MFRI Announces Fourth Quarter and Full Year Financial Results

April 28, 2016

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$3.0 Million in Income from Continuing Operations Before Income Taxes for Fiscal 2015/16; $9.6 Million Invested to Advance Strategic Positioning Through Acquisition of JV Interest in Bayou Perma-Pipe Canada; Filtration Business Reclassified as Discontinued Operations; Pursuing Bidding Opportunities in Traditional and New Areas of Piping Business

NILES, IL–(Marketwired – Apr 28, 2016) – MFRI, Inc. (NASDAQ: MFRI) announced today financial results for the fourth quarter and fiscal year ended January 31, 2016.

CEO Bradley Mautner commented, Fiscal 2015/16 was a year of tremendous change for MFRI. We began planning for and then implemented a series of strategic actions to refocus MFRI’s business portfolio and cost structure. These steps included exiting our Filtration segment through the sale of our domestic and international businesses, and initiating a process to sell our domestic fabric filter business.

“The goal of our efforts is to concentrate all of our resources on expanding our Piping business segment. As part of that strategy, on February 4, 2016 we acquired full ownership of Bayou Perma-Pipe Canada (BPCC), a well-regarded coating and insulation company that we believe represents a compelling opportunity to diversify our specialty piping operations in North America. From this platform, we expect to expand our insulation business in Canada and more competitively serve the district heating and cooling market in the Northwestern U.S.

“The energy markets we serve are also in the midst of tremendous change, which impacts our piping activities in two key ways. First, the direct impact of the dramatic drop in oil and gas prices has caused many oil-related projects to be delayed or cancelled. Second, the economic impact of low oil prices has caused the postponement of many large scale chilled water infrastructure projects in the Middle East, particularly in the Kingdom of Saudi Arabia. Our piping business has always been project driven and therefore subject to wide variation in sales year-to-year and even quarter-to-quarter. We have taken appropriate cost reductions measures in general and administrative costs as well as marketing idle facilities to ensure our support costs are in line with our simplified business structure. Given the current state of the energy markets and economic conditions, it is not possible to predict when projects will be restarted, but we are better positioned today to emerge from the downturn with a strong, well-focused and streamlined business.”

Mr. Mautner continued, “Our financial results for fiscal 2015/16 reflect our new strategic positioning and the Filtration segment businesses has been reclassified to discontinued operations. Although we expected to complete the sale of the remaining domestic fabric filter business by this time, we have not yet been able to come to satisfactory terms and so are proceeding expediently with other transaction options to complete this important last step.

“As of year-end, we had generated $3.0 million in income from continuing operations before income taxes, up from $152,000 at the end of the year’s third quarter, whose results included the Filtration segment. This increase, and the rise in earnings (loss) per diluted share from continuing operations to $0.26 from ($0.19) as of October 31, 2015, reflect the execution on significant wins secured by Perma-Pipe early in fiscal 2015/16. Our net loss for the full year including discontinued operations was $4.4 million, and was driven by taking a reserve of $6.5 million related to our fabric filter business.

“As a result of selling the pleated filter business in the U.S., Europe and the United Arab Emirates (“U.A.E”) and other favorable contributors to cash flow, we improved the Company’s cash positons by $7.6 million and reduced our overall debt balance by $19.7 million compared to the end of the third quarter. As previously noted, in early February we invested $9.6 million in cash and debt to advance our strategic repositioning through the acquisition of 100% ownership of BPCC, a joint venture in which we had previously owned 49%. We have re-named the entity Perma-Pipe Canada.”

Mr. Mautner concluded, “Our backlog as of January 31, 2016 was almost 60% higher than at the prior year-end, reflecting Perma-Pipe’s wins in the first half of fiscal 2015/16. However, the turbulence in the energy markets and resulting slowdown in activity have led to a reduction in backlog since October 31, 2015. We are aggressively working to offset the impact of the slow markets by expanding the scope of activities we perform, particularly in the Middle East and Canada. For example, Perma-Pipe Canada has been pursing promising opportunities in the insulation and anti-corrosion markets. In both the Middle East and Canada, we are also continuing to quote on projects in our traditional business areas such as chilled water distribution, pipe spool fabrication and oil & gas transportation and gathering. Although we expect fiscal 2016/17 to be a challenging year, we look forward to moving ahead with our Company’s full focus squarely placed on a single segment.”


  January 31, October 31, January 31,
Backlog ($ in thousands): 2016 2015 2015
Piping Systems $47,937 $65,254 $30,715

During fiscal 2015/16, the Company sold certain assets and liabilities of its TDC Filter business based in Bolingbrook, Illinois and its Nordic Air Filtration, Denmark and Nordic Air Filtration, Middle East businesses. For both 2015 and 2016 the Filtration segment businesses, including the domestic fabric filter business based in Winchester, Virginia, have been reclassified as discontinued operations in the Company’s consolidated financial statements. In addition, the Company has revised the prior year’s comparative numbers for continuing operations based on reserve adjustments for excess inventory in previous years in light of the significant drop in pipe demand for projects in the Middle East. With the exception of the net loss and per share figures, the following financial review of results for the fourth quarter and fiscal year ended January 31, 2016 pertain to the Company’s continuing operations.


SALES – Net sales were $122.7 million in 2015, a decrease of 3% from $126.9 million in 2014. This $4.2 million decrease compared to the prior year was due to lower volume in domestic oil and gas projects and lower volume in Saudi Arabia due to a slower pace of new projects based on the decline in the price of oil.

GROSS PROFIT – Gross profit decreased 13% to $26.7 million in 2015 from $30.8 million in 2014 due to lower volume. Gross margin decreased to 22% of net sales from 24% of net sales in the prior year. Gross profit decreased due to the lower volume. An excess inventory reserve adjustment of $0.4 million was recorded at January 31, 2016 due to market condition changes.

EXPENSES – Operating expenses decreased 4.3% to $23.9 million from $24.9 million due to general and administrative expense reductions and lower management incentive partially offset by an increase in stock compensation expense and professional service expenses. These decreases were partially offset by an increase in stock compensation expense and professional fees. Operating expenses as a percent of net sales decreased to 19.4% from 19.6%.

PRETAX INCOME FROM CONTINUING OPERATIONS – Pretax income from continuing operations was $3.0 million versus $7.3 million in the prior year. A primary factor contributing to the 2015 results included lower volume in the Middle East.

TAXES – The Company’s worldwide effective income tax rates on continuing operations for 2015 and 2014 were 45.7% and 41.9%, respectively. The 2015 effective income tax rate was higher than the statutory U.S. federal income tax rate, mainly due to the impact of the full valuation allowance maintained against domestic deferred tax assets and the recognition of foreign earnings resulting from the dispositions of certain foreign operations.

NET LOSS – Net loss was $4.4 million in 2015 compared to $0.2 million in 2014. Loss from discontinued operations net of tax was $6.0 million and $4.4 million for January 31, 2016 and 2015, respectively.


SALES – Net sales increased 25.1% to $30.3 million from $24.2 million in the prior-year quarter. Sales increase was attributable to the timing of large projects in the U.S. and Saudi Arabia.

GROSS PROFIT – Gross profit increased 42.9% to $6.9 million from $4.9 million in the prior-year quarter due to the sales volume and margin increase in some large projects being completed in the U.S.

EXPENSES – Operating expenses totaled $5.5 million, or 18.1% of net sales, compared to $6.6 million, or 27.2%, in the prior-year quarter mainly due to a decrease in professional services, reduced general and administrative staffing and lower management incentive compensation expense.

PRETAX INCOME (LOSS) FROM CONTINUING OPERATIONS – Pretax income from continuing operations was $1.3 million versus a loss of $0.9 million in the prior year.

MFRI, Inc.
MFRI, Inc. is a global leader in pre-insulated piping and leak detection systems for oil and gas gathering, district heating and cooling, and other applications. It uses its extensive engineering and fabrication expertise to develop piping solutions that solve complex challenges regarding the safe and efficient transportation of many types of liquids. In total, MFRI has operations at seven locations in four 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-K for the period ended January 31, 2016 will be accessible at and For more information, visit the Company’s website or contact its investor relations representative, LHA.

(In thousands, except per share data)

  Three Months Ended
January 31,
    Year Ended
January 31,
  2016     2015     2016     2015  
Net sales $ 30,322     $ 24,240     $ 122,696     $ 126,923  
Cost of sales   23,377       19,379       95,955       96,149  
  Gross profit   6,945       4,861       26,741       30,774  
Operating expenses:                              
  General and administrative expense   4,445       3,525       18,869       19,202  
  Selling expense $ 1,043     $ 3,058       4,994       5,725  
Total operating expenses   5,488       6,583       23,863       24,927  
Income (loss) from operations   1,457       (1,722 )     2,878       5,847  
Income from joint venture   78       846       602       1,960  
Interest expense, net   246       (26 )     470       519  
Income (loss) from continuing operations before income taxes   1,289       (850 )     3,010       7,288  
Income tax (benefit) expense   (657 )     549       1,375       3,051  
Income (loss) from continuing operations   1,946       (1,399 )     1,635       4,237  
Loss from discontinued operations, net of tax   (5,422 )     (3,600 )     (6,044 )     (4,418 )
Net loss $ (3,476 )   $ (4,999 )   $ (4,409 )   $ (181 )
Weighted average common shares outstanding                              
  Basic   7,300       7,291       7,280       7,251  
  Diluted   7,392       7,291       7,371       7,324  
Earnings (loss) per share from continuing operations                              
  Basic $ 0.27     $ (0.19 )   $ 0.22     $ 0.58  
  Diluted $ 0.26     $ (0.19 )   $ 0.22     $ 0.58  
Loss per share from discontinued operations                              
  Basic and diluted $ (0.74 )   $ (0.49 )   $ (0.83 )   $ (0.61 )
Loss per share                              
  Basic and diluted $ (0.48 )   $ (0.69 )   $ (0.61 )   $ (0.02 )
    Note: Earnings per share calculations could be impacted by rounding.


(In thousands) January 31, 2016   January 31, 2015
Current assets          
  Cash, cash equivalents $ 16,631   $ 9,900
  Restricted cash   2,324     428
  Trade accounts receivable, net   36,090     34,332
  Inventories, net   15,625     13,685
  Prepaid expenses and other current assets   26,378     51,359
    Total current assets   97,048     109,704
Property, plant and equipment, net of accumulated depreciation   25,400     24,165
Long-term assets          
  Note receivable   1,905     3,931
  Investment in joint venture   9,112     8,514
  Other assets   4,658     1,760
    Total long-term assets   15,675     14,205
Total assets $ 138,123   $ 148,074
Current liabilities          
  Trade accounts payable $ 11,026   $ 6,933
  Accrued liabilities, compensation, incentives, and payroll taxes   15,575     10,962
  Current maturities of long-term debt   14,006     4,817
  Other current liabilities, including customer deposits   26,109     42,714
    Total current liabilities   66,716     65,426
Long-term liabilities          
  Long-term debt, less current maturities   1,493     2,355
  Other long-term liabilities   886     7,493
    Total long-term liabilities   2,379     9,848
Stockholders’ equity          
    Total stockholders’ equity   69,028     72,800
Total liabilities and stockholders’ equity $ 138,123   $ 148,074


(In thousands) Twelve months ended
January 31,
  2016     2015  
Operating activities              
  Net income $ (4,409 )   $ (181 )
Adjustments to reconcile net income to net cash flows used in operating activities              
  Depreciation and amortization   5,929       5,897  
  Gain on disposal of discontinued operations   (8,099 )     (188 )
  Deferred tax expense   (249 )     1,231  
  Other, net   6,404       (2,078 )
Changes in operating assets and liabilities              
  Accounts receivable   (2,809 )     3,314  
  Costs and estimated earnings in excess of billings on uncompleted contracts   (1,268 )     (765 )
  Accrued compensation and payroll taxes   299       (3,055 )
  Other assets and liabilities   1,305       (677 )
Net cash provided by operating activities   (2,897 )     3,498  
Investing activities              
  Net proceeds from sale of discontinued operations   16,373       109  
  Capital expenditures   (6,457 )     (5,878 )
  Proceeds from sales of property and equipment   2,059       24  
  Payments from joint venture   1,890        
Net cash (used in) provided by investing activities   13,865       (5,745 )
Financing activities              
  Proceeds from debt   108,470       85,931  
  Payments of debt on revolving lines of credit, other   (110,836 )     (87,495 )
  Other financing   (659 )     1,018  
Net cash used in financing activities   (3,025 )     (546 )
Effect of exchange rate changes on cash and cash equivalents   (1,212 )     (702 )
Net (decrease) increase in cash and cash equivalents   6,731       (3,495 )
Cash and cash equivalents – beginning of period   9,900       13,395  
Cash and cash equivalents – end of period $ 16,631     $ 9,900  
Category: General