PPIH's Q2 Earnings Down Y/Y, Sales Rise on Strong Middle East Demand

Core Viewpoint - Perma-Pipe International Holdings, Inc. (PPIH) has experienced a significant decline in share price, underperforming compared to the S&P 500 index, following its earnings report for the quarter ended July 31, 2025 [1] Financial Performance - For the fiscal second quarter ended July 31, 2025, Perma-Pipe reported earnings per share of 10 cents, down from 40 cents in the prior-year quarter [2] - Net sales increased by 27.7% to $47.9 million from $37.5 million in the same period last year, driven by stronger sales volumes in the Middle East and North America [2] - Net income attributable to common stock fell sharply to $0.9 million, a decline of approximately 74% from $3.3 million in the year-ago quarter, primarily due to increased general and administrative (G&A) expenses [3] - On a non-GAAP basis, adjusted income before tax was $4.9 million, slightly below the $5.6 million posted a year earlier, indicating steady core operating performance when normalized for extraordinary items [4] Business Metrics and Cost Pressures - G&A expenses surged to $10 million from $6 million, a 66.7% increase, largely due to elevated payroll and professional fees, including a one-time $2.1 million charge related to executive compensation [5] - Selling expenses declined slightly to $1.2 million from $1.4 million, while interest costs remained stable at $0.4 million [5] - The effective tax rate for the quarter increased significantly to 54% from 23% in the year-ago period, influenced by the jurisdictional income mix and tax deduction limitations [6] Management Commentary - President and CEO Saleh Sagr highlighted strong top-line momentum and profitability pressures, noting growth in core markets and strategic investments, including a new manufacturing facility in Qatar [7] Factors Behind Financial Performance - Revenue growth was attributed to higher sales volumes in key geographies, particularly the Middle East and North America, while profitability was affected by internal cost structures and transitional events, including executive leadership changes [8] Infrastructure and Future Outlook - The company invested in infrastructure expansion with capital allocated to the Qatar facility, which is expected to contribute to future growth but adds pressure on current expenses [9] - As of July 31, 2025, the company's backlog reached $157.8 million, up 14.3% from $138.1 million at the beginning of the year, indicating strong demand and future revenue visibility [11] Regulatory Developments - Perma-Pipe changed its filer status with the SEC to "accelerated filer," transitioning from "Smaller Reporting Company," which will require adherence to stricter reporting timelines and enhanced disclosure requirements starting with its fiscal year ending January 31, 2026 [10]