As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

12/10/19  Perma-Pipe Int’l Holdings, Inc.   10-Q       10/31/19   63:4.3M                                   RDG Filings/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    461K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     25K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     25K 
 4: EX-32       Certification -- §906 - SOA'02                      HTML     21K 
17: R1          Document And Entity Information                     HTML     50K 
47: R2          Consolidated Statements of Operations (Unaudited)   HTML     71K 
56: R3          Consolidated Statements of Comprehensive Income     HTML     36K 
                (Loss) (Unaudited)                                               
33: R4          Consolidated Balance Sheets (Current Period         HTML    138K 
                Unaudited)                                                       
16: R5          Consolidated Balance Sheets (Current Period         HTML     30K 
                Unaudited) (Parentheticals)                                      
46: R6          Consolidated Statements of Stockholders' Equity     HTML     51K 
                (Unaudited)                                                      
54: R7          Consolidated Statements of Cash Flows (Unaudited)   HTML    114K 
32: R8          Note 1 - Basis of Presentation                      HTML     25K 
18: R9          Note 2 - Business Segment Reporting                 HTML     23K 
13: R10         Note 3 - Accounts Receivable                        HTML     31K 
28: R11         Note 4 - Revenue Recognition                        HTML    104K 
52: R12         Note 5 - Income Taxes                               HTML     27K 
45: R13         Note 6 - Impairment of Long-lived Assets            HTML     31K 
12: R14         Note 7 - Stock-based Compensation                   HTML     85K 
27: R15         Note 8 - Earnings Per Share                         HTML     41K 
51: R16         Note 9 - Debt                                       HTML     45K 
44: R17         Note 10 - Leases                                    HTML    102K 
11: R18         Note 11 - Restricted Cash                           HTML     31K 
29: R19         Note 12 - Fair Value                                HTML     24K 
62: R20         Note 13 - Recent Accounting Pronouncements          HTML     29K 
40: R21         Note 4 - Revenue Recognition (Tables)               HTML     85K 
22: R22         Note 6 - Impairment of Long-lived Assets (Tables)   HTML     26K 
26: R23         Note 7 - Stock-based Compensation (Tables)          HTML     85K 
60: R24         Note 8 - Earnings Per Share (Tables)                HTML     41K 
39: R25         Note 10 - Leases (Tables)                           HTML     91K 
21: R26         Note 11 - Restricted Cash (Tables)                  HTML     31K 
25: R27         Note 2 - Business Segment Reporting (Details        HTML     19K 
                Textual)                                                         
63: R28         Note 3 - Accounts Receivable (Details Textual)      HTML     42K 
38: R29         Note 4 - Revenue Recognition (Details Textual)      HTML     19K 
41: R30         Note 4 - Revenue Recognition - Revenues by Revenue  HTML     32K 
                Class (Details)                                                  
49: R31         Note 4 - Revenue Recognition - Contract With        HTML     34K 
                Customer, Asset and Liability (Details)                          
30: R32         Note 5 - Income Taxes (Details Textual)             HTML     27K 
14: R33         Note 6 - Impairment of Long-lived Assets (Details   HTML     26K 
                Textual)                                                         
42: R34         Note 6 - Impairment of Long-lived Assets -          HTML     22K 
                Goodwill (Details)                                               
50: R35         Note 7 - Stock-based Compensation (Details          HTML     34K 
                Textual)                                                         
31: R36         Note 7 - Stock-based Compensation - Stock-based     HTML     23K 
                Compensation Expense (Details)                                   
15: R37         Note 7 - Stock-based Compensation - Stock Option    HTML     56K 
                Activity (Details)                                               
43: R38         Note 7 - Stock-based Compensation - Unvested        HTML     35K 
                Option Activity (Details)                                        
48: R39         Note 7 - Stock-based Compensation - Restricted      HTML     45K 
                Stock Activity (Details)                                         
35: R40         Note 8 - Earnings Per Share - Summary of Earnings   HTML     32K 
                Per Share (Details)                                              
58: R41         Note 9 - Debt (Details Textual)                     HTML    124K 
23: R42         Note 10 - Leases (Details Textual)                  HTML     52K 
19: R43         Note 10 - Leases - Supplemental Balance Sheet       HTML     45K 
                Information Related to Leases (Details)                          
36: R44         Note 10 - Leases - Lease Costs (Details)            HTML     34K 
59: R45         Note 10 - Leases - Supplemental Cash Flow           HTML     31K 
                Information Related to Leases (Details)                          
24: R46         Note 10 - Leases - Weighted-average Lease Terms     HTML     27K 
                and Discount Rates (Details)                                     
20: R47         Note 10 - Leases - Maturities of Lease Liabilities  HTML     60K 
                (Details)                                                        
37: R48         Note 11 - Restricted Cash (Details Textual)         HTML     22K 
57: R49         Note 11 - Restricted Cash - Summary of Cash, Cash   HTML     28K 
                Equivalents and Restricted Cash (Details)                        
55: R50         Note 13 - Recent Accounting Pronouncements          HTML     24K 
                (Details Textual)                                                
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		Three Months Ended October 31,								Nine Months Ended October 31,
		2019				2018				2019				2018
Net sales		$	34,457			$	32,806			$	95,400			$	94,020
Cost of sales			26,814				25,923				73,382				77,019
Gross profit			7,643				6,883				22,018				17,001
Operating expenses
General and administrative expenses			4,541				4,247				13,556				12,153
Selling expenses			1,354				1,554				4,030				4,017
Total operating expenses			5,895				5,801				17,586				16,170
Income from operations			1,748				1,082				4,432				831
Interest expense, net			194				280				612				830
Income from operations before income taxes			1,554				802				3,820				1
Income tax expense			1,699				934				1,747				1,525
Net (loss)/income		$	(145	)		$	(132	)		$	2,073			$	(1,524	)
Weighted average common shares outstanding
Basic			8,037				7,877				7,970				7,806
Diluted			8,037				7,877				8,047				7,806
(Loss)/income per share
Basic			(0.02	)			(0.02	)			0.26				(0.20	)
Diluted			(0.02	)			(0.02	)			0.26				(0.20	)

 

		Three Months Ended October 31,								Nine Months Ended October 31,
		2019				2018				2019				2018
Net (loss)/income		$	(145	)		$	(132	)		$	2,073			$	(1,524	)
Other comprehensive income/(loss)
Foreign currency translation adjustments, net of tax			12				(551	)			53				(1,538	)
Other comprehensive income/(loss)			12				(551	)			53				(1,538	)
Comprehensive (loss)/income		$	(133	)		$	(683	)		$	2,126			$	(3,062	)

 

		October 31, 2019				January 31, 2019
ASSETS
Current assets
Cash and cash equivalents		$	12,221			$	10,156
Restricted cash			1,138				2,581
Trade accounts receivable, less allowance for doubtful accounts of $355 at October 31, 2019 and $536 at January 31, 2019			28,235				32,508
Inventories, net			16,270				12,289
Prepaid expenses and other current assets			3,620				3,773
Contract assets			4,363				1,653
Total current assets			65,847				62,960
Property, plant and equipment, net of accumulated depreciation			29,357				30,398
Other assets
Operating lease right-of-use asset			11,717				-
Deferred tax assets - long-term			747				458
Goodwill			2,264				2,269
Other assets			7,518				6,120
Total other assets			22,246				8,847
Total assets		$	117,450			$	102,205
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable		$	12,735			$	12,006
Accrued compensation and payroll taxes			1,675				1,544
Commissions and management incentives payable			1,600				1,866
Revolving line North America			7,758				8,890
Current maturities of long-term debt			1,644				640
Customers' deposits			3,005				3,708
Outside commissions payable			2,185				1,743
Contract liability			1,351				1,569
Operating lease liability short-term			1,130				-
Other accrued liabilities			3,234				3,856
Income taxes payable			1,352				1,266
Total current liabilities			37,669				37,088
Long-term liabilities
Long-term debt, less current maturities			6,931				6,751
Deferred compensation liabilities			3,731				3,883
Deferred tax liabilities long-term			1,434				1,435
Operating lease liability long-term			10,617				-
Other long-term liabilities			1,620				688
Total long-term liabilities			24,333				12,757
Stockholders' equity
Common stock, $.01 par value, authorized 50,000 shares; 8,042 issued and outstanding at October 31, 2019 and 7,854 issued and outstanding at January 31, 2019			80				79
Additional paid-in capital			59,754				58,793
Accumulated deficit			(1,559	)			(3,632	)
Accumulated other comprehensive loss			(2,827	)			(2,880	)
Total stockholders' equity			55,448				52,360
Total liabilities and stockholders' equity		$	117,450			$	102,205

 

		Common Stock				Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
Total stockholders' equity at January 31, 2019		$	79			$	58,793			$	(3,632	)		$	(2,880	)		$	52,360
Net loss											(1,502	)							(1,502	)
Common stock issued under stock plans, net of shares used for tax withholding							79												79
Stock-based compensation expense							154												154
Foreign currency translation adjustment															(317	)			(317	)
Total stockholders' equity at April 30, 2019		$	79			$	59,026			$	(5,134	)		$	(3,197	)		$	50,774
Net income											3,720								3,720
Common stock issued under stock plans, net of shares used for tax withholding			1				43												44
Stock-based compensation expense							406												406
Foreign currency translation adjustment															358				358
Total stockholders' equity at July 31, 2019		$	80			$	59,475			$	(1,414	)		$	(2,839	)		$	55,302
Net loss											(145	)							(145	)
Common stock issued under stock plans, net of shares used for tax withholding							53												53
Stock-based compensation expense							226												226
Foreign currency translation adjustment															12				12
Total stockholders' equity at October 31, 2019		$	80			$	59,754			$	(1,559	)		$	(2,827	)		$	55,448

Shares		2019				2018
Balances at beginning of year			7,854,322				7,716,542
Shares issued			187,359				137,780
Balances at period end			8,041,681				7,854,322

 

(In thousands)		Nine Months Ended October 31,
		2019				2018
Operating activities
Net income/(loss)		$	2,073			$	(1,524	)
Adjustments to reconcile net income/(loss) to net cash flows provided by/(used) in operating activities
Depreciation and amortization			3,349				3,482
Deferred tax (income)/expense			(288	)			346
Equity-based compensation expense			786				999
Loss on disposal of fixed assets			154				46
Provision on uncollectible accounts			49				14
Changes in operating assets and liabilities
Accounts receivable			2,960				(165	)
Inventories			(3,980	)			2,269
Contract assets and contract liabilities			(2,929	)			(1,221	)
Accounts payable			525				(5,460	)
Accrued compensation and payroll taxes			(199	)			1,468
Customers' deposits			(704	)			(1,194	)
Income taxes receivable and payable			80				54
Prepaid expenses and other current assets			1,523				(801	)
Other assets and liabilities			(601	)			1,061
Net cash provided by/(used in) operating activities			2,798				(626	)
Investing activities
Capital expenditures			(1,423	)			(885	)
Net cash used in investing activities			(1,423	)			(885	)
Financing activities
Proceeds from revolving lines			61,281				42,201
Payments of debt on revolving lines of credit			(61,613	)			(35,152	)
Debt issuance costs			-				(930	)
Payments of other debt			(276	)			(266	)
Decrease in drafts payable			(162	)			(20	)
Payments on finance lease obligations			(185	)			(205	)
Stock options exercised and restricted shares retired for tax			176				249
Net cash provided by/(used in) financing activities			(779	)			5,877
Effect of exchange rate changes on cash, cash equivalents and restricted cash			26				(569	)
Net increase in cash, cash equivalents and restricted cash			622				3,797
Cash, cash equivalents and restricted cash - beginning of period			12,737				8,321
Cash, cash equivalents and restricted cash - end of period		$	13,359			$	12,118
Supplemental cash flow information
Interest paid		$	609			$	917
Income taxes paid			1,961				1,118
Fixed assets acquired under capital leases - non-cash			848				-

 

Note 1 - Basis of presentation

 

The interim consolidated financial statements of Perma-Pipe International Holdings, Inc., and subsidiaries (collectively, "PPIH", "Company", or "Registrant") are unaudited, but include all adjustments that the Company's management considers necessary to present fairly the financial position and results of operations for the periods presented. These adjustments consist of normal recurring adjustments. Information and footnote disclosures have been omitted pursuant to Securities and Exchange Commission ("SEC") rules and regulations. The consolidated balance sheet as of January 31, 2019 is derived from the audited consolidated balance sheet as of that date. The results of operations for any interim period are not necessarily indicative of future or annual results. Interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. The Company's fiscal year ends on January 31. Years and balances described as 2019 and 2018 are for the three and nine months ended October 31, 2019 and 2018, and for the fiscal years ended January 31, 2020 and 2019, respectively.

 

Note 2 - Business segment reporting

 

The Company is engaged in the manufacture and sale of products in one segment: Piping Systems. 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, 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.

 

Note 3 - 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, including the availability of credit insurance. In the U.S., collateral is not generally required. In the United Arab Emirates and Saudi Arabia, 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. 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. 

 

One of the Company’s accounts receivable in the total amount of $4.7 million as of January 31, 2019 has been outstanding for several years. Included in this balance is a retention receivable amount of $3.7 million, of which, due to the long-term nature of the receivable, $3.5 million was included in the balance of other long-term assets as of October 31, 2019 and January 31, 2019.The Company completed all of its deliverables in 2015 under the related contract, and has been engaged in ongoing active efforts to collect this outstanding amount. During the first nine months of fiscal 2019 the Company received $0.5 million, thus reducing this balance to $4.2 million as of October 31, 2019. As a result, the Company did not reserve any allowance against this receivable as of October 31, 2019. The Company continues to engage with the customer to ensure full payment of open balances, and during fiscal 2019 has received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. 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 three months ended October 31, 2019, one individual customer accounted for 16% of the Company’s consolidated net sales, and during the same period in 2018, no individual customer accounted for more than 10% of the Company's consolidated net sales. For the nine months ended October 31, 2019, one customer accounted for 11% of the Company’s consolidated net sales, and during the same period in 2018, no individual customer accounted for more than 10% of the Company's consolidated net sales.

 

At October 31, 2019 and January 31, 2019, three customers collectively accounted for 29.8% and 39.4% of the Company's accounts receivable, respectively. 

 

 

 

Note 4 - Revenue recognition 

 

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 - which include all bundled products in which the Company designs, 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 sold under the PermAlert brand name, 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 seller’s profit margin for products that have no alternative use for the Company.

 

 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 three and nine months ended October 31, 2019 and 2018 are as follows:

 

 

 

The input method, as noted in ASC 606-10-55-20, is used by the U.S. operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract using the percentage-of-completion method. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the percentage-of-completion 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 for losses on uncompleted contracts are made in contract liabilities account in the period such losses are identified.

Contract assets and liabilities:

Contract assets represent revenue recognized in excess of amounts billed (unbilled receivables) 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 (unearned revenue) 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 impacts the period end balances in these accounts.

 

The Company anticipates that substantially all costs incurred for uncompleted contracts as of October 31, 2019 will be billed and collected within one year.

 

The following tables set forth the changes in the Company's contract assets and liabilities for the periods indicated. The Company expects to recognize the remaining balances as of October 31, 2019 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 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 - Income taxes 

 

The determination of the consolidated provision for income taxes, deferred tax assets and liabilities and related valuation allowances requires management to make judgments and estimates. As a company with subsidiaries in foreign jurisdictions, the process of calculating income taxes involves estimating current tax obligations and exposures in each jurisdiction as well as making judgments regarding the future recoverability of deferred tax assets. Income earned in the United Arab Emirates is not subject to local country income tax. Additionally, the relative proportion of taxable income earned domestically versus internationally can fluctuate significantly from period to period. Changes in the estimated level of annual pre-tax income, tax laws and the results of tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company's projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections. 

 

The Company's effective tax rate ("ETR") from operations for the third quarter and year-to-date in fiscal 2019 was 109.3% and 45.7% compared to 116.3% and 122,166.4% during the respective prior year periods. The change in the ETR from the prior year quarter to the current year quarter is largely due to changes in the mix of income and loss in various jurisdictions. Additionally, the Company was near break-even in the prior year which resulted in a large impact on the overall rate. In the prior year the Company was accruing taxes in jurisdictions where it was generating income, while applying a valuation allowance in the U.S., which attributed to the unusually large ETR for that quarter.

 

The amount of unrecognized tax benefits, including interest and penalties at October 31, 2019, recorded in other long-term liabilities was $0.1 million, all of which would impact the Company’s ETR if recognized. 

 

The U.S. Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. The Tax Act reduced the U.S. statutory tax rate from 35% to 21%, effective January 1, 2018 and created new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax ("GILTI") and the base erosion anti-abuse tax, respectively. The Company currently projects a GILTI inclusion for fiscal 2019, but there is no impact on tax expense due to its offset by loss carryovers with a full valuation allowance applied against it. 

 

Note 6 - 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. The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards. There was no impairment of long-lived assets for the three and nine months ended October 31, 2019 and 2018.

 

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 October 31, 2019 and January 31, 2019 was attributable to the purchase of Perma-Pipe Canada, Ltd., which occurred in 2016.

 

 

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. There was no impairment of goodwill for the three and nine months ended October 31, 2019 and 2018.