Perma-Pipe International Holdings, Inc. (identified in the filing as MFRI, Inc.) — Form 10-Q
Reporting period: Fiscal quarter and six months ended July 31, 2016. The filing reports one continuing business segment, Piping Systems; the Filtration Products business is presented as discontinued operations.
Financial performance
| Metric | Three months ended July 31, 2016 | Six months ended July 31, 2016 |
|---|---|---|
| Net sales | $22.9 million, down 9% year over year | $45.9 million, up 1% |
| Gross profit / margin | $3.0 million / 13%, versus $3.1 million / 12% | $5.0 million / 11%, versus $5.5 million / 12% |
| Operating loss | $1.8 million, versus $2.5 million | $6.3 million, versus $6.1 million |
| Continuing-operations loss | $0.9 million; loss per share $0.11 | $7.0 million; loss per share $0.94 |
| Net income (loss), including discontinued operations | Income of $0.4 million; earnings per share $0.06 | Loss of $5.8 million; loss per share $0.79 |
For the six-month period, operating cash flow was $0.5 million, investing cash flow provided $8.2 million, and financing activities used $13.8 million. Cash and cash equivalents fell to $11.6 million from $16.6 million at January 31, 2016. Working capital was $32.2 million.
Reported debt was $12.3 million, a $3.2 million net decrease from fiscal year-end. The domestic revolving line had $3.8 million outstanding and $7.0 million available; foreign facilities had $0.8 million outstanding and $20.6 million unused, with additional availability supporting letters of credit. The company reported covenant compliance. Restricted cash was $0.9 million.
Changes, outlook, and notable items
- Quarterly sales declined mainly because of weaker Middle East demand amid low oil prices. Management also cited competitive pricing pressure in the Middle East and reduced North American oil and gas volumes.
- Year-to-date sales included $4.5 million from the acquired Canadian operation, partly offset by lower Middle East revenue. First-half margin fell amid pricing pressure and low initial capacity utilization at the Canadian facility.
- The company acquired the remaining 51% of Bayou Perma-Pipe Canada on February 4, 2016. The preliminary purchase accounting included $2.7 million of goodwill and a $1.6 million noncash loss on remeasurement of its previously held interest.
- Discontinued operations generated $1.1 million of net income year to date, including a $2.5 million gain on disposal, despite an operating loss. The company had sold major filtration businesses and was liquidating remaining Winchester assets.
- Quarterly results included a $0.8 million legal-settlement accrual. The company also sold its former headquarters and a filtration facility; proceeds from property and equipment sales contributed to investing cash flow.
- Management said cash, operating cash flow, and available borrowing capacity should fund operations, working capital, and capital spending for at least 12 months. No specific revenue or earnings guidance was provided.
- Risks include demand and pricing volatility, dependence on large project-based orders, customer concentration, and foreign-market exposure. One customer represented 16% of receivables at July 31. The filing also disclosed prior material weaknesses in controls: inventory-reserve controls were reported remediated, while remediation of the acquisition-related filing weakness was ongoing.
Key facts for investors to verify
- Confirm the subsequent status of the acquisition-related internal-control weakness and the planned Form 8-K/A filing; this 10-Q checked “No” for having filed all required reports in the preceding 12 months.
- Review Canadian acquisition performance, capacity utilization, and final purchase accounting, which the filing described as preliminary.
- Assess cash availability and debt-facility terms, including borrowing-base limits, letters of credit, and covenant requirements.
- Reconcile the filing’s six-month customer-concentration disclosures: one section reports 10.7% of sales and MD&A reports 11%.
- Track remaining discontinued-operation assets and liabilities, sale-related escrow, and any further liquidation or settlement effects.