Perma-Pipe International Holdings, Inc. — Q1 FY2022 Form 10-Q
Business context and reporting period. The filing covers the three months ended April 30, 2021, the first quarter of the fiscal year ending January 31, 2022. Perma-Pipe manufactures specialty piping and coating systems and leak-detection products in one reportable segment. Amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $24.4 | $22.7 |
| Gross profit / margin | $4.5 / 18% | $3.5 / 15% |
| Operating expenses | $5.4 | $6.0 |
| Operating loss | ($0.9) | ($2.5) |
| Net loss | ($0.8) | ($2.5) |
| Basic and diluted loss per share | ($0.10) | ($0.31) |
| Cash used in operating activities | ($2.4) | Cash provided: $0.6 |
- Revenue increased 7%. Specialty piping systems and coating revenue rose to $21.8 million from $18.3 million; Products revenue declined to $2.6 million from $4.5 million.
- Gross margin improved to approximately 18.4% from 15.2%. Management attributed the improvement and lower operating loss to higher volumes, particularly in the UAE, project timing in Saudi Arabia, and cost reductions.
- Net loss improved by $1.7 million. Selling expense fell by $0.6 million; G&A was broadly flat. Other income was $0.4 million versus a $0.1 million expense, primarily reflecting Canadian wage and rent subsidy grants. The quarter included $0.4 million of CEWS and $0.1 million of CERS proceeds.
- Cash and cash equivalents were $8.5 million at April 30, versus $7.2 million at January 31; restricted cash was $1.2 million. Working capital was $34.1 million, up from $25.6 million. Operating cash use was driven primarily by higher working-capital needs.
- Reported debt was $8.3 million, down from $13.2 million at January 31. This excludes the separately reported $8.9 million long-term finance obligation arising from the Tennessee property transaction. Total stockholders’ equity was $48.8 million.
Material changes, outlook, and risks
- On April 14, the Company sold its Lebanon, Tennessee land and buildings for $10.4 million, generating $8.7 million net cash proceeds, and leased the property back for 15 years at about $0.8 million annual rent, with 2% annual increases. It used part of the proceeds to repay North American revolver borrowings. The transaction was accounted for as a failed sale-leaseback, creating a finance obligation; the Company continues to depreciate the property.
- The North American senior secured revolver matures September 20, 2021. The Company reported no borrowings and $7.6 million available before a $2.0 million availability block. It was seeking renewal or replacement financing. The Company failed the North American loan parties’ 1.10:1 fixed-charge coverage covenant for the six months ended April 30; it planned to repatriate about $0.9 million from its UAE subsidiary in June as a cure. The filing cites approximately $6.0 million of foreign-subsidiary cash available for potential future covenant cures.
- A separate Egyptian project-financing covenant was not met at quarter-end; the Company said it was working to cure the breach and had received a bank waiver. A UAE credit-line renewal was also pending, and renewal of an unused Egyptian facility was being negotiated.
- Management said COVID-19, depressed oil and gas markets, project delays, and supply-chain disruption had materially adversely affected results and could continue to do so; all plants were operating as of filing. Management expected increased business activity and operating cash flow, and believed it could meet obligations over the following year based on covenant actions, potential cash repatriations, spending flexibility, and the property transaction. No specific financial guidance was provided.
- A $3.8 million receivable from a Middle East customer has been outstanding for years; $2.1 million is classified as long-term. The related system has not been commissioned, although the Company completed its work in 2015. No allowance was recorded; management warned that some or substantially all of the then-uncollected balance could require an allowance if collection efforts fail.
- One customer represented 10% of quarterly sales and 11% of receivables at April 30. In a separate Qatar contract dispute, a customer had drawn approximately $0.6 million on a performance bond; the Company disputes the claims and has not recorded a receivable for possible recovery.
- The Company believed its $3.2 million PPP loan would be forgiven and had submitted its application, but SBA approval remained pending. The filing states that forgiveness was not assured and that the loan could be audited.
Important facts for investors to verify
- Whether the North American covenant cure was completed and whether the senior credit facility was renewed or replaced before its September 2021 maturity.
- Actual cash availability after the facility’s $2.0 million block, and the accessibility, timing, and any tax cost of foreign-cash repatriations.
- Collections on the aged $3.8 million receivable and any subsequent allowance or impairment.
- Resolution of the Egyptian covenant matter and renewal status of the UAE and Egyptian credit arrangements.
- Outcome of the PPP forgiveness application and any continuing CEWS/CERS assistance.
- Progress in the Qatar dispute and any recovery of the performance-bond payment.