Perma-Pipe International Holdings, Inc. Revenue Disclosure

Note 4 - Revenue recognition 

 

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

 

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)

Specialty Piping Systems and Coating - which include all bundled products in which Perma-Pipe engineers, and manufactures pre-insulated specialty piping systems mainly relating to the district heating and cooling and energy & industrial markets.

 

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, which has no alternative future use, and there is a right to payment for work performed to date plus profit margin.

 

Products revenue is recognized at a point in time when control of the promised goods is transferred to the customer, generally upon shipment, or as services are performed (ASC 606-10-25-30).

 

 

A breakdown of the Company's revenues by revenue class for the years ended January 31, 2026 and 2025 is as follows.

 

		2025								2024
		Sales				% to Total				Sales				% to Total
Products		$	15,777				7	%		$	14,112				9	%
Specialty Piping Systems and Coating
Revenue recognized under input method			52,210				25	%			45,606				29	%
Revenue recognized under output method			142,938				68	%			98,666				62	%
Total		$	210,925				100	%		$	158,384				100	%

 

The input method is used by certain operating entities to measure revenue by the costs incurred to date relative to the total estimated costs to satisfy the performance obligation. Generally, these contracts are considered a single performance obligation satisfied over time. Due to the custom nature of the goods and services, the Company believes this method is the most faithful depiction of the transfer of goods and services to the customer as it measures the value of the work performed. Costs include all material, labor, and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when a project's costs are initially incurred. Estimates of total contract costs are reviewed and revised periodically as work progresses.

 

The output method is used by all other operating entities to measure revenue by the direct measurement of the value of goods or services transferred to date relative to the remaining goods promised under the contract. Due to the requirements of certain customers, these contracts often require formal inspection protocols or specific export documentation for units produced. Therefore, the output method is the most faithful depiction of the Company’s performance. Depending on the terms of the contract, revenue may be recognized upon the transfer of control, which may occur when units are produced, inspected, and held by the Company at the customer’s request, or when units are 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. These amounts are recorded as contract liabilities on the Consolidated Balance Sheets until the performance obligation is satisfied.

 

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 become known. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses are determined.

 

The transaction price associated with the Company's contracts with customers is generally determined based on the fixed amount of consideration as specified in a contract that is generally not subject to change. Additionally, from time to time the transaction price may also include variable consideration in certain instances where it is deemed probable that a significant reversal of cumulative revenue recognized will not occur. The aggregate of these amounts represents the total transaction price, which excludes amounts that are attributable to sales and value added taxes, or amounts collected on behalf of third parties. The total transaction price is allocated to the performance obligations and recognized as revenue based on the project type and the method used to measure the transfer of promised goods and services to customers. Transaction prices relating to cost-plus contracts are determined by applying the applicable profit margin to costs incurred, whereas transaction prices relating to fixed-price contracts are determined on a lump-sum basis. Standard payment terms are generally net 30 to 60 days, which are customer-specific. 

 

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 and estimated earnings 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. In addition, contract assets include receivables or amounts that are billable based on milestones or conditions beyond the mere passage of time. For additional information, see Note 3 - Retention, in the Notes to Consolidated Financial Statements, and Unbilled accounts receivable, as further described below. 

 

The Company anticipates that substantially all costs incurred on uncompleted contracts as of  January 31, 2026 will be billed and collected within one year.

 

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

 

		2025				2024
Costs incurred on uncompleted contracts		$	17,562			$	11,621
Estimated earnings			12,721				9,366
Earned revenue			30,283				20,987
Less billings to date			27,784				19,302
Costs in excess of billings, net		$	2,499			$	1,685
Balance sheet classification
Contract assets: Costs and estimated earnings in excess of billings on uncompleted contracts		$	4,652			$	2,934
Contract liabilities: Billings in excess of costs and estimated earnings on uncompleted contracts			(2,153	)			(1,249	)
Costs in excess of billings, net		$	2,499			$	1,685

 

Substantially all of the $1.2 million and $0.5 million contract liabilities balances at  January 31, 2025 and 2024, respectively, were recognized in revenues during 2025 and 2024, respectively.

 

Unbilled accounts receivable

 

The Company has recorded $28.8 million and $18.9 million of unbilled accounts receivable on the Consolidated Balance Sheets as of  January 31, 2026 and 2025, respectively, from revenues generated by certain of its subsidiaries. In these instances, 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 the Company has an unconditional right to payment; however, billings will be made once the customer takes possession of or arranges shipping for the products. The Company anticipates that substantially all of the amounts included in unbilled accounts receivable as of  January 31, 2026 will be billed within one year. 

 

Practical expedients

 

Costs to obtain a contract are not considered to be incremental or material, and project duration generally does not span more than one year. Accordingly, the Company applies a practical expedient for these types of costs and as such, they are expensed in the period incurred. 

 

As a result of the Company's contracts having an expected duration of less than one year, a practical expedient was applied 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.