SOURCE: MFRI

MFRI

December 08, 2015 08:30 ET

MFRI Announces 3Q15 Results; EPS of $0.83

Net Sales Increase 51% Over Q3 2014; Up 66% Over Q2 2015; Continued Execution on Substantial Backlog Positions MFRI to Deliver a Positive Full Year; New Pleated Filter Facility in Middle East Shipping Products

NILES, IL--(Marketwired - Dec 8, 2015) - MFRI, Inc. (NASDAQ: MFRI) announced today financial results for the fiscal quarter ended October 31, 2015. 

CEO Bradley Mautner commented, "During the third quarter, we began delivering orders and generating income from the many significant wins secured by Perma-Pipe during the first half of the year. The piping contracts we have been executing include both large-scale infrastructure projects in the Middle East and significant mining and oil & gas projects in North America. The successful scale-up of our facilities and production processes for these projects enabled us to achieve a strong increase in net sales during the third quarter. Our pre-tax income of approximately $7.6 million, the Company's highest in two years, fully offset the operating losses incurred in the first six months of the year, when we were rebuilding our backlog.

"As we continue to process backlog during the fourth quarter, we expect net sales and operating profit levels to deliver the positive fiscal 2015/16 results we mentioned in our September earnings announcement. We continue to actively quote in the Middle East and look forward to participating further in the multi-phase chilled-water projects that are essential to the region's long-term infrastructure development plans, although their timing is difficult to predict. The substantial decline in global oil prices that has taken place over the last 18 months is impacting project timing and new bidding activity worldwide, adding uncertainty to the size and timing of new business opportunities."

Mr. Mautner continued, "In MFRI's Filtration segment, third-quarter sales rose by 12% over the prior-year period. Our new pleated manufacturing facility in the Middle East has been well received and we are leveraging our reputation as an international high-quality supplier in the region. Two recent awards -- a two-year contract valued at approximately $1.5 million from a petroleum development corporation in the Middle East and a sizable order for a gas turbine project in Africa -- illustrate the traction we are gaining in the region and the competitive structure we have obtained as a result of our Middle East operations. Even with the start-up expenses we have been incurring for this facility, Filtration reached essentially breakeven on an operating basis in the third quarter."

Mr. Mautner concluded, "We are pleased that our plans to offset the year's slow start and reap the benefits of the strong backlog we announced in September 2015 are materializing as anticipated. As shown in the table below, the backlog entering the fourth quarter was 45% higher than at the same time last year, positioning us to end fiscal 2015/16 on a stronger note. Given the current uncertain economic climate, however, we continue to examine MFRI's cost structures and business portfolio to adjust to changes in the Company's business environment and bidding activity as needed."

BACKLOG

    Oct. 31,   July 31,   Oct. 31,
Consolidated Backlog ($ in thousands):   2015   2015   2014
Piping Systems   $ 65,254   $ 91,147   $ 35,925
Filtration Products     11,059     13,938     16,575
Total   $ 76,313   $ 105,085   $ 52,500

THIRD FISCAL QUARTER ENDED OCTOBER 31, 2015

SALES - Net sales increased 51% to $66.3 million in the current quarter, from $43.8 million in the prior-year quarter. Piping Systems sales increased 77% or $20.4 million compared to the prior-year quarter due to higher domestic oil and gas projects and higher volume in Saudi Arabia and the United Arab Emirates ("U.A.E."). Filtration Product sales increased 12% to $19.4 million in the current quarter from $17.3 million in the prior-year quarter due to increased domestic volume and sales from the newly established factory in the Middle East.

GROSS PROFIT - Gross profit increased to $17.0 million in the current quarter from $6.7 million in the prior-year quarter, mainly due to the sales volume increase in Piping Systems. The gross margin increased to 25.6% of net sales in the current quarter from 15.3% in the prior-year quarter.

EXPENSES - Operating expenses increased to $9.6 million in the current quarter from $8.0 million in the prior-year quarter due to higher management incentive compensation expense, increased professional service expenses and temporary staffing partially offset by a decrease in deferred compensation expense.

PRETAX INCOME - Pretax income from continuing operations was $7.6 million in the current quarter versus a loss of $0.6 million in the prior-year quarter. The primary factor contributing to the 2015 results was higher volume in Piping Systems.

NET INCOME - The current quarter net income was $6.1 million compared to net loss of $0.4 million in the prior-year quarter. The increase was due to higher sales volume and gross profit in Piping Systems and improved Filtration Products performance.

PIPING SYSTEMS - Net sales increased 77% to $47.0 million in the current quarter from $26.5 million in the prior-year quarter. The increase was due to higher global volume.

Gross margin increased to 30% of net sales in the current quarter from 17% of net sales in the prior-year quarter. Gross margin and gross profit increased due to higher volume. Operating expenses increased to $4.6 million from $3.5 million due to higher management incentive compensation expense and lower professional costs partially offset by higher selling expenses.

FILTRATION PRODUCTS - Net sales increased 12% to $19.4 million in the current quarter from $17.3 million in the prior-year quarter due to increased domestic volume and sales from the newly established factory in the Middle East. Gross profit increased to $2.7 million from $2.1 million. Gross profit rose due to higher volume and by improved mix. Gross margin increased to 14% in the current quarter from 12% in the prior-year quarter due to customer mix and lower costs related to product development.

Operating expenses remained consistent with the prior-year period.

NINE MONTHS ENDED OCTOBER 31, 2015

SALES - Year to date net sales decreased 8.1% to $144.1 million from $156.7 million for the prior-year period. Filtration Products sales decreased 4.4% and were negatively impacted by foreign currency fluctuations of approximately $2.0 million in addition to lower domestic filter bags sales volume. Piping Systems sales decreased 10.0% or $10.3 million compared to the prior-year period due to lower volume in domestic oil and gas projects and lower volume in the Middle East.

GROSS PROFIT - Gross profit decreased to $26.7 million from $33.3 million in the prior-year period due to lower volume in Piping Systems.

EXPENSES - Operating expenses decreased to $26.6 million year to date from $27.0 million for the prior-year period due to lower management incentive compensation expense, partially offset by higher stock compensation expense and increased professional expenses. Operating expenses as a percent of net sales increased to 18.5% from 17.2%.

PRETAX INCOME - Pretax income from continuing operations was $0.2 million versus $6.6 million last year. The primary factor contributing to the 2015 results was lower volume in Piping Systems.

TAXES - The Company's worldwide effective income tax rate from continuing operations was 713.2% and 23.6% for the nine months ended October 31, 2015 and 2014, respectively. The change in the ETR from the prior year to the current year is due to several factors. First, the domestic income is a year to date loss in 2015 while it was income in 2014, which increases the rate because the valuation allowance on the domestic deferred tax assets eliminates any tax benefit for the current period. Secondly, the favorable impact of the U.A.E. zero tax rate is diminished this year due to more of the total foreign income being earned elsewhere and taxed at a rate of 25%. The modest pre-tax profit realized year to date exaggerates the percentage impact of the Company's tax expense.

NET LOSS - Net loss was $0.9 million compared to net income of $4.8 million in the prior-year's period.

PIPING SYSTEMS - Year to date net sales decreased 10% to $92.4 million from $102.7 million in the prior-year period. The decrease was attributed to the timing of discrete projects in the Middle East and in domestic oil and gas projects.

Gross margin decreased to 21% of net sales year to date from 25% of net sales in the prior-year period. Gross profit decreased due to the lower volume in sales.

Operating expense decreased to $12.3 million from $13.0 million in the prior-year period. Operating expenses as a percent of net sales increased to 13.3% from 12.7%. The dollar decrease was due to lower management incentive compensation expense due to lower earnings in the period.

FILTRATION PRODUCTS - Year to date net sales decreased 4% to $51.7 million from $54 million in the prior-year period. Sales were negatively impacted by foreign currency fluctuations of approximately $2.0 million in addition to lower domestic filter bags sales volume. Gross profit decreased to $6.9 million from $7.3 million. The business continues to widen its geographic market coverage, expand its sales activities to increase revenue and improve its operating margin through expense controls. Startup costs for the new production facility in the U.A.E. had offset some of the cost reductions elsewhere.

Year to date operating expenses decreased to $8.2 million from $8.6 million in the prior-year period. Decreased selling expense and lower professional costs contributed to the net decrease in expenses.

MFRI, Inc.

MFRI, Inc. manufactures pre-insulated specialty piping systems for oil and gas gathering, district heating and cooling as well as other applications. The Company also manufactures custom-designed industrial filtration products to remove particulates from air and other gas streams. In total, MFRI has operations at 10 locations in six countries.

Forward-Looking Statements

Statements and other information contained in this announcement that can be identified by the use of forward-looking 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, and are subject to the safe harbors created thereby, including, without limitation, statements regarding the expected future performance and operations of the Company. 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 include, but are not limited to, the project nature of the business, the increasing international nature of the business, economic conditions, market demand and pricing, competitive and cost factors, raw material availability and prices, global interest rates, currency exchange rates, labor relations and other risk factors.

MFRI's Form 10-Q for the period ended October 31, 2015 will be accessible at www.sec.gov and www.mfri.com. For more information, visit the Company's website or contact its investor relations representative, LHA.

                         
MFRI, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)  
(In thousands, except per share data)  
   
    Three Months Ended October 31,     Nine Months Ended October 31,  
    2015     2014     2015     2014  
Net sales                                
  Piping Systems   $ 46,950     $ 26,540     $ 92,374     $ 102,683  
  Filtration Products     19,366       17,279       51,677       54,030  
    Total   $ 66,316     $ 43,819     $ 144,051     $ 156,713  
Gross profit                                
  Piping Systems   $ 14,315     $ 4,609     $ 19,796     $ 25,913  
  Filtration Products     2,656       2,112       6,876       7,342  
    Total   $ 16,971     $ 6,721     $ 26,672     $ 33,255  
Income (loss) from operations                                
  Piping Systems   $ 9,721     $ 1,096     $ 7,470     $ 12,896  
  Filtration Products     (162 )     (726 )     (1,337 )     (1,300 )
  Corporate     (2,199 )     (1,606 )     (6,048 )     (5,328 )
    Total   $ 7,360     $ (1,236 )   $ 85     $ 6,268  
                                 
Income from joint venture     408       903       524       1,114  
                                 
Interest expense, net     211       293       457       793  
Income (loss) from continuing operations before income taxes   $ 7,557     $ (626 )   $ 152     $ 6,589  
                                 
Income tax expense     1,443       11       1,084       1,553  
                                 
Income (loss) from continuing operations   $ 6,114     $ (637 )   $ (932 )   $ 5,036  
                                 
Income (loss) from discontinued operations, net of tax     --       265       --       (217 )
                                 
Net income (loss)   $ 6,114     $ (372 )   $ (932 )   $ 4,819  
                                 
Weighted average common shares outstanding                                
    Basic     7,290       7,290       7,273       7,238  
    Diluted     7,367       7,290       7,273       7,337  
                                 
Earnings (loss) per share from continuing operations                                
    Basic   $ 0.84     $ (0.09 )   $ (0.13 )   $ 0.70  
    Diluted   $ 0.83     $ (0.09 )   $ (0.13 )   $ 0.69  
Earnings (loss) per share from discontinued operations                                
    Basic and diluted     --     $ 0.04       --     $ (0.03 )
Earnings (loss) per share                                
    Basic   $ 0.84     $ (0.05 )   $ (0.13 )   $ 0.67  
    Diluted   $ 0.83     $ (0.05 )   $ (0.13 )   $ 0.66  

Note: Earnings per share calculations could be impacted by rounding.

 
 
 
MFRI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
         
(In thousands)   October 31, 2015   January 31, 2015
ASSETS   Unaudited    
Current assets            
  Cash and cash equivalents   $ 10,882   $ 10,508
  Restricted cash     433     428
  Trade accounts receivable, net     58,967     41,847
  Inventories, net     35,378     29,770
  Prepaid expenses and other current assets     8,905     5,049
    Total current assets     114,565     87,602
Property, plant and equipment, net of accumulated depreciation     39,954     41,486
Long-term assets            
  Note receivable     2,036     3,931
  Investment in joint venture     9,034     8,514
  Other assets     7,185     7,005
    Total long-term assets     18,255     19,450
Total assets   $ 172,774   $ 148,538
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities            
  Trade accounts payable   $ 22,125   $ 11,072
  Accrued liabilities, compensation, incentives, and payroll taxes     19,104     13,770
  Current maturities of long-term debt     35,049     17,033
  Other current liabilities, including customer deposits     9,941     9,875
    Total current liabilities     86,219     51,750
Long-term liabilities            
  Long-term debt, less current maturities     8,930     12,603
  Other long-term liabilities     4,982     10,662
    Total long-term liabilities     13,912     23,265
Stockholders' equity            
    Total stockholders' equity     72,643     73,523
Total liabilities and stockholders' equity   $ 172,774   $ 148,538
             
   
   
MFRI, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  
   
(In thousands)   Nine Months Ended October 31  
    2015     2014  
Operating activities                
  Net (loss) income   $ (932 )   $ 4,819  
Adjustments to reconcile net (loss) income to net cash flows (used in) provided by operating activities                
  Depreciation and amortization     4,425       4,299  
  Loss on disposal of discontinued operations     --       283  
  Deferred tax expense     479       420  
  Other, net     88       (1,912 )
Changes in operating assets and liabilities                
  Accounts receivable     (17,820 )     5,108  
  Costs and estimated earnings in excess of billings on uncompleted contracts     (589 )     (2,598 )
  Accrued compensation and payroll taxes     5,686       (3,309 )
  Other assets and liabilities     (1,124 )     (2,043 )
Net cash (used in) provided by operating activities     (9,787 )     5,067  
                 
Investing activities                
  Capital expenditures, other investing activities     (5,971 )     (4,200 )
  Payments on loan from joint venture     1,890       --  
                 
Net cash used in investing activities     (4,081 )     (4,200 )
                 
Financing activities                
  Proceeds from debt and cash surrender value     81,874       62,876  
  Payments of debt on revolving lines of credit, other     (67,451 )     (63,685 )
  Payments for repurchase of common stock     (290 )     --  
  Other financing     (137 )     1,110  
Net cash provided by financing activities     13,996       301  
                 
Effect of exchange rate changes on cash and cash equivalents     246       (147 )
Net increase in cash and cash equivalents     374       1,021  
Cash and cash equivalents - beginning of period     10,508       13,395  
Cash and cash equivalents - end of period   $ 10,882     $ 14,416