SOURCE: MFRI

MFRI

September 09, 2014 16:05 ET

MFRI Reports 2Q 2014 Net Sales of $53.4 Million and EPS of $0.20 From Continuing Operations

Pursuing Major New Project Opportunities Worldwide

NILES, IL--(Marketwired - Sep 9, 2014) - MFRI, Inc. (NASDAQ: MFRI) announced today financial results for the second quarter ended July 31, 2014.

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,
 
    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