123,401
See accompanying Notes to Consolidated Financial Statements.
28
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Additional
Paid-in
Capital
(Accumulated
Deficit)/
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
Treasury
Stock
Common
Stock
Total stockholders' equity on
January 31, 2021
$
82 $
60,875 $
(8,357) $
Net income
Common stock issued under
stock plans, net of shares
used for tax withholding
Repurchase of common
stock
Stock-based compensation
expense
Pension liability adjustment
Foreign currency translation
adjustment
Total stockholders' equity on
-
-
-
-
-
-
-
6,062
- $
-
(210)
-
1,101
-
-
-
-
-
(1,992 )
-
-
-
-
-
-
(3,287) $
49,313
-
-
-
-
540
(357)
6,062
(210)
(1,992)
1,101
540
(357)
January 31, 2022
$
82 $
61,766 $
(2,295) $
(1,992 ) $
(3,104) $
54,457
Net income
Common stock issued under
stock plans, net of shares
used for tax withholding
Repurchase of common
stock
Retirement of treasury stock
Stock-based compensation
expense
Pension liability adjustment
Foreign currency translation
adjustment
Total stockholders' equity on
-
-
5,945
-
-
(206)
-
-
-
(2)
-
-
-
-
-
-
(2,033)
(69 )
2,035
1,002
-
-
-
-
-
-
-
-
-
-
-
-
-
1,247
5,945
(206)
(69)
-
1,002
1,247
(4,592)
(4,592)
January 31, 2023
$
80 $
62,562 $
1,617 $
(26 ) $
(6,449) $
57,784
Common stock shares
Balances at beginning of year
Treasury stock purchased
Shares issued, net of shares used for tax withholding
Prior year adjustments
Balance end of year
2022
8,151,754
(7,935)
94,416
(234,281)
8,003,954
2021
8,164,989
(234,281)
221,046
-
8,151,754
See accompanying Notes to Consolidated Financial Statements.
29
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash used in operating
Year ended January 31,
2023
2022
$
5,945 $
6,062
activities
Depreciation and amortization
Deferred tax expense/(benefit)
Stock-based compensation expense
Non-cash pension termination
Provision on uncollectible accounts
Loss on disposal of fixed assets
Gain from insurance recovery
Changes in operating assets and liabilities
Accounts payable
Accrued compensation and payroll taxes
Inventories
Proceeds from insurance recovery for inventory
Customers' deposits
Income taxes receivable and payable
Prepaid expenses and other current assets
Accounts receivable
Costs and estimated earnings in excess of billings on uncompleted
contracts
Unbilled accounts receivable
Other assets and liabilities
Net cash used in operating activities
Investing activities
Capital expenditures
Proceeds from insurance recovery for property and equipment
Proceeds from sales of property and equipment
Net cash used in investing activities
Financing activities
Proceeds from revolving lines
Payments of debt on revolving lines
Proceeds from term loan
Payments of debt on mortgage
Proceeds from finance obligation, net of issuance costs
Payments of principal on finance obligation
Payments of other debt
Decrease in drafts payable
Payments on finance lease obligations, net
Repurchase of common stock
Stock options exercised and taxes paid related to restricted shares vested
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net (decrease)/increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash - beginning of period
Cash, cash equivalents and restricted cash - end of period
Supplemental cash flow information
Interest paid
Income taxes paid
$
$
3,646
479
1,002
826
142
43
(565)
1,094
65
(1,505)
539
(336)
450
(123)
(3,232)
(351)
(9,814)
454
(1,241)
(6,975)
499
94
(6,382)
96,903
(91,438)
-
-
-
(88)
(263)
42
(338)
(69)
(206)
4,543
102
(2,978)
9,771
6,793 $
4,324
(195)
1,101
-
20
41
-
3,196
2,094
(1,618)
-
990
955
(2,205)
(21,331)
2,213
(351)
2,130
(2,574)
(2,262)
-
9
(2,253)
23,106
(22,639)
23
(892)
9,538
(124)
(260)
58
(375)
(1,992)
(210)
6,233
(10)
1,396
8,375
9,771
2,045 $
2,480
791
1,346
See accompanying Notes to Consolidated Financial Statements.
30
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2023 AND 2022
(Tabular amounts presented in thousands, except per share data)
Note 1 - Business information
Perma-Pipe International Holdings, Inc. ("PPIH", the "Company", or the "Registrant") was incorporated in Delaware
on October 12, 1993. The Company is engaged in the manufacture and sale of products in one distinct segment:
Piping Systems.
Fiscal year. The Company's fiscal year ends on January 31. Years, results and balances described
as 2022 and 2021 are for the fiscal years ended January 31, 2023 and 2022, respectively.
Nature of business. The Company engineers, designs, manufactures and sells specialty piping systems, and leak
detection systems. Specialty piping systems include: (i) insulated and jacketed district heating and cooling ("DHC")
piping systems for efficient energy distribution from central energy plants to multiple locations, (ii) primary and
secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products, and
(iii) the coating and/or insulation of oil and gas gathering and transmission pipelines. The Company's leak detection
systems are sold with its piping systems or on a stand-alone basis, to monitor areas where fluid intrusion may
contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services or damage
equipment or property.
Geographic information. Net sales attributed to a geographic area are based on the destination of the product
shipment. Sales to foreign customers were 63.8% in 2022 compared to 66.2% in 2021. Long-lived assets are based
on the physical location of the assets and consist of property, plant and equipment.
(In thousands)
Net sales
United States
Canada
Middle East/North Africa
India
Europe
Other
Total net sales
Property, plant and equipment, net of accumulated depreciation
United States
Canada
Middle East/North Africa
India
Total property, plant and equipment, net of accumulated
$
$
$
2022
2021
51,557 $
36,482
50,432
3,311
456
331
142,569 $
46,770
28,302
51,543
11,101
194
642
138,552
5,920 $
9,290
10,677
631
6,415
9,750
7,595
996
depreciation
$
26,518 $
24,756
31
Note 2 - Significant accounting policies
Use of estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition. During 2022 and 2021 and in accordance with Accounting Standards Codification
("ASC") 606, Revenue from Contracts with Customers, the Company recognizes revenue for certain contracts when
a customer obtains control of promised goods or services. Other contracts recognize revenues using periodic
recognition of income. For these contracts, the Company uses the "over time" accounting method. Under this
approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the
current estimates of costs to complete. The amount of revenue recognized is determined by the relationship of costs
incurred to the total estimated costs of the contract. Provisions are made for estimated losses on uncompleted
contracts in the period in which such losses are determined. Changes in job performance, job conditions, and
estimated profitability, including those arising from contract penalty provisions and final contract settlements, may
result in revisions to costs and income. Such revisions are recognized in the period in which they are determined.
Claims for additional compensation due to the Company are recognized in contract revenues when realization is
probable, the amount can be reliably estimated and the amount is not subject to reversal. See Note 4 - Revenue
recognition for more detail.
Shipping and handling. Shipping and handling costs are included in cost of sales, and the amounts invoiced to
customers relating to shipping and handling are included in net sales.
Sales tax. Sales tax is reported on a net basis in the consolidated financial statements.
Operating cycle. The length of contracts vary but are typically less than one year. The Company includes in current
assets and liabilities amounts realizable and payable in the normal course of contract completion unless completion
of such contracts extends significantly beyond one year.
Consolidation. The consolidated financial statements include the accounts of the Company and its domestic and
foreign subsidiaries, all of which are wholly owned. All intercompany balances and transactions have been
eliminated.
Translation of foreign currency. Assets and liabilities of consolidated foreign subsidiaries are translated into U.S.
dollars at exchange rates in effect at year-end. Revenues and expenses are translated at weighted average exchange
rates prevailing during the year. The resulting translation adjustments are included in stockholders' equity as part
of accumulated other comprehensive income (loss). Gains or losses on foreign currency transactions and the related
tax effects are reflected in net income. The aggregated foreign exchange transaction loss recognized in the income
statement was $0.3 million and $0.1 million in 2022 and 2021, respectively.
Contingencies. The Company is subject to various legal proceedings and claims that arise in the ordinary course
of business, including those involving environmental, tax, product liability and general liability claims. The Company
accrues for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably
estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes of these
matters, and its experience in contesting, litigating and settling other similar matters. The Company does not
currently anticipate the amount of any ultimate liability with respect to these matters will materially affect the
Company's financial position, liquidity or future operations.
Cash and cash equivalents. All highly liquid investments with a maturity of three months or less when purchased
are considered to be cash equivalents. Cash and cash equivalents were $5.8 million and $8.2 million as of January
31, 2023 and 2022, respectively. On January 31, 2023, $0.1 million was held in the United States and $5.7 million
was held by foreign subsidiaries. On January 31, 2022, less than $0.1 million was held in the United States and $8.2
million was held by foreign subsidiaries.
Accounts payable included drafts payable of $0.2 million on January 31, 2023 and 2022.
32
Restricted cash. There was no restricted cash held in the United States on January 31, 2023 or 2022. Restricted
cash held by foreign subsidiaries was $1.0 million and $1.6 million as of January 31, 2023 and 2022, respectively.
Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and
guarantees.
(In thousands)
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash shown in the statement of cash
flows
2022
2021
5,773 $
1,020
8,214
1,557
6,793 $
9,771
$
$
Accounts receivable. The majority of the Company's accounts receivable are due from geographically dispersed
contractors and manufacturing companies. Credit is extended based on an evaluation of a customer's financial
condition. In the United States, collateral is not generally required. In the United Arab Emirates ("U.A.E."), Saudi
Arabia, Egypt and India letters of credit are usually obtained for significant orders. Accounts receivable are due
within various time periods specified in the terms applicable to the specific customer and are stated at amounts due
from customers net of an allowance for claims and doubtful accounts. Standard payment terms are net 30 days.
The allowance for doubtful accounts is based on specifically identified amounts in customers' accounts, where future
collectability is deemed uncertain. Management may exercise its judgment in adjusting the provision as a
consequence of known items, such as current economic factors and credit trends. Past due trade accounts receivable
balances are written off when the Company's collection efforts have been unsuccessful in collecting the amount due
and the amount is deemed uncollectible. The write off is recorded against the allowance for doubtful accounts.
In 2015, the Company completed a project in the Middle East with billings in the aggregate amount of approximately
$41.9 million. The system has not yet been commissioned by the customer. Nevertheless, the Company has settled
approximately $39.1 million as of January 31, 2023, with a remaining balance due in the amount of $2.7 million, all
of which pertains to retention clauses within the agreements with the Company's customer, and which become
payable by the customer when this project is fully tested and commissioned. Of this retention amount, $2.5
million is classified in a long-term receivable account.
The Company has been engaged in ongoing active efforts to collect this outstanding amount. The Company
continues to engage with the customer to ensure full payment of open balances, and during June 2022 received a
partial payment to settle $0.9 million of the customer's outstanding balances. Further, the Company has been
engaged by the customer to perform additional work in 2023 under customary trade terms that supports the
continued cooperation between the Company and the customer. As a result, the Company did not reserve any
allowance against the remaining outstanding balances as of January 31, 2023. However, if the Company’s efforts to
collect on this account are not successful, the Company may recognize an allowance for all, or substantially all, of
any such then uncollected amounts.
For the years ended January 31, 2023 and 2022, respectively, no one customer accounted for greater than 10% of
the Company's consolidated net sales.
As of January 31, 2023, no one customer accounted for greater than 10% of accounts receivable. As of January 31,
2022, one customer accounted for 11.9% of accounts receivable.
Concentration of credit risk. The Company maintains its U.S. cash in bank deposit accounts at financial
institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC"). Cash balances are below FDIC
limits. The Company has not experienced any losses in such accounts. The Company's foreign cash is held in
accounts at multiple institutions in the various countries in which the Company operates, limiting the concentration
of risk internationally. The Company has a broad customer base doing business in all regions of the United States
as well as other areas in the world.
33
Accumulated other comprehensive loss. Accumulated other comprehensive loss represents the change in
equity from non-owner transactions and consisted of foreign currency translation and minimum pension liability.
(In thousands)
Equity adjustment foreign currency, gross
Minimum pension liability, gross
Subtotal excluding tax effect
Tax effect of equity adjustment foreign currency
Tax effect of minimum pension liability
Total accumulated other comprehensive loss
2022
2021
(6,707) $
-
(6,707)
258
-
(6,449) $
(1,947)
(1,362)
(3,309)
91
114
(3,104)
$
$
Inventories. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-
in, first-out method for all inventories.
(In thousands)
Raw materials
Work in process
Finished goods
Subtotal
Less allowance
Inventories, net
2022
2021
14,992 $
750
203
15,945
1,207
14,738 $
13,909
426
527
14,862
1,102
13,760
$
$
Long-lived assets. Property, plant and equipment are stated at cost. Interest is capitalized in connection with the
construction of facilities and amortized over the estimated useful life of the asset. Long-lived assets are reviewed
for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable.
If such a review indicates impairment, the carrying amount of such assets is reduced to an estimated fair value.
Depreciation is computed using the straight-line method over the estimated useful lives of assets, which range from
three to 30 years. Leasehold improvements are depreciated over the remaining life of the lease or its useful life,
whichever is shorter. Amortization of assets under capital leases is included in depreciation. Depreciation expense
was approximately $3.7 million and $4.1 million in the years ended January 31, 2023 and 2022, respectively.
(In thousands)
Land, buildings and improvements
Machinery and equipment
Furniture, office equipment and computer systems
Transportation equipment
Subtotal
Less accumulated depreciation
Property, plant and equipment, net of accumulated depreciation
2022
2021
22,276 $
54,200
3,727
2,727
82,930
56,412
26,518 $
22,748
50,534
3,941
2,000
79,223
54,467
24,756
$
$
Impairment of long-lived assets. The Company's assessment of long-lived assets, and other identifiable
intangibles is based upon factors that market participants would use in accordance with the accounting guidance
for the fair value measurement of assets. At January 31, 2023, the Company performed a qualitative analysis
assessment to determine if it was more likely than not that the fair values of the Company's long-lived assets
exceeded their carrying values. The Company assessed three asset groups as part of this analysis: United States,
Canada and Middle East. The qualitative assessment indicated that it was more likely than not that the fair values
of the Company's long-lived assets exceeded their carrying values for all three asset groups. Therefore, it was
determined that there was no impairment of the Company's long-lived assets for the year ended January 31,
2023. The Company will continue testing for potential impairment at least annually or as otherwise required by
applicable accounting standards.
34
Goodwill. The purchase price of an acquired company is allocated between intangible assets and the net tangible
assets of the acquired business with the residual of the purchase price recorded as goodwill. All identifiable goodwill
as of January 31, 2023 and 2022, is attributable to the purchase of the remaining 50% interest in Perma-Pipe
Canada, Ltd., which occurred in 2016.
The movement of the goodwill for the years ended January 31, 2023 and 2022 are as follows:
(In thousands)
Balance at beginning of year
Foreign exchange adjustment
Balance at end of year
2022
2021
$
$
2,342 $
(115)
2,227 $
2,332
10
2,342
The Company performs an impairment assessment of goodwill annually as of January 31, or more frequently if
triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset. Fair value
is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. At January 31, 2023, the Company elected to perform a qualitative analysis
assessment to determine if it was more likely than not that the fair value of the Company's Canadian reporting unit
exceeded its carrying value, including goodwill. The qualitative assessment did not identify any triggering events
that would indicate potential impairment of the Company's Canadian reporting unit. Therefore, it was determined
that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment for
the year ended January 31, 2023. The Company will continue testing for potential impairment at least annually or
as otherwise required by applicable accounting standards.
Other intangible assets with definite lives. The Company owns several patents including those covering
features of its piping and electronic leak detection systems. Patents are capitalized and amortized on a straight-line
basis over a period not to exceed the legal lives of the patents. The Company expenses costs incurred to renew or
extend the term of intangible assets. Gross patents were $2.7 million as of January 31, 2023 and 2022. Accumulated
amortization was approximately $2.6 million as of January 31, 2023 and 2022. Amortization over the next five fiscal
years will be less than $0.1 million and less than $0.1 million thereafter. Amortization expense is expected to be
recognized over the weighted-average period of 8.0 years.
Research and development. Research and development expenses consist of materials, salaries and related
expenses of engineering personnel and outside services for product development projects. Research and
development costs are expensed as incurred. Research and development expense was approximately $0.7
million and $0.4 million in the years ended January 31, 2023 and 2022, respectively.
Income taxes. Deferred income taxes have been provided for temporary differences arising from differences in
the basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary
differences have been recorded at the current tax rate. The Company assesses its deferred tax assets and liabilities
for realizability at each reporting period.
The Company recognizes a tax position in its consolidated financial statements only after determining that the
relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting
the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has
a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For further
information, see Note 7 - Income taxes.
One of the base broadening provisions of the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Act") is the Global Intangible
Low-Taxed Income provisions ("GILTI"). In accordance with guidance issued by the Financial Accounting Standards
Board ("FASB") staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost
if and when incurred. Thus, for the years ended January 31, 2023 and 2022, deferred taxes were computed without
consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a
part of the current portion of income tax expense.
The Inflation Reduction Act ("IRA") was signed into law in August 2022. The Company has evaluated the provisions
of the IRA and does not expect any material impact to its consolidated provision for income taxes.
35
Fair value of financial instruments. The carrying values of cash and cash equivalents, accounts receivable and
accounts payable are based upon reasonable estimates of their fair value due to their short-term nature. The
carrying amount of the Company's short-term debt, revolving line of credit and long-term debt approximate fair
value because the majority of the amounts outstanding accrue interest at variable rates.
Net income per common share. Earnings per share ("EPS") is computed by dividing net income by the weighted
income in
average number of common shares outstanding
2022 and 2021. Therefore, the Company adjusted for dilutive shares in 2022 and 2021, assuming conversion,
exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share. The
dilutive shares are in the following table:
(basic). The Company
reported net
Basic weighted average number of common shares outstanding
(in thousands)
Basic weighted average number of common shares outstanding
Dilutive effect of stock options and restricted stock units
Weighted average number of common shares outstanding assuming full
dilution
2022
2021
7,976
140
8,110
285
8,116
8,395
Restricted stock and stock options not included in the computation of diluted
EPS of common stock because the option exercise prices exceeded the
average market prices
Canceled options during the year
Restricted stock and stock options with an exercise price below the average
stock price
105
(11)
140
39
(33)
285
Equity-based compensation. The Company issues or has issued various types of stock-based awards to
employees and directors: restricted stock, deferred stock and stock options. Non-cash compensation expense
associated with restricted stock is based on the fair value of the common stock at the date of grant, and amortized
using the straight line method over the vesting period. Compensation expense associated with deferred stock which
has been awarded to the Board of Directors (non-employee) is based upon the fair value of the common stock at
the date of grant, and since the grant vests immediately it is expensed on the date of the grant. Stock compensation
expense for stock options is recognized ratably over the requisite service period of the award. The Black-Scholes
option-pricing model is utilized to estimate the fair value of option awards.
Treasury Stock. In accordance with ASC 505, Equity, the Company accounted for share repurchases pursuant to
its repurchase program under the cost method. This resulted in recognizing the shares as treasury stock, a reduction
of stockholders' equity on the Company's consolidated balance sheets and on the Company's consolidated
statements of stockholders' equity. These amounts included costs associated with the acquisition of the shares. On
July 26, 2022, the Company retired 239,168 shares of treasury stock previously repurchased under the stock
repurchase program. The retirement was recorded as a reduction to common stock based on the par value of the
shares, and the excess over par value was recorded as a decrease to retained earnings in accordance with ASC 505-
30, Equity - Treasury Stock.
Segments. Operating segments are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating decision maker ("CODM") in making decisions
regarding resource allocation and assessing performance the Company’s Chief Executive Officer is the CODM, and
he uses a combination of several management reports, including the Company's financial information in determining
how to allocate resources and assess performance. The Company has determined that it operates in one segment.
Recent accounting pronouncements. In March 2020, the FASB issued Accounting Standards Update ("ASU")
2020-04, Reference Rate Reform (Topic 848), which provides guidance designed to provide relief from the
accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by
the scheduled discontinuation of the London Inter-Bank Offered Rate ("LIBOR") on December 31, 2021. It also
provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging
relationships impacted by reference rate reform. The ASU provides the option to account for and present a
modification that meets the scope of the standard as an event that does not require contract remeasurement at the
modification date or reassessment of a previous accounting determination required under the relevant topic or
36
subtopic. This ASU is effective for all entities; however, application of the guidance is optional, is only available in
certain situations and is only available for companies to apply from March 12, 2020 until December 31, 2022. The
Company's Renewed Senior Credit Facility which matures on September 20, 2026, bears interest at a rate equal to
an alternate base rate, the LIBOR or a LIBOR successor rate index, plus, in each case, an applicable margin. Based
on the inclusion of the LIBOR successor rate index in the Renewed Senior Credit Facility, there was no material
impact on the Company's financial statements from the adoption of this standard.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. The new guidance affects loans, debt securities, trade receivables, net
investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets
not excluded from the scope that have the contractual right to receive cash. This ASU is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. A
recently adopted amendment has delayed the effective date until fiscal years beginning after December 15,
2022. The Company is currently evaluating this standard and does not expect a material impact to the financial
statements of the Company.
The Company evaluated other recent accounting pronouncements and does not expect them to have a material
impact on its consolidated financial statements.
Note 3 - Retention
A retention receivable is a portion of an outstanding receivable balance amount withheld by a customer until a
contract is fully completed as specified in the contract. Retention receivables of $2.4 million and $2.8 million were
included in the balance of trade accounts receivable as of January 31, 2023 and 2022, respectively. A retention
receivable of $2.9 million and $4.3 million was included in the balance of other long-term assets as of January 31,
2023 and 2022, respectively, due to the long-term nature of the receivables. See Note 2 - Accounts receivable for
further information regarding the future realization of these long-term balances.
Note 4 - Revenue recognition
The Company accounts for its revenues under ASC 606, Revenue from Contracts with Customers.
Revenue from contracts with customers
The Company defines a contract as an agreement that has approval and commitment from both parties, defined
rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability
is reasonably assured.
The Company’s standard revenue transactions are classified into two main categories:
1) Systems and Coating - which include all bundled products in which Perma-Pipe engineers, and manufactures
pre-insulated specialty piping systems, insulates subsea flowline pipe, subsea oil production equipment, and
land-lines. Additionally, this systems classification also includes coating applied to pipes and structures.
2) Products - which include cables, leak detection products, heat trace products, material/goods not bundled
with piping or flowline systems, and field services not bundled into a project contract.
In accordance with ASC 606-10-25-27 through 29, the Company recognizes specialty piping and coating systems
revenue over time as the manufacturing process progresses because one of the following conditions exist:
1) the customer owns the material that is being insulated or coated, so the customer controls the asset and
thus the work-in-process; or
2) the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system
being manufactured as evidenced by the Company’s right to payment for work performed to date plus profit
margin for products that have no alternative use to the Company.
37
Products revenue is recognized when goods are shipped or services are performed (ASC 606-10-25-30).
A breakdown of the Company's revenues by revenue class for the years ended January 31, 2023 and 2022 are as
follows (in thousands):
Products
Specialty Piping Systems and Coating
Revenue recognized under input method
Revenue recognized under output method
Total
2022
2021
Sales
$
14,626
% to
Total
Sales
% to
Total
10% $
13,575
10%
44,648
83,295
$ 142,569
44,778
31%
59%
80,199
100% $ 138,552
32%
58%
100%
The input method as noted in ASC 606-10-55-20 is used by certain U.S. operating entities to measure revenue by
the costs incurred to date relative to the estimated costs to satisfy the contract over time. Generally, these contracts
are considered a single performance obligation satisfied over time and due to the custom nature of the goods and
services, the "over time" method is the most faithful depiction of the Company’s performance as it measures the
value of the goods and services transferred to the customer. Costs include all material, labor, and direct costs
incurred to satisfy the performance obligations of the contract. Revenue recognition begins when projects costs are
incurred.
The output method as noted in ASC 606-10-55-17 is used by all other operating entities to measure revenue by the
direct measurement of the outputs produced relative to the remaining goods promised under the contract. Due to
the types of end customers, generally these contracts require formal inspection protocols or specific export
documentation for units produced, or produced and shipped, therefore, the output method is the most faithful
depiction of the Company’s performance. Depending on the conditions of the contract, revenue may be recognized
based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected
and shipped.
Some of the Company’s operating entities invoice and collect milestones or other contractual obligations prior to the
transfer of goods and services, but do not recognize revenue until the performance obligations are satisfied under
the methods discussed above.
Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract
and revenue is recognized using the modified contract value. Contract modifications that occur during the
manufacturing process (changes in scope of work, job performance, material costs, and/or final contract
settlements) are recognized in the period in which the revisions are known. Provisions are made for estimated losses
on uncompleted contracts in the contract liabilities account in the period in which such losses are determined.
Contract assets and liabilities
Contract assets represent revenue recognized in excess of amounts billed for contract work in progress for which
the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities
represent billings in excess of costs for contract work in progress for which the Company has a valid contract and
an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial
satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impact the period
end balances in these accounts.
The Company anticipates that substantially all costs incurred for uncompleted contracts as of January 31, 2023 will
be billed and collected within one year.
38
The following table shows the reconciliation of the cost in excess of billings:
(In thousands)
Costs incurred on uncompleted contracts
Estimated earnings
Earned revenue
Less billings to date
Costs in excess of billings, net
Balance sheet classification
Contract assets: Costs and estimated earnings in excess of billings on
uncompleted contracts
Contract liabilities: Billings in excess of costs and estimated earnings on
uncompleted contracts
Costs in excess of billings, net
2022
2021
18,342 $
9,370
27,712
26,329
1,383 $
20,021
12,030
32,051
31,019
1,032
3,126 $
2,309
(1,743)
1,383 $
(1,277)
1,032
$
$
$
$
Substantially all of the $1.3 million and $0.8 million contract liabilities balances at January 31, 2022 and
2021, respectively, were recognized in revenues during 2022 and 2021, respectively.
Unbilled accounts receivable:
The Company has recorded $11.6 million and $2.7 million of unbilled accounts receivable on the consolidated
balance sheets as of January 31, 2023 and 2022, respectively, from revenues generated by its subsidiaries in the
Middle East and North Africa. The Company has fulfilled all performance obligations and has recorded revenue under
the respective contracts. The deliverables under these contracts have been accepted by the customer and billings
will be made once the customer takes possession of or arranges shipping for the products. The Company anticipates
that substantially all of the amounts included in unbilled accounts receivable as of January 31, 2023 will be billed
within one year.
Practical expedients:
Costs to obtain a contract are not considered project costs as they are not usually incremental, nor does job duration
span more than one year. The Company applies the practical expedient for these types of costs and as such are
expensed in the period incurred.
As the Company's contracts are less than one year, the Company has applied the practical expedient regarding
disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially
satisfied as of the end of the reporting period.
Note 5 - Debt
(In thousands)
Revolving line - North America
Mortgage note
Revolving lines - foreign
Term loan - foreign
Finance lease obligations
Total debt
Unamortized debt issuance costs
Less current maturities
Total long-term debt
2022
2021
4,387 $
4,772
5,714
5
9,472
24,350
(132)
10,614
13,604 $
634
5,257
6,049
33
9,944
21,917
(147)
7,384
14,386
$
$
39
The following table summarizes the Company's scheduled maturities on January 31:
(In thousands)
Revolving line - North America
Mortgage note
Revolving lines - foreign
Long-term finance obligation
Term loan - foreign
Finance lease obligations
Total
Total 2024 2025 2026 2027 2028 Thereafter
$ 4,387 $ 4,387 $
-
3,517
4,772
251
5,714 5,714
-
8,709
112
9,327
-
5
5
-
145
145
$ 24,350 $ 10,614 $
12,226
- $
251
-
137
-
-
388 $
- $
251
-
201
-
-
452 $
- $
251
-
168
-
-
419 $
-
251
-
-
-
-
251 $
Revolving lines - North America. On September 20, 2018, the Company and certain of its U.S. and Canadian
subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a Revolving
Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as
administrative agent and lender, providing for a three-year $18 million Senior Secured Revolving Credit Facility,
subject to a borrowing base including various reserves (the “Senior Credit Facility”).
On September 17, 2021, the North American Loan Parties executed an extension of the Credit Agreement with PNC,
providing for a new five-year $18 million senior secured revolving credit facility, subject to a borrowing base
including various reserves (the “Renewed Senior Credit Facility”). The Company's obligations under the Renewed
Senior Credit Facility are currently guaranteed by Perma-Pipe Canada, Inc. Each of the North American Loan Parties
other than Perma-Pipe Canada, Inc. is a borrower under the Renewed Senior Credit Facility (collectively, the
“Borrowers”).
The Borrowers have used and will continue to use borrowings under the Renewed Senior Credit Facility (i) to fund
future capital expenditures; (ii) to fund ongoing working capital needs; and (iii) for other corporate purposes,
including potentially additional stock repurchases. Borrowings under the Renewed Senior Credit Facility bear interest
at a rate equal to an alternate base rate, LIBOR or a LIBOR successor rate index, plus, in each case, an applicable
margin. The applicable margin is based on a fixed charge coverage ratio ("FCCR") range. Interest on alternate base
rate borrowings is the alternate base rate (as defined in the Renewed Senior Credit Facility) plus an applicable
margin ranging from 1.00% to 1.50%, based on the FCCR in the most recently reported period. Interest on LIBOR
or LIBOR successor rate borrowings is the LIBOR rate (as defined in the Renewed Senior Credit Facility) plus an
applicable margin ranging from 2.00% to 2.50%, based on the FCCR in the most recently reported
period. Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior
Credit Facility.
Subject to certain exceptions, borrowings under the Renewed Senior Credit Facility are secured by substantially all
of the North American Loan Parties’ assets. The Renewed Senior Credit Facility matures on September 20, 2026.
Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among
other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate
acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition,
the North American Loan Parties may not make capital expenditures in excess of $5.0 million annually, plus a limited
carryover of unused amounts. Further, the North American Loan Parties may not make repurchases of the
Company's common stock in excess of $3.0 million.
The Renewed Senior Credit Facility also contains a free cash flow financial covenant (the "FCF covenant")
requiring the North American Loan Parties to achieve a ratio of its EBITDA to the sum of scheduled cash principal
payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior
Credit Facility to be not less than 1.10 to 1.00 for any five consecutive days in which the undrawn availability is less
than $3.0 million or any day in which the undrawn availability is less than $2.0 million. As of January 31, 2023, the
calculated ratio was greater than 1.10 to 1.00. In order to cure any future breach of the FCF covenant by the North
American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not
a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the Company’s
Consolidated EBITDA, would result in pro forma compliance with the FCF covenant. The Company was in compliance
with these covenants as of January 31, 2023.
40
The Renewed Senior Credit Facility contains customary events of default. If an event of default occurs and is
continuing, then PNC may terminate all commitments to extend further credit and declare all amounts outstanding
under the Renewed Senior Credit Facility due and payable immediately. In addition, if any of the North American
Loan Parties or certain of their subsidiaries become the subject of voluntary or involuntary proceedings under any
bankruptcy, insolvency or similar law, then any outstanding obligations under the Renewed Senior Credit Facility
will automatically become immediately due and payable. Loans outstanding under the Renewed Senior Credit Facility
will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) while a bankruptcy
event of default exists or (ii) upon the lender's request, during the continuance of any other event of default.
As of January 31, 2023, the Company had borrowed an aggregate of $4.4 million at a rate of 8.50% and had $9.9
million available under the Renewed Senior Credit Facility. As of January 31, 2022, the Company had borrowed an
aggregate of $0.6 million and had $8.5 million available under the Renewed Senior Credit Facility.
Finance obligation - buildings and land. On April 14, 2021, the Company entered into a purchase and sale
agreement (the "Purchase and Sale Agreement"). Pursuant to the terms of the Purchase and Sale Agreement, the
Company sold the Property for $10.4 million. The transaction generated net cash proceeds of $9.1 million.
Concurrently with the sale of the Property, the Company paid off the approximately $0.9 million remaining on the
mortgage note on the Property to its lender. The Company used the remaining proceeds to repay its borrowings
under the Senior Credit Facility, for strategic investments, and for general corporate needs. Concurrent with the sale
of the Property, the Company entered into a 15-year lease agreement (the “Lease Agreement”), whereby the
Company is leasing back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent
increases of 2.00%. Under the Lease Agreement, the Company has four consecutive options to extend the term of
the lease by five years for each such option.
In accordance with ASC 842, Leases, this transaction was recorded as a failed sale and leaseback as the present
value of lease payments exceeded substantially all of the fair value of the underlying asset. The Company utilized
an incremental borrowing rate of 8.00% to determine the finance obligation to record for the amounts received
and will continue to depreciate the assets. The current portion of the finance obligation of $0.11 million is recognized
in current maturities of long-term debt and the long-term portion of $9.2 million is recognized in long-term finance
obligation on the Company's consolidated balance sheets as of January 31, 2023. The net carrying amount of the
financial liability and remaining assets will be zero at the end of the lease term.
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 has a revolving line for 8.0 million U.A.E. Dirhams (approximately $2.2 million at January 31, 2023)
from a bank in the U.A.E. The facility has an interest rate of approximately 8.38%. The facility was renewed in July
2022 and is now set to expire in July 2025.
The Company has a revolving line for 17.5 million U.A.E. Dirhams (approximately $4.8 million at January 31, 2023)
from a bank in the U.A.E. The facility has an interest rate of approximately 8.38% and expired in January 2023,
however the Company is in the process of renewing it. The Company is in regular communication with
the bank throughout the renewal process and the facility has continued without interruption or penalty.
The Company has a credit agreement for project financing with a bank in the U.A.E. for 1.0 million U.A.E. Dirhams
(approximately $0.3 million at January 31, 2023). This credit arrangement is in the form of project financing at rates
competitive in the U.A.E. The line is secured by the contract for a project being financed by the Company's U.A.E.
subsidiary. The facility has an interest rate of approximately 8.38% and is expected to expire in June 2023 in
connection with the completion of the project.
The Company has a credit agreement for project financing with a bank in the U.A.E. for 2.0 million U.A.E. Dirhams
(approximately $0.5 million at January 31, 2023). This credit arrangement is in the form of project financing at rates
competitive in the U.A.E. The line is secured by the contract for a project being financed by the Company's U.A.E.
subsidiary. The facility has an interest rate of approximately 8.38% and is expected to expire in May 2024 in
connection with the completion of the project.
41
In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a
revolving line of 100.0 million Egyptian Pounds (approximately $3.3 million at January 31, 2023). This credit
arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets
(such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement
established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to
undertake any additional debt. The facility has an interest rate of approximately 8.00% and expired in June 2022,
however the Company has started the renewal process for this credit arrangement. The Company is in regular
communication with the bank throughout the renewal process and the facility has continued without interruption or
penalty.
In December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for
28.2 million Egyptian Pounds. As this project has progressed and the Company has made collections, the facility has
decreased to a current amount of 11.2 million Egyptian Pounds (approximately $0.4 million at January 31, 2023).
This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by the
contract for a project being financed by the Company's Egyptian subsidiary. The facility has an interest rate of
approximately 8.00% and expired in November 2022, however, the Company is in the process of extending it in
connection with the completion of the project. The Company is in regular communication with the bank throughout
the process and the facility has continued without interruption or penalty.
In August 2022, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a
revolving line of 100.0 million Egyptian Pounds (approximately $3.3 million at January 31, 2023). This credit
arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets
(such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement
established a maximum leverage ratio allowable, to be tested annually at fiscal year-end. The facility has an interest
rate of approximately 18.25% and is set to expire in August 2023.
In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi
Arabia for a revolving line of 25.0 million Saudi Riyal (approximately $6.7 million at January 31, 2023) This credit
arrangement is in the form of project financing at rates competitive in Saudi Arabia. The line is secured by certain
assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary. The facility has an interest rate of
approximately 9.15% and is set to expire in April 2023.
These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the
countries in which the Company operates. The lines are secured by certain equipment, certain assets (such as
accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require
a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated
debt. In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional
debt. The Company guarantees only a portion of the subsidiaries' debt, including foreign debt. As of January 31,
2023, the amount of foreign subsidiary debt guaranteed by the Company was approximately $0.5 million.
The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi
Arabia as of January 31, 2023, with the exception of those arrangements that have expired and have not yet been
renewed. Although certain of the arrangements have expired and the borrowings could be required to be repaid
immediately by the banks, the Company is in regular communication with the respective banks throughout the
renewal process and all of the arrangements have continued without interruption or penalty. On January 31, 2023,
interest rates were based on the Emirates Inter Bank Offered Rate plus 3.0% 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, based on the stated interest
rate in the agreement for the Egypt credit arrangement, and based on the Saudi Inter Bank Offered Rate plus 3.5%
for the Saudi Arabia credit arrangement. Based on these base rates, as of January 31, 2023, the Company's interest
rates ranged from 8.00% to 18.25%, with a weighted average rate of 10.72%, and the Company had facility limits
totaling $21.5 million under these credit arrangements. As of January 31, 2023, $5.6 million of availability was used
to support letters of credit to guarantee amounts committed for inventory purchases and for performance
guarantees. Additionally, as of January 31, 2023, the Company had borrowed $5.7 million and had an additional
$10.2 million of borrowing remaining available under the foreign revolving credit arrangements. The foreign
revolving lines balances as of January 31, 2023 and 2022, were included as current maturities of long-term debt in
the Company's consolidated balance sheets.
42
Mortgages. On July 28, 2016, the Company entered into a mortgage agreement secured by the Company's
manufacturing facility located in Alberta, Canada that matures on December 23, 2042. As of January 31, 2023, the
remaining balance on the mortgage in Canada is approximately 6.4 million Canadian Dollars ("CAD") (approximately
$4.8 million at January 31, 2023). The interest rate is variable, and was 8.30% at January 31, 2023. Principal
payments began in January 2018.
On June 19, 2012, the Company borrowed $1.8 million under a mortgage note secured by its manufacturing facility
in Lebanon, Tennessee. The proceeds were used for repayment of amounts borrowed. On April 14, 2021, the
Company entered into the Purchase and Sale Agreement discussed above. Concurrently with the sale, the Company
paid off the approximately $0.9 million remaining on the mortgage note on the Property to its lender.
Note 6 - Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the
definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance
sheet. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities short-
term, and operating lease liabilities long-term in the Company's consolidated balance sheets. Finance leases are
included in property, plant and equipment, current maturities of long-term debt, and long-term debt less current
maturities in the Company's consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent
the Company's obligation to make lease payments arising from the lease calculated by discounting fixed lease
payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease
liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the
lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in
straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization
of the ROU asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when
incurred. ROU assets and liabilities are recognized at the commencement date of the lease based on the present
value of lease payments over the lease term.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate
based on the information available at the commencement date in determining the present value of lease
payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on
a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.
In calculating the ROU asset and lease liability, the Company elects to combine lease and non-lease
components. The Company excludes short-term leases having initial terms of 12 months or less from the new
guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.
Operating Leases. In August 2020, the Company entered into a new lease in Abu Dhabi for land upon which the
Company has built a production facility. The annual payments are approximately 1.2 million U.A.E. Dirhams
(approximately $0.3 million at January 31, 2023), inclusive of rent and common charges, with escalation clauses in
the agreement. Rent payments were deferred until August 2022 and have now commenced. The lease expires in
August 2050.
In March and December 2022, the Company served Notices of Termination to its lessor for the Company's lease of
the land and buildings in Fujairah in the U.A.E. The Company served the Notices of Termination in connection with
the Company's intended relocation to a different facility in Abu Dhabi. The Company vacated portions of the leased
space in December 2022 and is expected to vacate the remaining space in April 2023. The first Notice of Termination
required that the Company pay an additional amount equal to three months' rent after that termination to enable
the lessor to prepare the assets for lease by another party. As a result of the termination, the Company has
recognized adjustments to the amounts recorded in the consolidated financial statements as of January 31, 2023.
The termination resulted in decreases of $0.4 million, $6.0 million and $5.5 million to operating lease liability short-
term, operating lease liability long-term and operating lease right-of-use asset, respectively, in the consolidated
balance sheets as of January 31, 2023. The termination also resulted in a decrease in rent expense of $1.1 million
in the consolidated statement of operations for the year ended January 31, 2023.
43
Finance Leases. In 2019, the Company obtained two finance leases for a total of CAD 1.1 million (approximately
$0.8 million at the prevailing exchange rates on the transaction dates) to finance vehicle equipment. The interest
rates for these finance leases were 8.0% per annum with monthly principal and interest payments of less than
$0.1 million. These leases mature in August 2023.
The Company has several significant operating lease agreements, with lease terms of one to 30 years, which consist
of real estate, vehicles and office equipment leases. These leases do not require any contingent rental payments,
impose any financial restrictions or contain any residual value guarantees. Certain of the Company’s leases include
renewal options and escalation clauses; renewal options have not been included in the calculation of the lease
liabilities and ROU assets as the Company is not reasonably certain to exercise the options. Variable expenses
generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any
arrangements where it acts as a lessor, other than one sub-lease arrangement.
At January 31, 2023, the Company had total operating lease liabilities of $5.2 million and operating ROU assets of
$4.5 million, which are reflected in the consolidated balance sheet. At January 31, 2023, the Company also had
finance lease liabilities of $0.2 million included in current maturities of long-term debt and long-term debt less
current maturities, and finance ROU assets of $0.5 million which were included in property plant and equipment,
net of accumulated depreciation in the consolidated balance sheet.
Supplemental balance sheet information related to leases follows (in thousands):
Operating and Finance leases:
Finance leases assets:
Property and Equipment - gross
Accumulated depreciation and amortization
Property and Equipment - net
Finance lease liabilities:
Finance lease liability short-term
Finance lease liability long-term
Total finance lease liabilities
Operating lease assets:
Operating lease ROU assets
Operating lease liabilities:
Operating lease liability short-term
Operating lease liability long-term
Total operating lease liabilities
January 31,
2023
January 31,
2022
$
$
$
$
$
$
$
1,161 $
(700)
461 $
164 $
-
164 $
1,221
(490)
731
357
173
530
4,527 $
11,213
912 $
4,252
5,164 $
1,496
11,270
12,766
44
Total lease costs consist of the following (in thousands):
Lease costs
Consolidated Statements of
Operations Classification
Three
Months
Ended
January 31,
2023
Year Ended
January 31,
2023
Year Ended
January 31,
2022
Finance Lease Costs
Amortization of ROU assets Cost of sales
Interest on lease liabilities
Operating lease costs
Short-term lease costs (1)
Sub-lease income
Interest expense
Cost of sales, SG&A expenses
Cost of sales, SG&A expenses
SG&A expenses
Total Lease costs
$
$
(1) Includes variable lease costs, which are immaterial
53 $
22
610
24
(20 )
689 $
233 $
28
1,388
421
(81)
1,989 $
214
69
2,570
398
(81)
3,170
Supplemental cash flow information related to leases is as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases
Operating cash flows from finance leases
Operating cash flows from operating leases
ROU Assets obtained in exchange for new lease obligations:
Operating leases liabilities
Weighted-average lease terms discount rates are as follows:
Weighted-average remaining lease terms (in years):
Finance leases
Operating leases
Weighted-average discount rates:
Finance leases
Operating leases
Year Ended January 31,
2023
2022
$
338 $
28
1,839
375
69
3,097
$
143 $
121
January 31,
2023
January 31,
2022
0.5
19.6
1.5
13.5
12.0%
8.2%
9.1%
7.4%
On January 31, 2023, future minimum annual rental commitments under non-cancelable lease obligations were as
follows (in thousands):
Year:
For the year ended January 31, 2024
For the year ended January 31, 2025
For the year ended January 31, 2026
For the year ended January 31, 2027
For the year ended January 31, 2028
Thereafter
Total lease payments
Less: amount representing interest
Total lease liabilities at January 31, 2023
45
Operating
Leases
Finance
Leases
$
$
1,533 $
650
443
442
404
7,523
10,995
(5,831)
5,164 $
168
-
-
-
-
-
168
(4)
164
Rental expense for operating leases was $1.7 million and $3.0 million for the years ended January 31, 2023
and 2022, respectively.
The Company has several significant operating lease agreements as follows:
leased until December 31, 2035.
Five acres of land in Louisiana is leased through March 2027.
• Office space of approximately 31,650 square feet in Niles, IL is leased until October 2023.
• Production facilities and office space of approximately 139,000 square feet in Lebanon, Tennessee is
•
• Twenty acres of land in Canada leased through December 2022 which was extended to April 2023.
• Nine acres of land in the Kingdom of Saudi Arabia is leased through April 2030.
• Production facilities in the U.A.E. of approximately 80,200 square feet on approximately 107,600 square
feet of land is leased until June 2030.
• Office space of approximately 21,500 square feet and land for production facilities of approximately
423,000 square feet in the U.A.E. is leased until July 2032.
• Production facilities in the U.A.E. of approximately 78,100 square feet is leased until December 2032.
• Approximately fourteen acres of land in the U.A.E. is leased through August 2050.
Note 7 - Income taxes
Income/(loss) from continuing operations before income taxes
(in thousands)
Domestic (1)
Foreign
Total
2022
2021
(5,392) $
14,950
9,558 $
(3,357)
11,684
8,327
$
$
(1) The domestic loss from continuing operations before income taxes includes corporate overhead costs.
Components of income tax expense/(benefit) (in thousands)
Current
2022
2021
Federal
Foreign
State and other
Total current income tax expense
Deferred
Federal
Foreign
State and other
Total deferred income tax expense/(benefit)
Total income tax expense
$
$
(3) $
2,971
166
3,134
-
479
-
479
3,613 $
1
2,317
144
2,462
-
(197)
-
(197)
2,265
As a result of the onetime transition tax from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company
estimates that distributions from foreign subsidiaries will no longer be subject to incremental U.S. tax as they will
either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction.
Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested.
Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these
jurisdictions are considered. The Company's liability was $0.6 million and $0.2 million as of January 31, 2023 and
2022, respectively, related to these taxes.
U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial
reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United
States. The Company intends to permanently reinvest the undistributed earnings of its Middle Eastern and Indian
subsidiaries. The Middle Eastern and Indian subsidiaries have unremitted earnings of $28.2 million and $8.4 million,
respectively, as of January 31, 2023, all of which has been subject to the transition tax in the United States.
Unremitted earnings of $22.8 million in the United Arab Emirates would not be subject to withholding tax in the
event of a distribution, and $5.4 million of unremitted earnings in Saudi Arabia would be subject to withholding tax
46
of $0.3 million. The Company has not recorded a deferred tax liability related to any financial reporting basis over
tax basis related to the investment in these foreign subsidiaries as it is not practical to estimate.
The Inflation Reduction Act ("IRA") was signed into law in August 2022. The Company has evaluated the provisions
of the IRA and does not expect any material impact to its consolidated provision for income taxes.
The difference between the provision for income taxes and the amount computed by applying the U.S. Federal
statutory rate of 21% was as follows:
(In thousands)
Tax expense at federal statutory rate
State expense, net of federal income tax effect
Deferred compensation adjustment
Domestic valuation allowance
Domestic return to provision
Global Intangible Low-Taxed Income inclusion
Valuation allowance for state NOLs
Differences in foreign tax rate
Deferred tax on unremitted earnings
Foreign withholding taxes
Research tax credit
Pension Settlement
All other, net expense
Total income tax expense/(benefit)
2022
2021
2,007 $
110
(32)
(590)
390
1,206
133
(410)
438
304
220
(115)
(48)
3,613 $
1,749
148
456
(636)
(6)
742
(29)
(430)
(55)
178
80
-
68
2,265
$
$
47
The Company's worldwide effective tax rates ("ETR") were 37.8% and 27.2% in the years ended January 31, 2023
and 2022, respectively. The change in the ETR was primarily due to additional tax expense for the Global Intangible
Low-Taxed Income inclusion, the absence of recognizing tax benefits on losses in the United States due to a full
valuation allowance and changes in the mix of income and loss in the various tax jurisdictions.
Components of deferred income tax assets (in thousands)
U.S. Federal NOL carryforward
Deferred compensation
Research tax credit
Foreign NOL carryforward
Foreign tax credit
Stock compensation
Other accruals not yet deducted
State NOL carryforward
Accrued commissions and incentives
Inventory valuation allowance
Lease liability
Other
Deferred tax assets, gross
Valuation allowance
Total deferred tax assets, net of valuation allowances
Components of the deferred income tax liability
Depreciation
Foreign subsidiaries unremitted earnings
Prepaid
Accrued pension
Right of use asset
Total deferred tax liabilities
Deferred tax (liability)/asset, net
Balance sheet classification
Long-term assets
Long-term liability
Total deferred tax assets/(liabilities), net of valuation allowances
2022
2021
7,197 $
276
2,258
318
2,580
43
305
2,744
851
107
278
165
17,122
(15,993)
1,129 $
(415) $
(591)
(70)
-
(266)
(1,342) $
8,424
350
2,573
448
2,580
62
276
2,730
483
116
418
17
18,477
(16,905)
1,572
(643)
(231)
(54)
(159)
(386)
(1,473)
(213) $
99
696 $
(909)
(213) $
811
(712)
99
$
$
$
$
$
$
$
As of January 31, 2023 the Company had a deferred tax asset of $7.2 million related to gross U.S. Federal net
operating loss ("NOL") carryforwards of $34.3 million, of which $26.9 million will expire between tax years 2033
and 2038, with the remainder not subject to expiration. As of January 31, 2023 the Company had a deferred tax
asset of $2.7 million related to gross state NOLs of $45.5 million that expire between 2023 and 2032 As of January
31, 2023 the Company had a deferred tax asset of $0.3 million related to gross foreign NOLs of $1.6 million for its
subsidiary in Saudi Arabia, which can be carried forward indefinitely and does not have a valuation allowance
recorded against it. The ultimate realization of the tax benefit is dependent upon the future generation of operating
income in the respective tax jurisdictions.
The Company periodically reviews the adequacy of its valuation allowance in all of the tax jurisdictions in which it
operates, evaluates future sources of taxable income and tax planning strategies and may make further adjustments
based on management's outlook for continued profits in each jurisdiction.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable
income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective
negative evidence evaluated was the domestic cumulative loss incurred over the three-year period ended January
31, 2023. Such objective evidence limits the ability to consider other subjective evidence, such as our projections
for future growth.
48
On the basis of this evaluation, as of January 31, 2023, a full valuation allowance was recorded against the domestic
deferred tax assets. The amount of the domestic deferred tax assets considered realizable, however, could be
increased if objective negative evidence in the form of cumulative losses is no longer present and additional weight
is given to subjective evidence such as our projections for future growth.
The Company has a deferred tax asset of $2.6 million for U.S. foreign tax credits after considering the impact of the
repatriated foreign earnings and the one-time transition tax. The foreign tax credit deferred tax asset is fully offset
with a valuation allowance. The excess foreign tax credits are subject to a ten-year carryforward and will begin to
expire on January 31, 2026.
The following table summarizes uncertain tax position ("UTP") activity, excluding the related accrual for interest
and penalties:
(In thousands)
Balance at beginning of year
Decreases in positions taken in a prior period
Increases in positions taken in a current period
Decreases due to lapse of statute of limitations
Decreases due to settlements
Balance at end of year
2022
2021
1,611 $
-
159
(3)
(94)
1,673 $
1,591
(4)
66
(8)
(34)
1,611
$
$
Included in the total UTP liability were estimated accrued interest and penalties of $0.3 million and $0.2 million as
of January 31, 2023 and 2022, respectively. These non-current income tax liabilities are recorded in other long-term
liabilities in the consolidated balance sheet and recognized as an expense during the period. The Company's policy
is to include interest and penalties in income tax expense. On January 31, 2023, the Company did not anticipate
any significant adjustments to its unrecognized tax benefits within the next twelve months. Included in the balance
on January 31, 2023 were amounts offset by deferred taxes (i.e. temporary differences) or amounts that could be
offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Upon reversal, $0.9 million of the amount
accrued on January 31, 2023 would impact the future ETR.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions.
Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and
require significant judgment to apply. Tax years related to January 31, 2019, 2020, 2021 and 2022 are open for
federal and state tax purposes. In addition, federal and state tax years January 31, 2004 through January 31,
2010, are subject to adjustment on audit, up to the amount of research tax credit generated in those years. Any
NOL carryover can still be adjusted by the Internal Revenue Service in future year audits.
The Company's management periodically estimates the probable tax obligations of the Company using historical
experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation
of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made
at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations
of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period.
Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state
tax issues are included in other long-term liabilities on the consolidated balance sheet.
Note 8 - Retirement plans
Pension plan
The defined benefit plan (the "Pension Plan") that covered the hourly rate employees of a non-operating filtration
business unit, previously located in Winchester, Virginia, was frozen on June 30, 2013 per the third Amendment to
the Pension Plan dated May 15, 2013. The accrued benefit of each participant was frozen as of the freeze date, and
no further benefits accrued with respect to any service or hours of service after the freeze date. The benefits were
based on fixed amounts multiplied by years of service of participants. The Company engaged outside actuaries to
calculate its obligations and costs.
49
During the year ended January 31, 2023, the Company’s Board of Directors approved the termination of the Pension
Plan. The Company provided participants of the Pension Plan an option to elect either a lump sum distribution or an
annuity. A group annuity contract was purchased with an insurance company for all participants who did not elect
a lump sum distribution. That insurance company became responsible for administering and paying pension benefit
payments effective December 1, 2022.
During the year ended January 31, 2023, the Company recognized a non-cash pre-tax settlement charge of $0.9
million, within other income/(expense) in the consolidated statements of operations in connection with the Pension
Plan termination process, which represents the acceleration of deferred charges previously included within
accumulated other comprehensive loss and the impact of remeasuring the Pension Plan assets and obligations at
termination. In addition, the Company recorded an income tax benefit of $0.1 million for the year ended January
31, 2023, to reclassify the tax effects in accumulated other comprehensive loss upon completion of the termination
of the Pension Plan. The Pension Plan termination did not require a cash outlay by the Company. Upon completion
of the termination and settlement processes, the Company expects a remaining pension surplus investment balance
of approximately $0.9 million.
Asset allocation
The Pension Plan holds no securities of Perma-Pipe International Holdings, Inc.; 100% of the assets are held for
benefits under the Pension Plan. The fair value of the major categories of the Pension Plan's investments are
presented below. The FASB has established a fair value hierarchy that distinguishes between (1) market participant
assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an
entity's own assumptions about market participant assumptions developed based on the best information available
in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are
observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated
by observable market data by correlation or other means.
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
(In thousands)
Level 1 market value of plan assets
Equity securities
U.S. bond market
Real estate securities
Subtotal
Level 2 significant other observable inputs
Money market fund
Subtotal
Investments measured at net asset value*
Total
2022
2021
$
$
$
$
- $
-
-
-
895 $
895
22 $
917 $
4,119
1,544
322
5,985
321
321
829
7,135
* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical
expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the amounts presented in the reconciliation of benefit
obligations, plan assets and funded status of the Pension Plan.
50
On January 31, 2023, the Pension Plan assets were held 100% in cash.
Investment market conditions in 2022 resulted in $0.5 million loss on plan assets, computed as the actual return as
presented below less the expected return, which decreased the fair value of plan assets at year end.
Reconciliation of benefit obligations, plan assets and funded status of
plan (in thousands)
Accumulated benefit obligations
Vested benefits
Accumulated benefits
Change in benefit obligation
Benefit obligation - beginning of year
Interest cost
Actuarial gain
Benefits paid
Lump sum benefits paid
Reimbursement of premiums
Effect of settlement/curtailment
Benefit obligation - end of year
Change in plan assets
Fair value of plan assets - beginning of year
Actual (loss) gain on plan assets
Benefits paid
Lump sum benefits paid
Reimbursement of premiums
Fair value of plan assets - end of year
Over-funded/(unfunded) status
Balance sheet classification
Prepaid expenses and other current assets
Other assets
Deferred compensation liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive loss
Unrecognized actuarial loss
Net amount recognized
2022
2021
- $
- $
6,448
6,448
6,448 $
141
(220)
(259)
(5,531)
112
(691)
- $
7,135 $
(540)
(259)
(5,531)
112
917 $
7,090
173
(511)
(304)
-
-
-
6,448
7,016
423
(304)
-
-
7,135
917 $
688
917 $
-
-
917 $
322
2,050
(1,684)
688
- $
- $
1,362
1,362
$
$
$
$
$
$
$
$
$
$
$
Weighted-average assumptions used to determine net cost and
benefit obligations
End of year benefit obligation discount rate
End of year net periodic benefit cost discount rate
Expected return on plan assets
2022
2021
N/A
N/A
N/A
3.00%
2.50%
7.50%
In connection with the termination of the Pension Plan, participants elected either a lump sum payment or annuity.
For those electing lump sum payouts, the benefit obligation was based on rates determined as of the beginning of
the plan year, in accordance with the plan document. For those electing annuity payouts, the benefit obligation was
determined by the annuity provider.
51
Components of net periodic benefit cost (in thousands)
Interest cost
Expected return on plan assets
Recognized actuarial loss
Net periodic benefit expense/(income)
Amounts recognized in other comprehensive income (in thousands)
Actuarial gain/(loss) on obligation
Settlement/plan termination
Actual gain/(loss) on plan assets
Amounts recognized in current year
Total in other comprehensive income
2022
2021
$
$
$
$
141 $
-
49
190 $
220 $
1,518
(540)
49
1,247 $
173
(514)
119
(222)
511
-
(90)
119
540
Other comprehensive income is also affected by the tax effect of the valuation allowance recorded on the domestic
deferred tax assets. During the year ended January 31, 2023, there was an actuarial loss of $0.3 million. This
actuarial loss is comprised of an asset loss of $0.5 million and liability gain of $0.2 million. The liability gain is
primarily the result of demographic gains. During the year ended January 31, 2022, there was an actuarial gain
of $0.4 million. This actuarial gain is comprised of an asset loss of $0.1 million and liability gain of $0.5 million. The
liability gain is the combination of: (i) a gain due to a 50 basis point increase in the discount rate, (ii) a loss resulting
from an update to the mortality improvement assumption and (iii) other demographic gains.
Due to the termination of the Pension Plan there are no expected employer contributions.
401(k) plan
The domestic employees of the Company participate in the PPIH 401(k) Employee Savings Plan, which is applicable
to all employees except employees covered by collective bargaining agreement benefits. The plan allows employee
pretax payroll contributions from 1% to 16% of total compensation. The Company matches 100% of each
participant's payroll deferral contributions up to 1% of their compensation, plus 50% of each participant's payroll
deferral contributions on the next 5% of compensation.
Contributions to the 401(k) plan were $0.3 million each in the years ended January 31, 2023 and 2022.
Multi-employer plans
The Company contributes to a multi-employer plan for certain collective bargaining U.S. employees. The risks of
participating in this multi-employer plan are different from a single employer plan in the following aspects:
• Assets contributed to the multi-employer plans by one employer may be used to provide benefits to
•
•
employees of other participating employers.
If a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be
inherited by the remaining participating employers.
If the Company chooses to stop participating in the multi-employer plan, the Company may be required to
pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
52
The Company has assessed and determined that the multi-employer plans to which it contributes are not significant
to the Company's consolidated financial statements. The Company does not expect to incur a withdrawal liability or
expect to significantly increase its contribution over the remainder of the contract period. The Company made
contributions to the bargaining unit supported multi-employer pension plans (in thousands):
FIP/RP
Status
Pending/
Implemented
Funded
Zone
Status
2022
Contribution
2021
Contribution
Collective
Bargaining
Expiration
Date
Surcharge
Imposed
EIN
Plan
#
62-6102837 001 Yellow
No
$178
$172
No
3/31/2025
Plan Name
Plumbers & Pipefitters
Local 572 Pension
Fund
Note 9 - Stock-based compensation
The Company’s 2017 Omnibus Stock Incentive Plan dated June 13, 2017, as amended, which the Company's
stockholders approved in June 2017 ("2017 Plan"), expired in June 2020.
The Company has prior incentive plans under which previously granted awards remain outstanding, including the
2017 Plan, but under which no new awards may be granted. At January 31, 2023, the Company had reserved a
total of 307,475 shares for grants and issuances under these incentive stock plans, which includes a reserve for
issuances pursuant to unvested or unexercised prior awards.
While the 2017 Plan provided for the grant of deferred shares, non-qualified stock options, incentive stock options,
restricted shares, restricted stock units, and performance-based restricted stock units intended to qualify under
section 422 of the Internal Revenue Code, the Company issued only restricted shares and restricted stock units
under the 2017 Plan. The 2017 Plan authorized awards to officers, employees, consultants, and independent
directors.
The Company's 2021 Omnibus Stock Incentive Plan dated May 26, 2021 was approved by the Company's
stockholders in May 2021 ("2021 Plan"). The 2021 Plan will expire in May 2024. The 2021 Plan authorizes awards
to officers, employees, consultants and independent directors. Grants were made to the Company's employees,
officers and independent directors under the 2021 Plan, as described below.
Stock compensation expense
The Company has granted stock-based compensation awards to eligible employees, officers or independent
directors. The Company recognized the following stock-based compensation expense for the periods presented:
(In thousands)
Restricted stock based compensation expense
Total stock-based compensation expense
2022
2021
$
$
1,002 $
1,002 $
1,101
1,101
53
Stock options
The Company did not grant any stock options during the years ended January 31, 2023 or 2022. The following
tables summarizes the Company's stock option activity:
(Shares in thousands)
Outstanding on January 31, 2021
Exercised
Expired or forfeited
Outstanding on January 31, 2022
Options exercisable on January 31, 2022
Exercised
Expired or forfeited
Outstanding on January 31, 2023
Weighted
average
exercise
price
Options
Weighted
average
remaining
contractual
term
Aggregate
intrinsic
value
107 $
9.24
2.5 $
5
(7)
(33)
67
6.16
9.36
9.51
67 $
9.51
(16)
(11)
40
6.66
10.85
10.85
1.7
1.7
1.1
63
63
19
19
Options exercisable on January 31, 2023
40 $
10.85
1.1 $
There was no vesting, expiration or forfeiture of previously unvested stock options during the year ended January
31, 2023. As of January 31, 2023, there were no remaining unvested stock options outstanding, and therefore no
unrecognized compensation expense related to unvested stock options.
Deferred stock
As part of their compensation, in previous years the Company granted deferred stock units to each non-employee
director, equal to the result of dividing the award amount by the fair market value of the common stock on the date
of grant. The stock vests on the date of grant; however, it is distributed to the directors only upon their separation
from service. During the year ended January 31, 2023, 34,873 deferred stock units were distributed. There were
approximately 62,926 and 97,799 deferred stock units outstanding included in the restricted stock activity shown
below as of January 31, 2023 and 2022, respectively.
Restricted stock
The Company has granted restricted stock to executive officers, independent directors, and employees. The
restricted stock vests ratably over one to four years. The Company calculates restricted stock compensation expense
based on the grant date fair value and recognizes expense on a straight-line basis over the vesting period. The
following table summarizes restricted stock activity for the years ended January 31, 2023 and 2022, respectively:
(Shares in thousands)
Outstanding on January 31, 2021
Granted
Issued
Forfeited
Outstanding on January 31, 2022
Granted
Issued
Forfeited
Outstanding on January 31, 2023
Restricted
shares
Weighted
average
price
Aggregate
intrinsic
value
372 $
137
(113)
(43)
353 $
103
(147)
(42)
267 $
7.62 $
7.14
7.47
7.48 $
10.96
6.87
8.55 $
2,843
2,652
2,286
54
The fair value of vested restricted stock was $1.2 million and $1.1 million in the year ended January 31, 2023 and
2022 respectively. As of January 31, 2023, there was $1.1 million of unrecognized compensation cost related to
unvested restricted stock granted under the plans. That cost is expected to be recognized over the weighted-average
period of 2.0 years.
Note 10 - Interest expense, net
(In thousands)
Interest expense
Interest income
Interest expense, net
Note 11 - Treasury stock
2022
2021
2,243
124
2,119
918
90
828
On December 7, 2022 the Board of Directors authorized the use of $1.0 million remaining under the share
repurchase program previously approved on October 4, 2021 that expired on October 3, 2022. Share repurchases
may be executed through open market or in privately negotiated transactions over the course of the 12 months
following the Board of Directors authorization. The repurchase program approved on October 4, 2021 authorized
the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock.
Stock repurchases were permitted to be executed through open market or privately negotiated transactions,
depending upon current market conditions and other factors. In total, the Company used $2.0 million of the $3.0
million authorized to repurchase its outstanding shares of common stock under the program.
On July 26, 2022, the Company retired 239,168 shares of treasury stock previously repurchased under the stock
repurchase program. The retirement was recorded as a reduction to common stock based on the par value of the
shares, and the excess over par value was recorded as a decrease to retained earnings in accordance with ASC 505-
30, Equity - Treasury Stock.
The following table sets forth information with respect to repurchases by the Company of its shares of common
stock during 2021 and 2022 (In thousands, except per share data):
Period
October 1, 2021 - October 31, 2021
November 1, 2021 - November 30, 2021
December 1, 2021 - December 31, 2021
January 1, 2022 - January 31, 2022
July 1, 2022 - July 31, 2022
December 1, 2022 - December 31, 2022
Total
Total
number of
shares
purchased
as part of
publicly
announced
plans or
programs
Approximate
dollar value
of shares
that may yet
be
purchased
under the
plans or
programs
2,505
2,323
1,872
1,008
964
939
59 $
21
56
98
5
3
242
Total
number of
shares
purchased
Average
price
paid per
share
59 $
21
56
98
5
3
242
8.45
8.55
7.99
8.81
8.85
8.61
55
Schedule II
Perma-Pipe International Holdings, Inc. and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended January 31, 2023 and 2022
(In thousands)
Year Ended January 31, 2023
Valuation allowance for deferred tax assets
Allowance for possible losses in collection of
trade receivables
Year Ended January 31, 2022
Valuation allowance for deferred tax assets
Allowance for possible losses in collection of
trade receivables
(1) Uncollectible accounts charged off.
Balance
at
beginning
of period
Charges
to
expenses
Write-
offs (1)
Other
charges
(2)
Balance
at end of
period
$
16,905 $
(585) $
- $
(327 ) $
15,993
486
140
(14)
-
612
$
17,746 $
(717) $
- $
(124 ) $
16,905
474
32
-
(20 )
486
(2) Trade receivable allowances primarily related to recoveries from accounts previously written off and currency
translation. Deferred tax asset valuation allowance primarily related to amounts charged to other comprehensive
income.
56
EXHIBIT INDEX
The exhibits listed below are filed herewith except the exhibits described below as incorporated by reference.
Exhibits not filed herewith are incorporated by reference to such exhibits filed by the Company under the location
set forth under the caption "Description and Location" below. The Commission file number for the Company's
Exchange Act filings referenced below is 001-32530.
Exhibit
No.
Description and Location
3.1
3.2
3.3
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Certificate of Incorporation of Perma-Pipe International Holdings, Inc. [Incorporated by reference to
Exhibit 3.3 to Registration Statement No. 33-70298]
Certificate of Amendment to Certificate of Incorporation of Perma-Pipe International Holdings, Inc.
[Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March
20, 2017]
Fifth Amended and Restated By-Laws of Perma-Pipe International Holdings, Inc. [Incorporated by
reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 6, 2019]
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange
Act of 1934 [Incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 2020 filed on April 21, 2020]
Form of Directors and Officers Indemnification Agreement [Incorporated by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2006 filed on May 15,
2006] *
2013 Omnibus Stock Incentive Plan as Amended June 14, 2013 [Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on June 17, 2013] *
Executive Employment Agreement with David J. Mansfield dated October 19, 2016 [Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on December 13, 2016]*
2017 Omnibus Stock Incentive Plan as Amended June 13, 2017 [Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q filed on September 19, 2017] *
Form of Restricted Stock Unit Agreement under the 2017 Omnibus Stock Incentive Plan as Amended
June 13, 2017 [Incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form
10-Q filed on September 11, 2018]*
Revolving Credit and Security Agreement, dated September 20, 2018, by and among the Company, PNC
Bank, National Association, and the other parties thereto [Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on September 24, 2018]
Second Amendment and Waiver to Revolving Credit and Security Agreement, dated September 17,
2021, by and among the Company, PNC Bank, National Association, and other parties thereto
[Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
September 21, 2021]
Executive Employment Agreement, dated October 1, 2018, by and between the Company and D. Bryan
Norwood [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on October 1, 2018]*
Form of Restricted Stock Agreement under the 2017 Omnibus Stock Incentive Plan as Amended June
13, 2017 [Incorporated by reference to Exhibit 10(z) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 2020 filed on April 21, 2020]*
Executive Employment Agreement, dated January 31, 2020 by and between the Company and Wayne
Bosch [Incorporated by reference to Exhibit 10(aa) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 2020 filed on April 21, 2020]*
Form of Restricted Stock and Performance Award Agreement under the 2017 Omnibus Stock Incentive
Plan as Amended June 13, 2017 [Incorporated by reference to Exhibit 10.L to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 2021 filed on April 15, 2021]*
Perma-Pipe International Holdings, Inc. 2021 Omnibus Stock Incentive Plan [Incorporated by reference
to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed on April 16, 2021]*
Lease dated March 15, 2021, between the Company and Nash88 [Incorporated by reference to Exhibit
10.4 to the Company's Current Report on Form 8-K/A filed on April 22, 2021]
57
10.14
10.15
10.16
10.17
14
Executive Employment Agreement, dated July 26, 2021, by and between the Company and Grant
Dewbre [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended July 31, 2021 filed on September 8, 2021]*
Form of Restricted Stock and Performance Award Agreement under the 2021 Omnibus Stock Incentive
Plan [Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 2022 filed on April 19, 2022]*
Form of Non-Employee Director Restricted Stock Unit Agreement under the 2021 Omnibus Stock
Incentive Plan [Incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 2022 filed on April 19, 2022]*
Form of Employee Restricted Stock Unit Agreement under the 2021 Omnibus Stock Incentive Plan
[Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 2022 filed on April 19, 2022]*
Code of Conduct [Incorporated by reference to Exhibit 14 of the Company's Annual Report on Form
10-K/A for the fiscal year ended January 31, 2004 filed on June 1, 2004]
21 Subsidiaries of Perma-Pipe International Holdings, Inc.
23 Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP
24 Power of Attorney executed by directors and officers of the Company
31
Rule 13a - 14(a)/15d - 14(a) Certifications
(1) Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(2) Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Section 1350 Certifications(1) Chief Executive Officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(2) Chief Financial Officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32
101.INS Inline XBRL Instance
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation
101.DEF Inline XBRL Taxonomy Extension Definition
101.LAB Inline XBRL Taxonomy Extension Labels
101.PRE Inline XBRL Taxonomy Extension Presentation
104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)
*Management contracts and compensatory plans or agreements
Item 16. FORM 10-K SUMMARY - None.
58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
Date: April 27, 2023
Perma-Pipe International Holdings, Inc.
/s/ David J. Mansfield
David J. Mansfield
Director, President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated.
DAVID J. MANSFIELD
Director, President and Chief Executive Officer
(Principal Executive Officer)
D. BRYAN NORWOOD*
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
CYNTHIA BOITER*
DAVID B. BROWN*
ROBERT MCNALLY*
Director
Director
Director
JEROME T. WALKER*
Director and Chairman of the Board of Directors
*By: /s/ David J. Mansfield
David J. Mansfield
Individually and as Attorney in Fact
April 27, 2023
)
)
)
)
)
)
)
59
SUBSIDIARIES OF REGISTRANT
Exhibit 21
MFRI Holdings (B.V.I) Ltd (British Virgin Islands)
Midwesco Filter Resources, Inc. (Delaware corporation)
MM Niles, Inc. (Delaware corporation)
Perma-Pipe, Inc. (Delaware corporation)
Perma-Pipe Canada, Inc. (Delaware corporation)
Perma-Pipe Canada, LTD. (Canada)
Perma-Pipe India Pvt. Ltd. (India)
Perma-Pipe International Co. LLC (Delaware corporation)
Perma-Pipe Middle East FZC (United Arab Emirates)
Perma-Pipe Egypt for Metal Fabrication and Insulation Industries (Perma-Pipe Egypt) S.A.E. (Egypt)
Perma-Pipe Oil Field Services LLC (United Arab Emirates)
Perma-Pipe Saudi Arabia, LLC (Kingdom of Saudi Arabia)
Perma-Pipe QA Limited Liability Company (LLC) (Qatar)
Perma-Pipe Middle East LLC (United Arab Emirates)
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated April 27, 2023, with respect to the consolidated financial statements and the
related financial statement schedule included in the Annual Report of Perma-Pipe International Holdings, Inc. and
subsidiaries on Form 10-K for the year ended January 31, 2023. We consent to the incorporation by reference of
said report in the Registration Statements of Perma-Pipe International Holdings, Inc. on Forms S-3 (File No. 333-
264913, effective May 20, 2022; and File No. 333-230895, effective May 14, 2019) and on Forms S-8 (File No.
333-130517, effective December 20, 2005; File No. 333-182144, effective June 15, 2012; File No. 333-186055,
effective January 16, 2013; File No. 333-190241, effective July 30, 2013; File No. 333-224642, effective May 3,
2018; and File No. 333-256981, effective June 10, 2021).
/s/ GRANT THORNTON LLP
Houston, Texas
April 27, 2023
POWER OF ATTORNEY
Exhibit 24
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both,
of Perma-Pipe International Holdings, Inc., a Delaware corporation (the "Company"), does hereby constitute
and appoint DAVID J. MANSFIELD and/or D. BRYAN NORWOOD, with full power to each of them to act alone, as
the true and lawful attorneys and agents of the undersigned, with full power of substitution and resubstitution to
each of said attorneys to execute, file or deliver any and all instruments and to do all acts and things which said
attorneys and agents, or any of them, deem advisable to enable the Company to comply with the Securities
Exchange Act of 1934, as amended, and any requirements or regulations of the Securities and Exchange Commission
in respect thereof, in connection with the Company's filing of an annual report on Form 10-K for the Company's
fiscal year 2022, including specifically, but without limitation of the general authority hereby granted, the power and
authority to sign his or her name as a director or officer, or both, of the Company, as indicated below his or her
signature, to the Form 10-K, and any amendment thereto; and each of the undersigned does hereby fully ratify and
confirm all that said attorneys and agents, or any of them, or the substitute of any of them, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of this 27th day of April,
2023.
/s/ David J. Mansfield
David J. Mansfield, Director, President and
Chief Executive Officer (Principal Executive Officer)
/s/ David B. Brown
David B. Brown, Director
/s/ D. Bryan Norwood
D. Bryan Norwood, Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
/s/ Jerome T. Walker
Jerome T. Walker, Director, Chairman of the
Board of Directors
/s/ Robert McNally
Robert McNally, Director
/s/ Cynthia Boiter
Cynthia Boiter, Director
Exhibit 31.1
I, David J. Mansfield, certify that:
CERTIFICATION
1. I have reviewed this annual report on Form 10-K of Perma-Pipe International Holdings, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: April 27, 2023
/s/ David J. Mansfield
David J. Mansfield
Director, President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, D. Bryan Norwood, certify that:
CERTIFICATION
1. I have reviewed this annual report on Form 10-K of Perma-Pipe International Holdings, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: April 27, 2023
/s/ D. Bryan Norwood
D. Bryan Norwood
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32
Certification of Principal Executive Officers
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
The undersigned in their capacities as Chief Executive Officer and Chief Financial Officer of Perma-Pipe
International Holdings, Inc. (the “Registrant'), certify that, to the best of their knowledge, based upon a review of
the Annual Report on Form 10-K for the period ended January 31, 2023 of the Registrant, (the “Report”):
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934,
as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Registrant.
/s/ David J. Mansfield
David J. Mansfield
Director, President and Chief Executive Officer
(Principal Executive Officer)
April 27, 2023
/s/ D. Bryan Norwood
D. Bryan Norwood
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
April 27, 2023
A signed original of this written statement required by Section 906 has been provided by Perma-Pipe International
Holdings, Inc. and will be retained by Perma-Pipe International Holdings, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
This page intentionally left blank
GLOBAL LOCATIONS
CORPORATE HEADQUARTERS
PERMA-PIPE International Holdings, Inc.
24900 Pitkin Road, Suite 309
Spring, Texas 77386 USA
281-598-6222
permapipe.com
AMERICAS
SALES OFFICES
MANUFACTURING FACILITIES
PermAlert / PERMA-PIPE, Inc.
6410 West Howard Street
Niles, Illinois 60714 USA
847-966-2235
24900 Pitkin Road, Suite 309
Spring, Texas 77386 USA
281-598-6222
PERMA-PIPE Canada, Ltd.
Suite 1600, 407 - 2nd Street SW
Calgary, Alberta T2P 2Y3 Canada
403-264-4880
PERMA-PIPE, Inc.
1310 Quarles Drive
Lebanon, Tennessee 37087 USA
5008-11 Curtis Lane
New Iberia, Louisiana 70560 USA
PERMA-PIPE Canada, Ltd.
5233 39th Street
Camrose, Alberta T4V 4R5 Canada
SALES OFFICES
MANUFACTURING FACILITIES
MENA
PERMA-PIPE Middle East (FZC)
Block A; Suite AG 06A-07
Headquarters Building, Dubai Silicon Oasis
Dubai, United Arab Emirates
+971-4-607-2010
PERMA-PIPE Saudi Arabia, LLC
Plot #F-21/1 Dammam Industrial City 2
P.O. Box 31198
Al Khobar 31952, Kingdom of Saudi Arabia
+966-13-812-9500
PERMA-PIPE Egypt S.A.E.
43KM Cairo Ismailia Road, Shorouk 3 City
LMakan Compound, Villa 4
Cairo, Egypt
002-01202269110
PERMA-PIPE India Pvt. Ltd.
307, 3rd Floor, A-Wing
KNOX Plaza, Mind Space Area
Malad (W), Mumbai 400 064 India
+91-22-4003-6007
PERMA-PIPE Middle East (FZC)
Fujairah Free Zone 2, P.O. Box 4988
Fujairah, United Arab Emirates
PERMA-PIPE Middle East
92 HR4, I CAD2, Mussaffah
P.O. Box 93283
Abu Dhabi, United Arab Emirates
PERMA-PIPE Saudi Arabia, LLC
Plot #F-21/1 Dammam Industrial City 2
P.O. Box 31198
Al Khobar 31952, Kingdom of Saudi Arabia
PERMA-PIPE Egypt S.A.E.
Bayad El Arab Industrial Area
Beni Suef, Egypt
PERMA-PIPE India Pvt. Ltd.
Godown 11 & 12, Survey #197, Village Mithi
Rohar, Taluka-Gandhidham, District-Kutch
Gujarat, India 370240
DIRECTORS AND OFFICERS
DIRECTORS
Cynthia Boiter
Independent Director EVP &
President, chemical division,
Milliken & Co.
David B. Brown
Independent Director
Chief Financial Officer
Authentix, Inc.
David J. Mansfield
Director, President & Chief
Executive Officer PERMA-PIPE
International Holdings, Inc.
Robert McNally
Independent Director
Jerome T. Walker
Independent Director & Chairman
of the Board of Directors, Chief
Executive Officer Caribbean
Distributed Energy, LLC
OFFICERS
David J. Mansfield
Director, President & Chief
Executive Officer PERMA-PIPE
International Holdings, Inc.
OPERATIONS MANAGEMENT
D. Bryan Norwood
Vice President &
Chief Financial Officer
Grant Dewbre
Chief Operating Officer
Will Leong
Vice President &
General Manager
Saleh Sagr
Senior Vice President,
Middle East and North Africa
Jill Curry
Vice President
Human Resources
ANNUAL MEETING
June 22, 2023
10:00 AM Central Time
www.virtualshareholdermeeting.com/PPIH2023
Independent Registered Public Accountants
Grant Thornton LLP
700 Milam Street, Suite 300
Houston, TX 77002
Transfer Agent
Broadridge
P.O. Box 1342
Brentwood, NY 11717
Core Competencies
Anti-Corrosion Coatings
Insulation Solutions
Containment Systems
Leak Detection Systems
Custom Fabrication
Engineering Support
Field Service
Locations
Corporate Headquarters
Spring, Texas
Americas
United States of America
Canada
Middle East/India
United Arab Emirates
Kingdom of Saudi Arabia
Egypt
India
permapipe.com • 281.589.6222