NILES, IL--(Marketwired - Sep 9, 2014) - MFRI, Inc. (
President and CEO Bradley Mautner commented, "We turned in another profitable quarter, although our year-over-year comparisons were unfavorably impacted by our record results in 2013, when we shipped a large volume of products for various Piping Systems projects in the Middle East. The sizable quarter-over-quarter variation reflects the nature of our project-based Piping Systems business. For the first six months of 2014, however, our sales were virtually even with last year's.
"Since beginning full-scale production in our Saudi manufacturing facility, we have completed approximately $130 million of major project work in the Middle East. We believe the successful delivery of these projects has helped position us for new business opportunities worldwide and we are actively working to win new large-scale projects, which we define as $10 million and above. In fact we have identified many target opportunities that we believe are likely to proceed over the next five years which range in size and scope from a few million dollars to more than $30 million. The historically large number and size of the opportunities illustrate the level of anticipated infrastructure development taking place around the globe.
"Although it is not possible to determine which opportunities will actually transition to orders or when, our deep engineering knowledge in above and below ground insulated piping systems is a valuable asset for each opportunity. Our goal is to win our share of these projects and build a sizable backlog that will benefit MFRI in the years to come. As I have noted before, the process does take time, perhaps years for some jobs, but in the interim we are supporting the complex project development process with engineering efforts and suggesting design solutions to best fit the wide variety of applications. It should also be noted that we are entering the third quarter with a relatively low backlog position so we expect the Company's results for the second half of fiscal 2014 to be much lower than in the first half of the year.
"In July we announced a joint venture agreement with Tayrona Steel Pipe to establish a pipeline insulation facility in Colombia. As Latin America's fourth largest oil producer and with a strong economy, Colombia offers an excellent starting point for our entry into the region. Our Perma-Pipe subsidiary is preparing to ship equipment to the facility in preparation for initial production targeted for later this year.
"More recently, in an example of successful product development, Perma-Pipe Oil and Gas was awarded an order to insulate subsea equipment using material designed for higher temperature ranges than previously provided by us. We expect the order to be fulfilled this fall."
Mr. Mautner continued, "Turning to our Filtration Products segment, sales rose 13% in the second quarter to $19.6 million due to delivery of a portion of a large, outstanding order from an original equipment manufacturer ("OEM"). The segment's results this quarter reflect the lower gross margin of OEM orders, as well as higher one-time expenses due to new product implementation costs as we work with customers on the delivery of new high-efficiency filtration solutions. We are moving ahead with a new manufacturing facility in the United Arab Emirates (U.A.E.) to better position us to serve the region's growing gas turbine power generation market and, over time, the industrial dust collection market."
Mr. Mautner concluded, "Our balance sheet is strong, providing an excellent foundation to execute on the many opportunities we believe exist in our businesses."
BACKLOG
The Company's backlog decreased by 28%, or $23.4 million, from January 31, 2014. This decrease primarily reflects the delivery of large-scale Piping Systems projects in Saudi Arabia and the U.A.E. MFRI's Piping Systems business is impacted by large, discrete projects so revenues can vary significantly in both geographies and reporting periods, and fiscal 2013 and the first half of fiscal 2014 were very active periods. As noted above, the Company is pursuing a wide variety of new Piping Systems and also Filtration opportunities worldwide, but there can be no assurance regarding the Company's success in winning such projects and any projects won will not likely become shipments until 2015 or beyond.
| Backlog ($ in thousands): | 7/31/2014 | 1/31/2014 | 7/31/2013 | ||||||
| Piping Systems | $ | 40,080 | $ | 60,555 | $ | 100,692 | |||
| Filtration Products | 20,022 | 22,938 | 19,538 | ||||||
| Total | $ | 60,102 | $ | 83,493 | $ | 120,230 | |||
THREE MONTHS ENDED JULY 31, 2014
SALES - Net sales decreased 12% to $53.4 million in the current quarter, from $60.8 million in the prior-year quarter. Filtration Products sales increased 13% or by $2.3 million, due to a large domestic OEM order. Piping Systems sales decreased 22% or $9.7 million compared to the prior-year quarter due to lower volume in Saudi Arabia and the U.A.E. offset in part by an increase in domestic oil and gas projects.
GROSS PROFIT - Gross profit decreased to $10.5 million in the current quarter from $13.4 million in the prior-year quarter, mainly due to the sales volume decrease in Piping Systems. Filtration Products' gross profit decreased by $0.1 million compared to the prior-year quarter due to customer mix.
EXPENSES - Operating expenses remained constant. Operating expenses as a percent of net sales increased to 16.4% from 14.2%.
NET INCOME - Second quarter net income was $1.4 million compared to $4.4 million in the prior-year quarter. The decrease was due to the lower sales volume and margin in Piping Systems and lower margin in Filtration Products.
SIX MONTHS ENDED JULY 31, 2014
SALES - Year to date net sales decreased 2% to $112.9 million from $115.5 million for the prior-year YTD. Filtration Products sales increased 2% due to a large domestic OEM order. Piping Systems sales decreased 4% or $3.4 million compared to the prior-year period due to lower volume in Saudi Arabia and the U.A.E. offset in part by an increase in domestic oil and gas projects.
GROSS PROFIT - Gross profit increased to $26.5 million from $26.2 million in the prior-year period.
EXPENSES - Operating expenses remained constant. Operating expenses as a percent of net sales increased to 16.9% from 16.3%.
PRE TAX INCOME FROM CONTINUING OPERATIONS - Pretax income from continuing operations was $7.2 million versus $6.0 million last year. Factors contributing to the improvement in results were an 80 basis point increase in gross margin, profitable performance by our Canadian joint venture and lower interest expense.
TAXES - The Company's consolidated effective tax rate from continuing operations was 21.4% for the six months ended July 31, 2014, compared to a negative tax rate in the prior year, which was affected by income earned overseas in lower tax jurisdictions and the impact of the full valuation allowance maintained against domestic deferred tax assets.
AFTER TAX INCOME FROM CONTINUING OPERATIONS AND NET INCOME - Income from continuing operations was $5.7 million compared to $6.2 million in the prior-year's period. Net Income was lower than the prior year by $10.3 million due to the prior-year gain from the sale of most of Thermal Care's domestic assets and the effects from other discontinued operations.
PIPING SYSTEMS - Net sales decreased 22% to $33.8 million in the current quarter from $43.5 million in the prior-year quarter. The decrease was attributed to lower volume in the Middle East offset by an increase in domestic oil and gas projects.
Gross margin decreased to 23% of net sales in the current quarter from 24% of net sales in the prior-year quarter. Gross profit decreased due to the lower volume in the Middle East. Operating expenses were constant.
FILTRATION PRODUCTS - Net sales increased 13% to $19.6 million in the current quarter from $17.3 million in the prior-year quarter. Sales rose due to a large domestic OEM order. Gross profit decreased to $2.7 million from $2.8 million, due to customer mix and costs associated with the introduction of new products. The Company continues to expand its geographic market coverage and improve its margin through expense controls to strengthen this segment.
Operating expenses increased to $2.7 million in the current quarter from $2.3 million in the prior-year quarter. Increased sales staffing and additional advertising and trade shows contributed to the net increase in expense.
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 manufacturing 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 July 31, 2014 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 July 31, |
Six Months Ended July 31, |
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| 2014 | 2013 | 2014 | 2013 | |||||||||||||||
| Net sales | ||||||||||||||||||
| Piping Systems | $ | 33,789 | $ | 43,478 | $ | 76,143 | $ | 79,536 | ||||||||||
| Filtration Products | 19,581 | 17,324 | 36,751 | 35,957 | ||||||||||||||
| Total | $ | 53,370 | $ | 60,802 | $ | 112,894 | $ | 115,493 | ||||||||||
| Gross profit | ||||||||||||||||||
| Piping Systems | $ | 7,846 | $ | 10,590 | $ | 21,304 | $ | 21,034 | ||||||||||
| Filtration Products | 2,699 | 2,841 | 5,230 | 5,116 | ||||||||||||||
| Total | $ | 10,545 | $ | 13,431 | $ | 26,534 | $ | 26,150 | ||||||||||
| Income (loss) from operations | ||||||||||||||||||
| Piping Systems | $ | 3,783 | $ | 6,493 | $ | 11,800 | $ | 11,873 | ||||||||||
| Filtration Products | (30 | ) | 501 | (574 | ) | 18 | ||||||||||||
| Corporate | (1,958 | ) | (2,224 | ) | (3,722 | ) | (4,588 | ) | ||||||||||
| Total | $ | 1,795 | $ | 4,770 | $ | 7,504 | $ | 7,303 | ||||||||||
| Income (loss) from joint venture | 219 | (172 | ) | 211 | (467 | ) | ||||||||||||
| Interest expense, net | 263 | 385 | 500 | 806 | ||||||||||||||
| Income from continuing operations before income taxes | $ | 1,751 | $ | 4,213 | $ | 7,215 | $ | 6,030 | ||||||||||
| Income tax expense (benefit) | 276 | (268 | ) | 1,542 | (163 | ) | ||||||||||||
| Income from continuing operations | $ | 1,475 | $ | 4,481 | $ | 5,673 | $ | 6,193 | ||||||||||
| (Loss) income from discontinued operations, net of tax | (111 | ) | (85 | ) | (482 | ) | 9,284 | |||||||||||
| Net income | $ | 1,364 | $ | 4,396 | $ | 5,191 | $ | 15,477 | ||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||
| Basic | 7,248 | 6,985 | 7,212 | 6,958 | ||||||||||||||
| Diluted | 7,386 | 7,054 | 7,350 | 6,985 | ||||||||||||||
| Earnings per share from continuing operations | ||||||||||||||||||
| Basic | $ | 0.20 | $ | 0.64 | $ | 0.79 | $ | 0.89 | ||||||||||
| Diluted | $ | 0.20 | $ | 0.63 | $ | 0.77 | $ | 0.89 | ||||||||||
| (Loss) earnings per share from discontinued operations | ||||||||||||||||||
| Basic and diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | 1.33 | |||||||
| Earnings per share | ||||||||||||||||||
| Basic | $ | 0.19 | $ | 0.63 | $ | 0.72 | $ | 2.22 | ||||||||||
| Diluted | $ | 0.18 | $ | 0.62 | $ | 0.71 | $ | 2.22 | ||||||||||
| Note: Earnings per share calculations could be impacted by rounding. | |
| MFRI, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (In thousands) | July 31, 2014 | January 31, 2014 | ||||||
| ASSETS | Unaudited | |||||||
| Current assets | ||||||||
| Cash, cash equivalents and restricted cash | $ | 15,690 | $ | 13,834 | ||||
| Trade accounts receivable, net | 44,412 | 45,659 | ||||||
| Inventories, net | 32,248 | 33,547 | ||||||
| Prepaid expenses and other current assets | 7,720 | 8,052 | ||||||
| Total current assets | 100,070 | 101,092 | ||||||
| Property, plant and equipment, net of accumulated depreciation | 42,001 | 42,541 | ||||||
| Long-term assets | ||||||||
| Note receivable | 4,589 | 4,659 | ||||||
| Investment in joint venture | 6,760 | 6,550 | ||||||
| Other assets | 6,873 | 8,427 | ||||||
| Total long-term assets | 18,222 | 19,636 | ||||||
| Total assets | $ | 160,293 | $ | 163,269 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Trade accounts payable | $ | 11,334 | $ | 15,276 | ||||
| Accrued liabilities, compensation, incentives, and payroll taxes | 11,092 | 16,329 | ||||||
| Current maturities of long-term debt | 6,079 | 8,274 | ||||||
| Other current liabilities, including customer deposits | 10,203 | 13,603 | ||||||
| Total current liabilities | 38,708 | 53,482 | ||||||
| Long-term liabilities | ||||||||
| Long-term debt, less current maturities | 30,809 | 23,469 | ||||||
| Other long-term liabilities | 9,020 | 9,680 | ||||||
| Total long-term liabilities | 39,829 | 33,149 | ||||||
| Stockholders' equity | ||||||||
| Total stockholders' equity | 81,756 | 76,638 | ||||||
| Total liabilities and stockholders' equity | $ | 160,293 | $ | 163,269 | ||||
| MFRI, INC. AND SUBSIDIARIES | |||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |||||||||
| (In thousands) | Six Months Ended July 31, |
||||||||
| 2014 | 2013 | ||||||||
| Operating activities | |||||||||
| Net income | $ | 5,191 | $ | 15,477 | |||||
| Adjustments to reconcile net income to net cash flows used in operating activities | |||||||||
| Depreciation and amortization | 2,899 | 3,013 | |||||||
| Loss (gain) on disposal of discontinued operations | 12 | (9,762 | ) | ||||||
| Deferred tax expense | 669 | 1,835 | |||||||
| Other, net | (1,088 | ) | 223 | ||||||
| Changes in operating assets and liabilities | |||||||||
| Accounts receivable | 1,821 | (22,334 | ) | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | (3,115 | ) | (154 | ) | |||||
| Accrued compensation and payroll taxes | (5,036 | ) | 4,315 | ||||||
| Other assets and liabilities | (4,117 | ) | (4,962 | ) | |||||
| Net cash used in operating activities | (2,764 | ) | (12,349 | ) | |||||
| Investing activities | |||||||||
| Net proceeds from sale of discontinued operations | - | 16,378 | |||||||
| Capital expenditures, other investing activities | (2,351 | ) | (939 | ) | |||||
| Net cash (used in) provided by investing activities | (2,351 | ) | 15,439 | ||||||
| Financing activities | |||||||||
| Proceeds from debt | 35,309 | 58,927 | |||||||
| Payments of debt on revolving lines of credit, other | (28,375 | ) | (54,907 | ) | |||||
| Other financing | (335 | ) | (6,690 | ) | |||||
| Net cash provided by (used in) financing activities | 6,599 | (2,670 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 93 | (293 | ) | ||||||
| Net increase in cash and cash equivalents | 1,577 | 127 | |||||||
| Cash and cash equivalents - beginning of period | 13,395 | 7,035 | |||||||
| Cash and cash equivalents - end of period | $ | 14,972 | $ | 7,162 | |||||