NILES, IL--(Marketwire - Sep 20, 2012) - MFRI, Inc. (
FISCAL QUARTER ENDED JULY 31, 2012
SALES - Sales were $52.3 million in the current quarter down from $64 million in the prior-year quarter. Filtration products decreased by $6 million driven primarily by reduced demand for fabric filters. Piping systems sales decreased $3.4 million driven by a decline in U.S. sales partially offset by an increase in sales in the Middle East. Corporate and other ("HVAC") decreased by $3 million, as projects in the backlog were not yet ready for us to begin our work. Industrial process cooling sales increased $700 thousand as order intake continued to improve.
GROSS PROFIT - Gross profit was $9.9 million in the current quarter down from $10.8 million in the prior-year quarter mainly due to the sales decrease in filtration products. There were significant increases in piping systems due to higher volume produced at the U.A.E. facility and industrial process cooling due to higher volume. Gross margin increased to 19% of net sales in the current quarter from 17% of net sales in the prior-year quarter.
EXPENSES - Operating expenses remained level in the quarter. Net interest expense increased $88 thousand due to less interest income earned overseas as piping systems deployed cash for the new facility in Saudi Arabia.
NET LOSS - Second quarter produced a net loss of $1.4 million, which was less than the net loss of $1.8 million in the comparable prior-year's quarter due to improvement in piping systems results.
YEAR-TO-DATE SIX MONTHS ("YTD")
SALES - YTD Sales were $105 million, down from $117.4 million in the prior-year period. Filtration products decreased $7.9 million driven primarily by reduced demand for fabric filters. Piping systems sales decreased $2.7 million driven by a decline in U.S. sales in the second quarter partially offset by an increase in sales in the Middle East. HVAC decreased by $4.5 million, as projects in the backlog were not yet ready for us to begin our work. Industrial process cooling sales increased $2.6 million as order intake continued to improve.
GROSS PROFIT - Gross profit remained level at $19 million and YTD gross margin increased to 18% from 16% in the prior-year period. Gross profit increased significantly in piping systems and industrial process cooling while filtration products gross profit decreased due to reduced volume in fabric filters.
EXPENSES - General and administrative expenses increased 7.7% to $14 million YTD from $13 million in the prior-year YTD. The increase was mainly due to $460 thousand of start-up costs for the new facility in Saudi Arabia, additional audit, tax consulting and other professional service expenses and severance expenses related to staff reductions.
TAXES - The Company's consolidated effective tax rate ("ETR") was (1.6)% and (46.4)% for the first six months in 2012 and 2011, respectively. The July 31, 2012 computation of the ETR was affected primarily by the change in the mix of the projected tax-free earnings in the U.A.E versus total projected earnings. In May 2012, the Company was granted an extension of time to file a tax election from the Commissioner, which allowed the Company to file amended income tax returns to carry back approximately $3.3 million of NOL. As a result of the increase in NOL utilization, approximately $0.8 million of research and development tax credits, which the Company established a liability for unrecognized tax benefits, were released back to the Company for future use. Accordingly, the Company recorded an increase to the liability for unrecognized tax benefits of $220 thousand discretely during the second quarter. Additionally, the Company changed its assertion from the first quarter related to the Company's ability to realize the benefit of losses incurred in early periods in a foreign jurisdiction. As a result of this change, a tax benefit of $165 thousand recorded in the first quarter was reversed in the second quarter since the annual projected earnings in Saudi Arabia were not included in the projected tax rate. In July 2011, the Company recorded a one-time $1.8 million tax expense associated with the $3.1 million repatriation of foreign earnings. These foreign earnings were previously considered to be indefinitely reinvested outside the U.S.
NET LOSS - Net loss was $3.4 million in 2012 compared to a net loss of $3.3 million in the comparable prior-year's period.
CURRENT STATUS
BACKLOG - The Company's July 31, 2012 backlog rose $9.3 million or 11% to $92.5 million, from January 31, 2012. The Company's backlog has increased steadily for the past 13 quarters; an indication of our participation in the slowly strengthening economy.
| Backlog | July 31, 2012 | January 31, 2012 | July 31, 2011 | |||||||
| Piping Systems | $ | 63,408 | $ | 53,769 | $ | 50,444 | ||||
| Filtration Products | 11,112 | 14,473 | 14,710 | |||||||
| Industrial Process Cooling | 6,502 | 6,431 | 6,263 | |||||||
| Corporate and Other | 11,501 | 8,539 | 4,177 | |||||||
| Total Backlog | $ | 92,523 | $ | 83,212 | $ | 75,594 | ||||
RECENT DEVELOPMENTS - In April 2012, the manufacturing facility in Dammam, Saudi Arabia formally opened and began shipping product. After the end of the quarter, we began negotiations for new orders in excess of $40 million for pre-insulated piping for significant projects in Saudi Arabia. We anticipate any such new work we are awarded will begin production at our Dammam factory in the fourth quarter of 2012.
In response to lower demand for fabric filters and domestic piping systems, the Company has reduced staff at both the administrative and factory levels to better match market needs. In addition, the filtration group has increased marketing activities and taken other actions to drive sales growth and improve margins.
David Unger, CEO, commented, "The continued operating losses during the second quarter of 2012 were driven by reduced revenues in filtration products and piping systems, reduced margins in filtration products and higher professional service costs. Significant improvements continue in our major business units. Piping systems and industrial process cooling improved operating profits by $537 thousand compared to 2011. We believe that international piping systems is set to return to more historic levels of profitability, because we have substantial orders for manufacture in the U.A.E. and India plants, which commenced in the second quarter. In addition to the activity mentioned above, we are quoting on several additional opportunities in the region."
Brad Mautner, President and COO, said, "Clearly, there is still a lot of uncertainty regarding continuation of the modest U.S. economic recovery. YTD net sales were down about 10% but gross profit was flat and gross margin increased by 2 points. With our current cost structure, producing additional volume in our operations should provide improved financial leverage on our assets. Backlog is up more than 22% from a year ago so we expect a stronger second half and in particular are looking forward to winning some orders in the Saudi market that could contribute to profitability this fiscal year and beyond. The pace of our ramp up in Saudi Arabia has been slower than expected. We still believe the increasing market demand for infrastructure is an important element for our continued growth in the region."
MFRI, Inc. is a multi-line company engaged in the following businesses: pre-insulated specialty piping systems for oil and gas gathering, district heating and cooling and other applications; custom designed industrial filtration products to remove particulates from dry gas streams; industrial process cooling equipment to remove heat from molding, printing and other industrial processes; and installation of heating, ventilation and air conditioning for large buildings.
Form 10-Q for the period ended July 31, 2012 will be accessible at www.sec.gov and www.mfri.com. For more information visit the Company's website or contact the Company directly.
Statements and other information contained in this announcement which can be identified by the use of forward-looking terminology such as "anticipate," "may," "will," "expect," "continue," "remain," "intend," "aim," "should," "prospects," "could," "position," "future," "potential," "believes," "plans," "likely," "seems," and "probable," or the negative thereof or other variations thereon or comparable 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. 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, 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.
This announcement may also contain certain non-GAAP financial information that management believes is helpful in understanding our business. This financial information should not be considered as an alternative to net (loss) income or any other GAAP measurement of performance.
| MFRI, INC. AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In 000's except per share data) |
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| Operating Statement Information | 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net sales | |||||||||||||||||
| Piping Systems | $ | 22,905 | $ | 26,339 | $ | 42,649 | $ | 45,366 | |||||||||
| Filtration Products | 19,276 | 25,279 | 42,252 | 50,122 | |||||||||||||
| Industrial Process Cooling | 8,895 | 8,231 | 18,026 | 15,386 | |||||||||||||
| Corporate and Other | 1,185 | 4,141 | 2,062 | 6,517 | |||||||||||||
| Total | $ | 52,261 | $ | 63,990 | $ | 104,989 | $ | 117,391 | |||||||||
| Gross profit | |||||||||||||||||
| Piping Systems | $ | 4,869 | $ | 4,631 | $ | 8,267 | $ | 7,444 | |||||||||
| Filtration Products | 2,552 | 3,537 | 5,664 | 6,849 | |||||||||||||
| Industrial Process Cooling | 2,437 | 2,226 | 4,969 | 4,171 | |||||||||||||
| Corporate and Other | 48 | 390 | 134 | 562 | |||||||||||||
| Total | $ | 9,906 | $ | 10,784 | $ | 19,034 | $ | 19,026 | |||||||||
| Income (loss) from operations | |||||||||||||||||
| Piping Systems | $ | 1,443 | $ | 927 | $ | 1,598 | $ | 704 | |||||||||
| Filtration Products | (292 | ) | 516 | (96 | ) | 1,026 | |||||||||||
| Industrial Process Cooling | 314 | 293 | 877 | 497 | |||||||||||||
| Corporate and Other | (2,136 | ) | (1,648 | ) | (4,769 | ) | (3,783 | ) | |||||||||
| Total | $ | (671 | ) | $ | 88 | $ | (2,390 | ) | $ | (1,556 | ) | ||||||
| Income (loss) from joint venture | 69 | 84 | (177 | ) | (99 | ) | |||||||||||
| Interest expense, net | 420 | 332 | 791 | 619 | |||||||||||||
| Loss before income taxes | (1,022 | ) | (160 | ) | (3,358 | ) | (2,274 | ) | |||||||||
| Income tax expense | 335 | 1,677 | 55 | 1,055 | |||||||||||||
| Net loss | $ | (1,357 | ) | $ | (1,837 | ) | $ | (3,413 | ) | $ | (3,329 | ) | |||||
| Weighted average number of common shares outstanding | |||||||||||||||||
| Basic and diluted | 6,923 | 6,863 | 6,919 | 6,859 | |||||||||||||
| Loss per share | |||||||||||||||||
| Basic and diluted | $ | (0.20 | ) | $ | (0.27 | ) | $ | (0.49 | ) | $ | (0.49 | ) | |||||
See the Company's Form 10-Q for the period for notes to financial statements.