Note 4 - Revenue Recognition

9 Months Ended

Oct. 31, 2022

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note 4 - Revenue recognition 

The Company accounts for its revenues under ASC Topic 606, "Revenue from Contracts with Customers" ("Topic 606").

Revenue from contracts with customers:

The Company defines a contract as an agreement that has approval and commitment from both parties, defined rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability is reasonably assured.

The Company’s standard revenue transactions are classified into two main categories:

1) Systems and Coating - which include all bundled products in which PPIH engineers and manufactures pre-insulated specialty piping systems, insulates subsea flowline pipe, subsea oil production equipment, and land-lines. Additionally, this systems classification includes coating applied to pipes and structures. 

2) Products - which include cables, leak detection products, heat trace products, material/goods not bundled with piping or flowline systems, and field services not bundled into a project contract.

In accordance with ASC 606-10-25-27 through 29, the Company recognizes specialty piping and coating systems revenue over time as the manufacturing process progresses because one of the following conditions exist:

1) the customer owns the material that is being insulated or coated, so the customer controls the asset and thus the work-in-process; or

2) the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured as evidenced by the Company’s right to payment for work performed to date plus seller’s profit margin for products that have no alternative use for the Company.

 Products revenue is recognized when goods are shipped or services are performed (ASC 606-10-25-30).

A breakdown of the Company's revenues by revenue class for the three and nine months ended October 31, 2022 and 2021 are as follows (in thousands):

	Three Months Ended October 31,										Nine Months Ended October 31,
	2022					2021					2022					2021
	Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total
Products	$	4,363		12	%	$	3,340		10	%	$	11,144		10	%	$	10,475		11	%
Specialty Piping Systems and Coating
Revenue recognized under input method		12,593		33	%		9,166		26	%		35,918		34	%		33,118		33	%
Revenue recognized under output method		20,947		55	%		22,693		64	%		59,066		56	%		55,833		56	%
Total	$	37,903		100	%	$	35,199		100	%	$	106,128		100	%	$	99,426		100	%

The input method, as noted in ASC 606-10-55-20, is used by the U.S. operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract over time. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the input method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer. Costs include all material, labor and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when project costs are incurred. 

The output method, as noted in ASC 606-10-55-17, is used by all other operating entities to measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract. Due to the types of end customers, generally these contracts require formal inspection protocols or specific export documentation for units produced, or produced and shipped, therefore, the output method is the most faithful depiction of the Company’s performance. Depending on the conditions of the contract, revenue may be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped. 

Some of the Company’s operating entities invoice and collect milestones or other contractual obligations prior to the transfer of goods and services, but do not recognize revenue until the performance obligations are satisfied under the methods discussed above. 

Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract and revenue is recognized using the modified contract value. Contract modifications that occur during the manufacturing process (changes in scope of work, job performance, material costs, and/or final contract settlements) are recognized in the period in which the revisions are known. Provisions for losses on uncompleted contracts are made in contract liabilities account in the period such losses are identified.

Contract assets and liabilities:

Contract assets represent revenue recognized in excess of amounts billed for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities represent billings in excess of costs for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impact the period end balances in these accounts.

The Company anticipates that substantially all costs incurred for uncompleted contracts as of  October 31, 2022 will be billed and collected within one year.

The following table shows the reconciliation of the cost in excess of billings: 

(In thousands)	October 31, 2022			January 31, 2022
Costs incurred on uncompleted contracts	$	17,901		$	20,021
Estimated earnings		9,209			12,030
Earned revenue		27,110			32,051
Less billings to date		22,991			31,019
Costs in excess of billings, net	$	4,119		$	1,032
Balance sheet classification
Contract assets: Costs and estimated earnings in excess of billings on uncompleted contracts	$	5,381		$	2,309
Contract liabilities: Billings in excess of costs and estimated earnings on uncompleted contracts		(1,262	)		(1,277	)
Costs in excess of billings, net	$	4,119		$	1,032

Substantially all of the $0.8 million contract liabilities balance as of January 31, 2021 was recognized in revenues during 2021 and substantially all of the $1.3 million contract liabilities balance as of January 31, 2022 is expected to be recognized in revenues during 2022.

Unbilled accounts receivable:

The Company has recorded $8.7 million and $2.7 million of unbilled accounts receivable on the consolidated balance sheets as of October 31, 2022 and January 31, 2022, respectively, from revenues generated by its subsidiaries in the Middle East, North Africa and India. The Company has fulfilled all performance obligations and has recorded revenue under the respective contracts. The deliverables under these contracts have been accepted by the customer and await customer to pick up or arrange shipping for the product before billing can be made. All of the amounts included in unbilled accounts receivable as of  October 31, 2022 are expected to be billed before January 31, 2023.

Practical expedients:

Costs to obtain a contract are not considered project costs as they are not usually incremental, nor does job duration span more than one year. The Company applies the practical expedient for these types of costs and as such are expensed in the period incurred.

As the Company's contracts are less than one year, the Company has applied the practical expedient regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.